PrepMaticExam glossary · Bank exams
Basel III norms: capital, liquidity and leverage
On this page
Basel III is a set of international banking rules issued by the Basel Committee on Banking Supervision (BCBS), which sits at the Bank for International Settlements (BIS) in Basel, Switzerland. It was agreed after the 2008 global financial crisis to make banks hold more and better-quality capital, limit excessive borrowing and keep enough liquid assets to survive a shock.
The Basel series
| Accord | Focus |
|---|---|
| Basel I (1988) | Minimum capital against credit risk |
| Basel II (2004) | Three pillars: minimum capital, supervisory review, market discipline |
| Basel III (2010 onwards) | Higher-quality capital, buffers, leverage and liquidity standards |
What Basel III adds
- Better capital. Stress on Common Equity Tier 1 (CET1), the purest form of capital, with Additional Tier 1 and Tier 2 on top.
- Capital conservation buffer (CCB). An extra cushion built in good times that can be drawn in stress.
- Countercyclical buffer. Extra capital in times of excess credit growth.
- Leverage ratio. A simple limit on total exposure compared with capital that does not rely on risk weights.
- Liquidity Coverage Ratio (LCR). Enough high-quality liquid assets to meet 30 days of stressed outflows.
- Net Stable Funding Ratio (NSFR). Stable funding for a one-year horizon.
- Higher requirements for systemically important banks.
India's approach
The RBI began implementing Basel III from 1 April 2013 and phased it in over the following years; the liquidity coverage and net stable funding norms were applied in later steps. India sets the minimum total capital ratio above the Basel minimum. As of the RBI's Basel III framework, the minimum total capital is 9% of risk-weighted assets plus a 2.5% capital conservation buffer (rbi.org.in; confirm the current Master Direction). The RBI also names domestic systemically important banks (D-SIBs) every year and asks them to hold extra capital. The calculation is shown under capital adequacy ratio.
Link to other terms
Basel liquidity standards sit alongside India's own reserve rules, the CRR and SLR.
How bank exams ask about it
Common stems: "Basel norms are issued by", "Basel III was introduced after", "which ratio measures 30-day liquidity" (LCR), "the pillars of Basel II" and "where is the BCBS headquartered". Another stem asks when the RBI began implementing Basel III in India (April 2013). Keep a short list in banking awareness, and check the RBI Grade B scope in the RBI Grade B guide.
Frequently asked questions
Who enforces Basel norms in India?
The RBI. The Basel Committee only sets standards; each country's regulator decides how and when to apply them.
Does Basel III apply to NBFCs?
Not in the same form. The RBI applies its own rules to NBFCs, which tighten as they grow.
Know which section is costing you the cut-off
Take a free bank-exam assessment on PrepMatic. It shows where you stand in Quant, Reasoning and English, then builds a daily study plan and mock tests focused on your weak subjects.
Start free assessment →Free forever plan · No credit card · 2-minute setupRelated
- Capital adequacy ratioThe capital adequacy ratio compares a bank's capital with its risk-weighted assets to show how well it absorbs losses. Formula, tiers, worked example.
- Non-performing assetsAn NPA is a loan overdue for more than 90 days. Meaning, SMA stages, substandard, doubtful and loss assets, gross vs net NPA and how banks recover.
- Cash reserve ratioCRR is the share of deposits that banks must keep with the RBI in cash. Meaning, legal basis, worked example, how it controls money supply and exam questions.
- Statutory liquidity ratioSLR is the share of deposits that banks must hold in cash, gold or government securities before lending. Meaning, legal basis, example and exam angles.
- NBFCAn NBFC is a company that lends and invests like a bank but cannot take demand deposits. Meaning, types, scale-based regulation and bank differences.
More in Bank exams
- Bank rateBank rate is the RBI's standard rate for rediscounting bills and the penalty benchmark for CRR and SLR shortfalls. Meaning, uses and how it differs from repo.
- BancassuranceBancassurance is the sale of insurance products through bank branches. Meaning, the three models, how banks earn, IRDAI and RBI rules, and exam questions.
- Call money marketThe call money market is where banks lend and borrow overnight funds without collateral. Call, notice and term money, participants, WACR and exam facts.
- Atal Pension YojanaAPY gives a guaranteed monthly pension of Rs 1,000 to Rs 5,000 from age 60 to unorganised-sector workers. Eligibility, contributions, rules, exam facts.
- CASA ratioCASA ratio is the share of current and savings account deposits in a bank's total deposits. Meaning, formula, example and why a higher CASA lowers funding cost.
- Cheque truncation systemCTS clears cheques using electronic images and data instead of moving paper. Meaning, how it works, MICR code, benefits, Positive Pay and exam facts.
- CIBIL scoreA CIBIL score is a three-digit number from 300 to 900 that shows your credit history. Meaning, bureaus, what affects it and what it means for bank jobs.
- CPI inflationCPI inflation tracks the price of a fixed basket of goods and services bought by households. Meaning, formula, who publishes it, food weight and exam facts.