Basel III is the global rulebook that tells banks how much capital and liquidity they must keep so that they can survive losses without collapsing. It was created after the 2008 global financial crisis. In India, the RBI applies Basel III with stricter numbers than the global minimum. This explainer keeps it simple.
Who makes the Basel rules?
Item
Details
Body
Basel Committee on Banking Supervision (BCBS)
Set up
1974
Based at
Bank for International Settlements (BIS), Basel, Switzerland
Nature
Its rules are recommendations; each country’s regulator (RBI in India) makes them binding
Basel I, II and III in one table
Accord
Year
Main idea
Basel I
1988
Minimum capital of 8% against credit risk
Basel II
2004
Added operational and market risk; introduced the three pillars
Basel III
2010 (after the 2008 crisis)
Better-quality capital, capital buffers, and new liquidity and leverage rules
The three pillars
Pillar
What it means
Pillar 1: Minimum capital requirements
Banks must hold minimum capital against credit, market and operational risk
Pillar 2: Supervisory review
The regulator checks each bank’s risks and can ask for more capital
Pillar 3: Market discipline
Banks must disclose their risks and capital publicly
Capital: what counts?
Common Equity Tier 1 (CET1): the strongest capital: paid-up equity, reserves, retained earnings.
Additional Tier 1 (AT1): perpetual bonds and similar instruments.
Tier 1 = CET1 + AT1. It absorbs losses while the bank keeps running.
Tier 2: subordinated debt and some provisions. It absorbs losses when a bank fails.
Capital ratios: global minimum vs RBI
All ratios are a % of Risk-Weighted Assets (RWAs).
Requirement
Basel III (global)
RBI norms (India)
Minimum CET1
4.5%
5.5%
Minimum Tier 1
6%
7%
Minimum total capital (CRAR)
8%
9%
Capital Conservation Buffer (CCB)
2.5%
2.5%
CET1 + CCB
7%
8%
Total capital + CCB
10.5%
11.5%
India is stricter by 1 percentage point on CET1, Tier 1 and total capital.
The buffers
Buffer
Purpose
Capital Conservation Buffer (CCB)
2.5% of RWAs in CET1, kept in good times; if a bank dips into it, it must limit dividends
Countercyclical Capital Buffer (CCyB)
0–2.5%, switched on when credit grows too fast; RBI’s framework exists but the CCyB has been kept at 0%
D-SIB surcharge
Extra CET1 for Domestic Systemically Important Banks
India’s D-SIBs:SBI, HDFC Bank and ICICI Bank (RBI’s list; the surcharge differs by bucket).
Liquidity rules
Ratio
What it checks
Minimum
Liquidity Coverage Ratio (LCR)
Enough high-quality liquid assets to survive 30 days of stressed outflows
100%
Net Stable Funding Ratio (NSFR)
Stable funding for assets over one year
100%
Leverage ratio
The leverage ratio is Tier 1 capital ÷ total exposure (not risk-weighted). It stops banks from borrowing too much.
Bank type
RBI minimum
D-SIBs
4%
Other banks
3.5%
Exam-ready one-liners
BCBS is based at the BIS in Basel, Switzerland; set up in 1974.
Basel III was framed in 2010 after the 2008 crisis.
RBI’s minimum CET1 is 5.5%, Tier 1 is 7%, total capital (CRAR) is 9%.
With the 2.5% CCB, total capital requirement in India is 11.5%.
LCR covers 30 days; NSFR covers one year; both 100%.
Leverage ratio: 4% for D-SIBs, 3.5% for other banks.