BASEL III CAPITAL REGULATION – A BRIEF DISCUSSION

Paper Number :WP 16/2022
Publication Date :May 1, 2022

The comprehensive RBI Master Circular on Basel III Capital Regulations, dated 1st April 2022, retains most of the guidelines covered by the previous Master Circular dated 1st July 2015. It prefers to continue with Basel II-style Standardized Approaches, for all risk categories. However, it includes the Large Exposure Framework (LEF), to dissuade banks from ever bigger loans to large borrowers. It also lowers risk weights on retail home loans (secured by residential property) and reduces the Leverage Ratio for the banking sector, relative to the Master Circular of July 2015. Such measures reduce capital requirements and spur credit growth in general, and home loans in particular. This Master Circular could have introduced Internal Liquidity Adequacy Assessment Process (ILAAP), for a more scientific approach to Liquidity Risk Management in India.