In 2009, the Basel Committee on Banking Supervision (BCBS) rolled out a set of reforms in the banking sector, commonly called Basel 3 norms.  It is an international accord on banking regulation that is designed to improve the resilience of Banks and prevent a systematic breakdown in the banking sector.

Key Points

  • In accordance with the Basel 3 norms, the Reserve Bank of India has stipulated the Capital to Risk-weighted Asset Ratio (CRAR) for commercial banks in India to be 9% minimum.
  • In addition to CRAR, RBI has also mandated Banks to maintain stipulated Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) in accordance with the Basel 3 guidelines.
  • Due to Covid-19, RBI deferred the implementation of provisions made under Basel 3, to April 1, 2021.
  • Basel is the headquarters of the Bank for International Settlement (BIS).

Moody’s on LVB’s write-down of Basel III Tier 2 securities

  • Credit rating agency Moody’s has released a report stating that the write-down of Basel III Tier 2 securities by Lakshmi Vilas Bank (LVB) will be like negative credit for junior securities holders of the bank as they will lose their investment.
  • Moody’s highlighted that this write-down by LVB will be credit positive for senior creditors and depositors.
  • As per the Basel III Additional Tier 1 and Tier 2 terms and conditions, such securities should be written down before authorities step in to support a bank.
  • It is the first time that an Indian Bank has written down Basel 3 Tier 2 securities. Before this, Yes bank has written down Basel 3 Tier 1 securities.

Basel Committee on Banking Supervision (BCBS)

BCBS is a committee that was established by the central bank governors of the G-10 group for banking supervision. It was formed in the year 1974. BCBS has 45 members from 28 countries.

G-10 is a group of countries that agreed to participate in the General Arrangements to Borrow (GAB).

GAB is an agreement to provide additional funds to the International Monetary Fund.

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