Major Changes Proposed in Basel III over Basel I and Basel II

Better Capital Quality

One of the key elements of Basel III is the introduction of much stricter definition of capital. Better quality capital means the higher loss absorbing capacity. is in turn will mean that banks will be stronger, allowing them to better withstand periods of stress.

Capital Conservation Buffer

Another key feature of Basel III is that now banks will be required to hold a capital conservation buffer of 2.5%. The aim of asking to build conservation buffer is to ensure that banks maintain a cushion of capital that can be used to absorb losses during periods of financial and economic stress.

Counter Cyclical Buffer

This is also one of the key elements of Basel III. The countercyclical buffer has been introduced with the objective to increase capital requirements in good times and decrease the same in bad times. The buffer will slow banking activity when it overheats and will encourage lending when times are tough, i.e. in bad times. The buffer will range from 0% to 2.5%, consisting of common equity or other fully loss-absorbing capital.

Minimum Common Equity and Tier 1 Capital Requirements

The minimum requirement for common equity, the highest form of loss absorbing capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted assets. The overall Tier 1 capital requirement, consisting of not only common equity but also other qualifying financial instruments, will also increase from the current minimum of 4% to 6%. Although the minimum total capital requirement will remain at the current 8% level, yet the required total capital will increase to 10.5% when combined with the conservation buffer.

Leverage Ratio

A review of the financial crisis of 2008 has indicted that the value of many assets fell quicker than assumed from historical experience. Thus, now Basel III rules include a leverage ratio to serve as a safety net. A leverage ratio is the relative amount of capital to total assets (not risk-weighted). This aims to put a cap on swelling of leverage in the banking sector on a global basis. 3% leverage ratio of Tier 1 will be tested before a mandatory leverage ratio is introduced in January 2018.

Liquidity Ratios

Under Basel III, a framework for liquidity risk management will be created. A new liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) are to be introduced in 2015 and 2018, respectively.

Major Insurance Schemes in India

Insurance Scheme Features
Aam Admi Bima Yojana (AABY) � It is implemented via LIC.
��� s scheme is for rural landless households.
��� For the death / disability of Head of family / one earning member of the family.
��� A free add-on scholarship benefit for the children of the members of AABY is
provided under the scheme.
Janshree Bima Yojana (JBY) � It is implemented via LIC.
��� Started in 2000 and merged with Aam Admi Bima Yojana in 2012, for better
convergence.
��� Provided Life insurance protection to the rural and urban poor persons below
poverty line and marginally above the poverty line.
��� Insurance cover 30k (natural death)
� Rs.75k (accidental death/disability)
Universal Health Insurance � UHIS was started in 2003.
Scheme (UHIS) � s scheme provides health care for BPL families.
��� It covers medical expenses up to Rs.25k.
��� It covers maternity benefit also.
��� Pre-existing diseases are also covered.
Rashtriya Swasthya Bima � Started in 2007.
Yojana (RSBY) � RSBY provides smart card based cashless health insurance.
��� BPL families (up to 5 members) in unorganised sector are covered.
��� In Budget 2013, this scheme was extended to rickshaw, auto-rickshaw and taxi
drivers, sanitation workers, rag pickers and mine workers.
��� RSBY covers medical expenses up to Rs. 30k per year.
��� Premium sharing between Centre and State is 75:25; in case of North East it is
90:10.
Pravasi Bharatiya Bima � This insurance scheme is for emigrant workers.
Yojana (PBBY) � Minimum Rs.10 lakh insurance cover.
��� Applicable during employment contract period abroad.
��� For sickness, accidental death, disability while being abroad.
��� Also cover expenses for transporting dead.
��� Also for legal expenses related to employment contract dispute abroad.
��� It covers the expenses for bringing body/sick/disabled person back home.
National Agricultural NAIS is operated by Agricultural Insurance Company (AIC). To provide
Insurance Scheme (NAIS) insurance coverage and financial support to the farmers in the event of
failure of any of the notified crop as a result of natural calamities, pests and
diseases. Comprehensive risk insurance is provided to cover yield losses due to
non-preventable risks, viz., Natural Fire and Lightning; Storm, Hailstorm,
Cyclone, Typhoon, Tempest, Hurricane, Tornado, etc. Flood, Inundation and
Landslide; Drought, Dry spells; Pests/Diseases, etc.
Rajiv Gandhi Shilpi Swasthya Rajiv Gandhi Shilpi Swasthya Bima Yojana aims at financially enabling the artisans�
Bima Yojana (RGSSBY) community to access to the best of healthcare facilities in the country.� This scheme covers not only the artisans but his wife and two children also.
Provides health insurance to handicraft artisan�s family� (man, wife and two
children only).

 

Written by princy

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