All You Need to Know About BASEL III Norms

Read about the BASEL-III Norms that banks must follow. Objective of basel-3, how will it be helpful? check details about these in the article.

| Updated On October 11th, 2020 at 06:56 pm

BASEL norms are a set of global norms, which set certain common standards for banks across the different countries of the world. BASEL III or BASEL 3 released in the month of December in the year 2010. It is the third part of the series of BASEL Accords, which deal with the banking sector’s risk management aspects. Simply put, BASEL III is the global regulatory standard on the adequacy of bank capital, in addition to stress testing and the risk of market liquidity. Its precedents, namely BASEL I and BASEL II were similar versions of BASEL III, however, they were quite less stringent. The BASEL III norms started getting implemented from March 31st, 2015 in phases. However, it would be fully implemented from March 31st, 2018 onwards. 

About Course:

"Did you Know? In this pack you will get All new content we launch in the next 3 months"

This is the most recommended and NRA-CET ready Pack!

Use Code 'DREAM' to avail at best price today

This package Includes IBPS PO Study Material -  Subscribe Now

About Bank Mahapack
If you are preparing for more than 1 Banking & Insurance exams then this is the pack we recommend you buy.

It is most cost effective and you get access to 100% digital content for Bank & Insurance exams on Adda247.

Banking & Insurance Exams Covered in this Pack

Additionally, you can crack any private bank job exam with content in this pack.


Bank & Insurance Mahapack Highlights 

  • Structured course content
  • Recorded classes available if you miss any live class
  • Previous Years’ Papers of all upcoming exams.
  • Full Length Mocks based on the latest pattern with detailed solutions (video solutions for certain topics)
  • Topic level knowledge tests
  • Strategy sessions, time management & Preparation tips from the experts


Validity: 3 Months

Note: This package is not a part of Double Validity Offer

Bank Maha Pack
  1. Unlimited Live Classes & Recorded Video Courses
  2. Unlimited Tests and eBooks
  3. 1 Lakh+ Selections
  1. 24 Months
  2. 1 Month
  3. 3 Months
6199 516/month


According to the BASEL Committee on Banking Supervision, BASEL III is a comprehensive set of reform measures, which have been developed by the committee to strengthen the regulation, supervision as well as the risk management of the banking sector across the world. This will not only help the banking sector to deal with the economic and financial stress but also eventually improve risk management as well as strengthen the transparency of the banks. 

Also Read, What is MCLR?


The measures of BASEL III have the following objectives:

  1. Improve the ability of the banking sector to absorb the changes which arise due to the financial and economic instability of the world market.
  2. Improve the banking sector’s governance as well as risk management capabilities. 
  3. To improve and strengthen the disclosures and transparency of the banks. 
Coronavirus Case Count Coronavirus Do’s & Don’ts List of Exams Postponed Timeline of India’s Response
Precautions You Should Take Govt. Jobs for Graduates Corona Relief Package Highest Paying Govt Jobs


The BASEL III norms can be helpful to banks around the world in the following ways:

  1. BASEL III will introduce a much stricter definition of capital. It will introduce a better-quality capital to banks, which will lead to the banks having a higher loss-absorbing capacity. This will not only make the banks stronger but also allow them to withstand and handle periods of stress in a much better way. 
  2. With the BASEL III norms, banks will now be required to hold a capital conservation buffer of 2.5%. This will ensure that banks maintain a buffer cushion of capital which they can use to absorb and tackle losses during times of economic and financial stress. 
  3. BASEL III also introduces the countercyclical buffer, with an aim to increase capital requirements and decrease the same in good and bad financial times respectively. A countercyclical buffer will slow all banking activities in good times, and will thereby increase lending when times are not good. This buffer will mostly range anywhere between 0 to 2.5 per cent and will include common equities or other reforms of capital which are fully loss-absorbing. 
  4. BASEL III has also raised the minimum requirement for common equity from 2 per cent to 4.5 per cent of the total risk-weighted assets. This means that the overall Tier 1 capital requirement, which consists not only of common equities but other qualifying financial instruments as well, will also increase from its minimum of 4 per cent to 6 per cent now. And even though the minimum total capital requirement will most likely remain at 8 per cent, the total required capital will increase to 10.5 per cent when it is combined with the conservation buffer. 
  5. Under BASEL III, a set framework for liquidity risk management will also be created. A new Liquidity Coverage Ratio, as well as a Net Stable Funding Ratio, were introduced in 2015 and 2018 respective. Now, as part of the macro-prudential framework, Systemically Important Financial Institutions will be created so that they have a loss-absorbing ability beyond the requirements stated in BASEL III. They will also include implementations for capital surcharges, bail-in-debt as well as contingent capital. 
  6. BASEL III norms also include a leverage ratio which will serve as a safety net to banks. This leverage ratio is the relative amount of capital to the total number of assets which are not risk-weighted. This ratio will put a cap on leverage swelling in the banking sector across the globe. 

Also Read,

What is Repo Rate ? What is PMJDY? CLR Vs SLR Coronavirus Count 


As per guidelines issued by the Reserve Bank of India, Indian banks need to implement the BASEL III norms as well. In saying so, this implementation will not be challenging only for the banks, but also for the Government of India as well. Studies suggest that Indian banks will be required to raise an amount totalling to INR 6,00,000 Crores in external capital by the end of the 2020 financial year. 

However, an expansion of capital to this limit will affect the returns on the equities of the banks in the country, especially those that are public sector. And since banks in India have to meet both the LCR as well as the Statutory Liquidity Ratio and Cash Reserve Ratio set by the RBI, they will have to set aside more money, thereby stressing their balance sheets. 

Download the PDF to Practice MCQs on BASEL Norms

You can also watch the video below for MCQ and their answers:

Practice with,

Frequently Asked Questions

Q. What is Basel 3 norms RBI?
It is an international regulatory agreement on set of reforms designed to improve the regulation, supervision and risk management with banking sector.

Q. What are the three pillars of Basel III?
Minimum Capital Requirement, Supervisory review Process and Market Discipline.

Q. Why do we need Basel III?
It is required to ensure that banks act carefully and improve their ability to deal with situations related to financial and economic stress by requiring them to maintain a much large capital base, by increasing transparency and improving liquidity.

Q. What is leverage ratio in Basel III?
It is defined as the capital measure divided by the exposure measure, expressed as a percentage.