Basel Norms 1 2 3 Difference: Quick Answer
Basel I (1988) set a single minimum capital of 8% of risk-weighted assets and looked mainly at credit risk. Basel II (2004) kept 8% but added market and operational risk and introduced the three pillars. Basel III (2010), written after the 2008 crisis, raised the quality and quantity of capital (CET1 4.5%, Tier 1 6%), added a 2.5% capital conservation buffer, a countercyclical buffer, a leverage ratio and two liquidity ratios (LCR and NSFR).
In India the RBI is stricter than Basel: banks must keep a minimum CRAR of 9%, CET1 of 5.5%, Tier 1 of 7% and a CCB of 2.5%, so the total requirement is 11.5%.
🔥 Key Exam Takeaway: Basel I = 1988, 8%, credit risk only. Basel II = 2004, three pillars (Minimum Capital, Supervisory Review, Market Discipline). Basel III = 2010, CET1 4.5% + CCB 2.5%, leverage ratio 3%, LCR and NSFR. RBI's version: CRAR 9%, CET1 5.5%, Tier 1 7%, CCB 2.5% (CET1 + CCB = 8%, total = 11.5%), leverage ratio 4% for D-SIBs and 3.5% for other banks. Basel III in India started on 1 April 2013 and was fully implemented on 1 October 2021.
What Are Basel Norms in Banking?
Basel norms are international banking standards issued by the Basel Committee on Banking Supervision (BCBS). The committee was set up in 1974 by the central bank governors of the G10 countries, after the collapse of Germany's Bankhaus Herstatt shook currency markets. Its secretariat sits at the Bank for International Settlements (BIS) in Basel, Switzerland, which is why the rules are called "Basel" norms.
The norms are not law by themselves. Each country's regulator turns them into its own rules. In India, the Reserve Bank of India does this, and today the capital rules for commercial banks sit in the Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025.
Key terms you must know first
| Term | Meaning |
|---|---|
| CRAR / CAR | Capital to Risk-weighted Assets Ratio = (Tier 1 + Tier 2 capital) ÷ RWAs × 100 |
| RWA | Risk-weighted assets: each loan is multiplied by a risk weight (a government bond carries less weight than an unsecured loan) |
| Tier 1 capital | "Going-concern" capital: CET1 (equity shares, reserves) + Additional Tier 1 (perpetual bonds) |
| CET1 | Common Equity Tier 1, the highest-quality capital |
| Tier 2 capital | "Gone-concern" capital: subordinated debt, certain provisions, etc. |
| CCB | Capital Conservation Buffer, extra CET1 kept for bad times |
| CCyB | Countercyclical Capital Buffer, built up when credit grows too fast |
Basel 1 2 3 Difference Table (Exam-Ready)
| Point | Basel I | Basel II | Basel III |
|---|---|---|---|
| Year issued | 1988 (Basel Capital Accord) | June 2004 (Revised Framework) | December 2010 (after the 2008 crisis) |
| Main focus | Credit risk | Credit + market + operational risk | Quality of capital, buffers, leverage and liquidity |
| Minimum total capital | 8% of RWA | 8% of RWA | 8% of RWA + 2.5% CCB = 10.5% |
| Equity requirement | Not separately fixed (Tier 1 at least half of capital) | Same as Basel I | CET1 4.5%, Tier 1 6% |
| Pillars | Single rule, no pillars | Three pillars introduced | Three pillars strengthened |
| Buffers | None | None | CCB 2.5%, CCyB 0–2.5%, extra for systemic banks |
| Leverage ratio | No | No | Yes, 3% Tier 1 to exposure |
| Liquidity rules | No | No | LCR and NSFR, both 100% |
| Weakness | One-size risk weights | Relied on bank models and credit ratings; missed liquidity risk | Complex; final parts phased in from 2023 |
| India start | April 1992 | 31 March 2008 / 31 March 2009 | 1 April 2013 (full on 1 October 2021) |
Basel I Norms (1988): Credit Risk and 8% Capital
- Issued by the BCBS in July 1988 as the Basel Capital Accord.
- Banks had to hold capital of at least 8% of risk-weighted assets.
- Only credit risk was covered at first. Assets were placed in simple risk-weight buckets such as 0%, 20%, 50% and 100%.
- A Market Risk Amendment was added in 1996.
- India: the RBI brought in capital adequacy norms in April 1992 on the lines of Basel I, following the Narasimham Committee (1991). The RBI later raised the minimum CRAR to 9%, one point above the Basel minimum, and India has kept that higher floor ever since.
Basel II Norms (2004): Three Pillars of Basel Explained
Basel II, issued in June 2004, kept the 8% minimum but measured risk more finely and added two more "pillars".
| Pillar | Name | What it does |
|---|---|---|
| Pillar 1 | Minimum Capital Requirements | Capital for credit, market and operational risk |
| Pillar 2 | Supervisory Review Process | Banks run an internal capital assessment (ICAAP); the regulator reviews it and can ask for more capital |
| Pillar 3 | Market Discipline | Banks publicly disclose their capital and risks so that markets can judge them |
Memory trick: "M-S-M" = Minimum capital, Supervisory review, Market discipline.
India: foreign banks in India and Indian banks with branches abroad moved to Basel II on 31 March 2008; all other scheduled commercial banks followed by 31 March 2009.
Basel III Norms (2010): Capital Ratios and Buffers
The 2008 global financial crisis showed that banks had too little high-quality capital, too much leverage and too little liquidity. Basel III, released in December 2010, fixed all three.
Basel III capital ratios (BIS minimum)
| Component | Basel III global minimum |
|---|---|
| CET1 | 4.5% of RWA |
| Tier 1 (CET1 + AT1) | 6% |
| Total capital (Tier 1 + Tier 2) | 8% |
| Capital Conservation Buffer (CET1) | 2.5% |
| CET1 + CCB | 7% |
| Total capital + CCB | 10.5% |
| Countercyclical Capital Buffer | 0 to 2.5%, set by each country |
| Leverage ratio | 3% (Tier 1 ÷ total exposure) |
| Liquidity Coverage Ratio (LCR) | 100%: enough high-quality liquid assets for 30 days of stress |
| Net Stable Funding Ratio (NSFR) | 100%: stable funding for a one-year horizon |
Basel III also added an extra CET1 charge for systemically important banks. The final package of reforms, agreed in December 2017 (often nicknamed "Basel IV" in the media), revised how RWAs are calculated; the BIS set 1 January 2023 as the start date for these final standards.
Basel III Norms in India: RBI Capital Requirements
The RBI's minimums are higher than the global Basel III floor. This table is taken from the RBI's 2025 Capital Adequacy Directions for commercial banks:
| Regulatory capital | RBI requirement (% of RWAs) | Basel III global |
|---|---|---|
| Minimum CET1 | 5.5 | 4.5 |
| Minimum Tier 1 | 7.0 | 6.0 |
| Maximum AT1 within Tier 1 | 1.5 | 1.5 |
| Minimum Total Capital (CRAR) | 9.0 | 8.0 |
| Maximum Tier 2 within CRAR | 2.0 | 2.0 |
| Capital Conservation Buffer (CET1) | 2.5 | 2.5 |
| CET1 + CCB | 8.0 | 7.0 |
| Total Capital + CCB | 11.5 | 10.5 |
Other India-specific Basel III rules
- Leverage ratio: minimum 4% for D-SIBs and 3.5% for other banks, effective from the quarter starting 1 October 2019.
- Countercyclical Capital Buffer: the framework exists since 5 February 2015, but it has never been activated. In its latest review on 18 May 2026, the RBI again said it is not necessary to activate CCyB.
- D-SIB surcharge (2025 list, released 2 December 2025): State Bank of India 0.80% (bucket 4), HDFC Bank 0.40% (bucket 2), ICICI Bank 0.20% (bucket 1). This extra CET1 is over and above the CCB.
- LCR and NSFR: both must be at least 100%.
- Timeline: Basel III capital rules began on 1 April 2013 and were fully implemented on 1 October 2021, after the last CCB tranche was deferred during COVID-19.
- Where banks stand: the RBI reported the CRAR of scheduled commercial banks at 17.4% at end-March 2025 and 17.2% at end-September 2025, well above the 11.5% requirement.
Total CET1 needed by SBI (worked example)
SBI must keep CET1 5.5% + CCB 2.5% + D-SIB 0.80% = 8.8% of RWAs as CET1. HDFC Bank needs 8.4% and ICICI Bank 8.2%.
Basel Norms Solved Examples (IBPS PO / SBI PO Pattern)
Example 1. A bank has RWAs of ₹1,000 crore, CET1 of ₹60 crore, AT1 of ₹15 crore and Tier 2 of ₹25 crore. Does it meet RBI norms?
- CET1 ratio = 60 ÷ 1,000 = 6.0% (meets 5.5% but not the 8% CET1 + CCB).
- Tier 1 = (60 + 15) ÷ 1,000 = 7.5% (meets 7%).
- CRAR = (60 + 15 + 25) ÷ 1,000 = 10% (meets 9% but not 11.5% with CCB).
So the bank meets the bare minimums but is inside its conservation buffer, and the RBI would restrict its dividend payouts until it rebuilds CET1.
Example 2. A non-D-SIB bank has Tier 1 capital of ₹350 crore and a total exposure measure of ₹10,000 crore. What is its leverage ratio, and is it compliant?
Leverage ratio = 350 ÷ 10,000 = 3.5%. It exactly meets the 3.5% floor for non-D-SIBs. If it were a D-SIB, it would need 4%.
Example 3. What is the minimum total capital (with CCB) an Indian bank needs on RWAs of ₹2,00,000 crore?
11.5% × 2,00,000 = ₹23,000 crore, of which at least 8% × 2,00,000 = ₹16,000 crore must be CET1.
Common Traps in Basel Norms Questions
- India's CRAR is 9%, not 8%. 8% is the Basel global minimum.
- With CCB, India's requirement is 11.5%, and CET1 + CCB is 8%.
- The three pillars came with Basel II, not Basel I.
- Operational risk entered with Basel II; market risk came through the 1996 amendment to Basel I.
- Leverage ratio and LCR/NSFR are Basel III tools.
- CCyB has not been activated in India even though the framework exists.
- The BCBS secretariat is in Basel at the BIS, not in Geneva or Zurich.
Basel Norms Quick Revision Table
| Fact | Value |
|---|---|
| BCBS set up | 1974, by G10 central bank governors |
| Secretariat | Bank for International Settlements, Basel, Switzerland |
| Basel I | 1988, 8% of RWA, credit risk |
| Basel II | 2004, three pillars, adds operational risk |
| Basel III | 2010, CET1 4.5%, CCB 2.5%, leverage 3%, LCR, NSFR |
| Basel III final reforms | Agreed Dec 2017, from 1 Jan 2023 |
| RBI CRAR / CET1 / Tier 1 | 9% / 5.5% / 7% |
| RBI CCB | 2.5% (total 11.5%) |
| RBI leverage ratio | 4% D-SIBs, 3.5% others |
| D-SIBs (2025 list) | SBI 0.80%, HDFC Bank 0.40%, ICICI Bank 0.20% |
| Basel III in India | From 1 April 2013, fully on 1 October 2021 |
Basel Norms MCQs with Answers
Q1. What is the minimum CRAR prescribed by the RBI for scheduled commercial banks (excluding CCB)? (a) 8% (b) 9% (c) 10.5% (d) 11.5% Answer: (b) 9%. The Basel global minimum is 8%; RBI keeps one point higher.
Q2. The three pillars of Basel norms were introduced in: (a) Basel I (b) Basel II (c) Basel III (d) The 1996 Market Risk Amendment Answer: (b) Basel II (2004).
Q3. Pillar 3 of the Basel framework deals with: (a) Minimum capital (b) Supervisory review (c) Market discipline (d) Liquidity Answer: (c) Market discipline, through public disclosure.
Q4. The Capital Conservation Buffer under RBI norms is: (a) 1.5% (b) 2% (c) 2.5% (d) 3% Answer: (c) 2.5% of RWAs, held as CET1.
Q5. The minimum CET1 ratio for Indian banks, excluding buffers, is: (a) 4.5% (b) 5.5% (c) 7% (d) 8% Answer: (b) 5.5%. With CCB it becomes 8%.
Q6. The minimum leverage ratio for D-SIBs in India is: (a) 3% (b) 3.5% (c) 4% (d) 4.5% Answer: (c) 4%. Other banks need 3.5%.
Q7. Which bank carries the highest D-SIB surcharge in the RBI's 2025 list? (a) HDFC Bank (b) ICICI Bank (c) State Bank of India (d) Bank of Baroda Answer: (c) SBI, at 0.80% of RWAs.
Q8. Liquidity Coverage Ratio requires banks to hold enough high-quality liquid assets to survive a stress period of: (a) 7 days (b) 30 days (c) 90 days (d) 1 year Answer: (b) 30 days. NSFR looks at a one-year horizon.
Q9. A bank has Tier 1 capital of ₹84 crore, Tier 2 of ₹16 crore and RWAs of ₹800 crore. Its CRAR is: (a) 10.5% (b) 11.5% (c) 12.5% (d) 13.5% Answer: (c) 12.5%. (84 + 16) ÷ 800 × 100 = 12.5%.
Q10. The Basel Committee on Banking Supervision is headquartered at: (a) Geneva (b) Basel (c) Washington DC (d) Paris Answer: (b) Basel, Switzerland, at the Bank for International Settlements.
Basel Norms FAQs
What is the difference between Basel 1, 2 and 3?
Basel I (1988) set 8% capital mainly for credit risk. Basel II (2004) added market and operational risk and the three pillars. Basel III (2010) raised capital quality, added buffers, a leverage ratio and liquidity ratios after the 2008 crisis.
What are the three pillars of Basel norms?
Pillar 1: Minimum Capital Requirements. Pillar 2: Supervisory Review Process. Pillar 3: Market Discipline.
What is the CRAR requirement in India under Basel III?
9% minimum total capital, plus a 2.5% capital conservation buffer, so 11.5% in all. CET1 must be at least 5.5% (8% with the buffer) and Tier 1 at least 7%.
When were Basel 3 norms introduced in India?
From 1 April 2013, in phases. The RBI says they were fully implemented on 1 October 2021.
Is Basel 4 implemented in India?
"Basel IV" is an informal name for the final Basel III reforms agreed in December 2017. The RBI has been aligning its capital rules with these standards; for exams, treat them as part of Basel III.
Basel norms are related to what?
Capital adequacy, risk management and liquidity of banks. They tell banks how much capital and liquid assets they must hold against the risks they take.
Related topics: revise current CRR and SLR rate 2026, banking terms A to Z, repo rate history year wise and NPA classification and provisioning norms next.
Practice Next
- Test yourself: IBPS & SBI PO Banking Awareness Mock Test 01
- Clerk level: IBPS & SBI Clerk Banking Awareness Mock Test 01
- RBI topics: IBPS & SBI Clerk RBI and Monetary Policy Mock Test 01
- Bank jobs open now: SBI Clerk Recruitment 2026 (Junior Associate) and UCO Bank Apprentice Recruitment 2026
- Related notes: Priority Sector Lending Targets, RBI Governor List 1935 to 2026, Banks Headquarters and Taglines 2026 and Ramsar Sites in India 2026 List, important committees related to banking
- More free notes: All Study Notes
Sources: Reserve Bank of India (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025 and Master Circular on Basel III Capital Regulations (1 April 2025); RBI circular on leverage ratio (28 June 2019); RBI press releases on D-SIBs (2 December 2025) and CCyB (18 May 2026); Basel Committee / BIS documents. Checked on 16 October 2026.