Basel I
Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
Basel I was the first international accord on bank capital, agreed in 1988. The Basel Committee on Banking Supervision (BCBS) framed it. It required banks to hold capital of at least 8% of risk-weighted assets (RWA). RWA weights each loan or asset by how risky it is. Basel I covered credit risk only, meaning the risk that borrowers do not repay. It used simple risk-weight buckets from 0% to 100%. Its weakness was that it ignored market and operational risks, and its buckets were crude.
Example
India adopted Basel I in 1992, as part of the prudential norms that followed the Narasimham Committee. From 2000, RBI set a stricter minimum of 9% CRAR (capital to risk-weighted assets ratio). A bank with Rs 1,000 crore of RWA therefore needed at least Rs 90 crore of capital.
Don't confuse with
- Basel II (2004): it added market and operational risk and brought in the three pillars. Basel I dealt only with credit risk and minimum capital.
Related concepts
- Leverage
- Basel norms
- Basel II
- Three pillars of Basel
- Capital adequacy ratio
- Risk-weighted assets
- Tier 1 capital
- Common Equity Tier 1
- Additional Tier 1 capital
- Tier 2 capital