‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to :
Correct Answer:
(B)
Improve banking sector’s ability to deal with financial and economic stress and improve risk management.
The Basal Committee – initially named the Committee on Banking Regulations and Supervisory Practices – was established by the central bank Governors of the Group of Ten countries at the end of 1974 in the aftermath of serious disturbances in international currency and banking markets(notably the failure of Bankhaus Herstatt in West Germany). The Committee, headquartered at the Bank for International Settlements in Basel, was established to enhance financial stability by improving the quality of banking supervision worldwide, and to serve as a forum for regular cooperation between its member countries on banking supervisory matters. Since its inception, the Basel Committee has expanded its membership from the G10 to 45 institutions from 28 jurisdictions. Starting with the Basel Concordat, first issued in 1975 and revised several times since, the Committee has established a series of international standards for bank regulation, most notably its landmark publications of the accords on capital adequacy which are commonly known as Basel I (1988), Basel II (2004) and most recently Basel III. Basel III is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-09. The measures aim to strengthen the regulation, supervision and risk management of banks. Basel III was agreed upon by the members of the Basel Committee in November 2010, and was scheduled to be introduced from 2013 until 2015; however, implementation was extended repeatedly to 1 January 2022 and then again until 1 January 2023, in the wake of the Covid- 19 pandemic. Like all Basel Committee standards, Basel III standards are minimum requirements which apply to internationally active banks. Members are committed by implementing and applying standards in their jurisdictions within the time frame established by the Committee.
Ques:
2
Which of the following are the pillars of the Basel Norms?
1. Capital adequacy requirements
2. Supervisory review
3. Market discipline
4. Government intervention
Select the correct answer using the code given below:
Correct Answer:
(B)
1, 2 and 3 only
In June 2004, Basel II guidelines were published by BCBS. The guidelines were based on three parameters, which the committee calls it as pillars.
Capital Adequacy Requirements: Banks should maintain a minimum capital adequacy requirement of 8% of risk assets
Supervisory Review: According to this, banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that a bank faces, viz. credit, market and operational risks
Market Discipline: This need increased disclosure requirements. Banks need to mandatorily disclose their CAR, risk exposure, etc to the central bank. Basel II norms in India and overseas are yet to be fully implemented.
Ques:
3
Consider the following statements regarding Basel III norms:
Basel-III guidelines released in 2010.
RBI set the time period for implementing Basel-III from 1 April 2013 to 31 March 2019.
Under this, Banks will be required to hold a capital conservation buffer of 2%.
Which of the statements given above is/are correct?
Correct Answer:
(B)
1 and 2 only
The Basel III guidelines were released in 2010 by the Basel Committee on Banking Supervision (BCBS). These guidelines, officially known as "Basel III: A global regulatory framework for more resilient banks and banking systems," were a response to the 2007-08 financial crisis. They set a global regulatory framework to strengthen the international banking system and increase the resilience of banks.
The Reserve Bank of India (RBI) set the initial time period for implementing Basel-III from April 1, 2013, to March 31, 2019. This was the timeline for the phased implementation of the Basel-III norms in India. However, there were subsequent extensions to this timeline, allowing banks more time to build up their capital reserves and comply with the new regulations.
Under Basel-III, banks are indeed required to maintain a capital conservation buffer of 2.5% of their risk-weighted assets. This buffer, composed of Common Equity Tier 1 (CET1) capital, is designed to ensure banks have an additional layer of capital available to absorb losses during periods of stress. The total Common Equity Tier 1 requirement, including this buffer, is 7%, bringing the total capital ratio to 10.5%.
Ques:
4
‘Basel III Accord’ seeks to:
Correct Answer:
(B)
improve banking sector’s ability to deal with financial and econo-mic stress and improve risk management
Basel-III norms:
Basel III norms were issued in 2010 as a response to the financial crisis of 2008.
It aims to promote a resilient banking system by focusing on capital leverage funding and liquidity.
The capital adequacy ratio was fixed at 12.9%.
The leverage rate was fixed at 3%.
Banks’ strength was improved Liquidity Coverage Ratio and Net Stable Fund Rate.
Ques:
5
Consider the following statements regarding Basel-I norms:
All banks were required to maintain a capital adequacy ratio (CAR) of 8 %.
CAR is the minimum capital requirement of a bank and is defined as the ratio of capital to risk-weighted assets (RWA).
Which of the statements given above is/are correct?
Correct Answer:
(C)
Both 1 and 2
Basel -I Norms is also known as the Basel Capital Accord.
As per Basel-I, all banks were required to maintain a capital adequacy ratio (CAR) of 8 %.
CAR is the minimum capital requirement of a bank and is defined as the ratio of capital to risk-weighted assets (RWA).
RWA is the assets weighted or classified according to the risk (default) profile.
It also classified bank capital into Tier-I and Tier-2 Capital.
Tier 1 capital is the core capital of banks and is more permanent in nature (e.g. equity capital, disclosed reserves, etc.).
Tier 2 capital is supplementary in nature and is fluctuating in nature (e.g. undisclosed reserves, cumulative non-redeemable preference shares, etc.).
India adopted Basel -I guidelines in 1999.
Ques:
6
Consider the following statements regarding Reserve Bank of India :
It is a banker to the Central Government.
It formulates and administers monetary policy.
It acts as an agent of the Government in respect of India’s membership of IMF.
It handles the borrowing programme of Government of India.
Which of these statements are correct?
Correct Answer:
(C)
1, 2, 3 and 4
The Reserve Bank of India (RBI) is the Central Bank of India, which was established on April 1, 1935, under the RBI Act. The main functions of the RBI are – Banker to banks; Formulation and administration of monetary policy; Debt and cash management for Central and State Governments; Foreign exchange management (current and capital account management); Regulation and supervision of the banking and non-banking financial institutions including credit information companies; Management of foreign exchange reserves; Banker to the Central and State Governments; Oversight of the payment and settlement system; Currency management; Developmental role; and Research and statistics. RBI acts as an agent of the Government in respect of India’s membership in IMF.
Ques:
7
The Reserve Bank of India regulates the commercial banks in matters of :
liquidity of assets
branch expansion
merger of banks
winding-up of banks
Select the correct answer using the codes given below
Correct Answer:
(D)
1, 2, 3 and 4
Ques:
8
In India, the central bank's function as the 'lender of last resort' usually refers to which of the following?
Lending to trade and industry bodies when they fail to borrow from other sources.
Providing liquidity to the banks having a temporary crisis.
Lending to governments to finance budgetary deficits.
Select the correct answer using the code given below :
Correct Answer:
(B)
2 only
As a banker to banks, the Reserve Bank acts as the 'lender of the last resort' (LoLR). It refers to the rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when no one else is willing to extend credit to that bank. Thus, under LoLR, the RBI provides emergency money or liquidity to the bank when the latter faces financial stringency. In other words, LoLR is a financial safety net provided by the RBI to commercial banks. Hence, option (b) is the correct answer.
Ques:
9
The Reserve Bank of India has the power to print currency notes of Rupees upto :
Correct Answer:
(A)
Rs. 10,000
The Reserve Bank of India has the power to print currency notes in the denomination of up to 10,000. At present, the RBI issues the notes in the denomination of Rs. 10, Rs. 20, Rs. 50, Rs. 100, Rs. 200, and Rs. 500.
Ques:
10
Note issuing department of RBI should always possess the minimum gold stock of worth :
Correct Answer:
(B)
Rs 115 crore
The system of note issue by the Reserve Bank of India was founded on the proportional reserve system which was replaced by a system of minimum holding of foreign securities (Minimum Reserve System) of Rs. 400 crore and gold coin and bullion of Rs. 115 crore or a total of Rs. 515 crores in 1956. Under the Reserve Bank (Second Amendment) Act, 1957, the aggregate value of gold coin, gold bullion and foreign securities in the Issue Department was stipulated at not less than Rs. 200 crores at any time, of which the value of gold coin and bullion should at no time be less than Rs. 115 crores. These stipulations have not been revised since then.