Why in News ?

The country’s largest lender State Bank of India on Monday said it has raised Rs 7,000 crore by issuing Basel III compliant.

What are Basel III compliant bonds by RBI ?

• Basel III regulations are designed to enhance the quality and quantity of capital held by banks.
• Bonds qualify as tier II capital of the bank and has face value of Rs 10 lakh each bearing coupon rate of 6.24 per cent per annum payable annually for a tenor of 10 years.
• Issuer of the bonds can call back the bonds before the maturity date by paying back the principal amount to investors.
  • There is call option after 5 years and on anniversary thereafter.
• Under the globally accepted Basel-III capital regulations, banks need to improve and strengthen their capital planning processes.

About Basel Guidelines

• Purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses.
• India has accepted Basel accords for the banking system.
• Basel I : Capital measurement system focused almost entirely on credit risk. India adopted Basel 1 guidelines in 1999.
• Basel II : The refined and reformed versions of Basel I accord. Has three parameters.
  • Capital Adequacy Requirements
  • Supervisory Review
  • Market Discipline
• Basel III : Basel III guidelines were released in 2010. To promote a more resilient banking system by focusing on four vital banking parameters capital, leverage, funding and liquidity.

Source : Economic Times

Topic

GS II : Important International institutions, agencies and fora- their structure, mandate

GS III : Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Current Affairs Compilation : 22 September 2020