Pillar I: Minimum Capital Requirement
It is set by the capital ratio which is defined as (Total Capital – (Tier I + Tier II + Tier
III)/ Credit risk + Market risk + Operational risk). Core capital consists of paid up capital,
free reserves and unallocated surplus less deduction. Tier II capital consists of debt of
less than 5 year term, loan loss reserve, revaluation reserve, investment fluctuation
reserve and redeemable preference shares. Tier II capital should not be more than 100%
of Tier I and debt part of Tier II capital may not exceed 50% of Tier I capital. Tier III
capital consists of short term debts having a maturity of at least two years. Tier III capital
should not exceed 250% of Tier I capital.
Modification
Approach (MA)
Standardized
Duration
Approach (SDA)
Basic Indicator
Approach (BIA)
The Standardized
Approach (TSA)
Advanced
Measurement
Approach (AMA)
Standardized
Approach (SA)
Internal Rating
Based Approach
(IRBF) Foundation
Capital for
Credit Risk
Capital for
Market Risk
Capital for
Operational Risk
BASEL II ACCORD
Pillar I
(Minimum Capital Requirement)
Pillar II
(Supervisory Review)
Pillar III
(Market Discipline)
Internal Rating
Based Approach
(IRBA) Advanced
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