🏦 Basel III — Complete Study Guide
International Banking Regulatory Framework for Capital Adequacy, Liquidity & Leverage — Comprehensive Resource for JAIIB, CAIIB, Banking, SSC, UPSC & Competitive Exams
📘 60+ MCQs
📊 Comparison Tables
🇮🇳 India-Specific
⚡ Quick Revision
🧠 Memory Tricks
📑 Table of Contents
- What is Basel III? — Introduction & Background
- Evolution Timeline — Basel I → II → III
- Basel I vs Basel II vs Basel III — Key Differences
- Three Pillars of Basel Framework
- Capital Structure — CET1, AT1, Tier 2
- Capital Requirements & Ratios
- Capital Buffers — CCB, CCyB, SIB
- Liquidity Standards — LCR & NSFR
- Leverage Ratio
- Risk Categories & Approaches
- India-Specific Requirements (RBI)
- D-SIB & G-SIB Framework
- PCA Framework & AT1 Bonds
- Advantages & Disadvantages
- Quick Revision Cheat Sheet
- 60+ Important MCQs (Chapter-wise)
1️⃣ What is Basel III? — Introduction & Background
Basel III is a comprehensive set of international banking regulations developed by the Basel Committee on Banking Supervision (BCBS), headquartered at the Bank for International Settlements (BIS) in Basel, Switzerland.
🎯 Key Purpose: Strengthen the global banking system by ensuring banks maintain adequate capital, sufficient liquidity, and controlled leverage to withstand financial and economic stress.
Why Was Basel III Introduced?
Basel III was introduced in December 2010 as a direct response to the 2008 Global Financial Crisis, which exposed critical weaknesses in the banking system:
- Banks held insufficient capital to absorb losses
- Excessive leverage (too much borrowing vs. capital)
- Poor liquidity management — banks couldn’t meet withdrawal demands
- Lack of transparency in risk disclosure
- Lehman Brothers collapse triggered global panic
📝 Exam Tip: “Basel III was introduced after the 2008 Global Financial Crisis” — this is the most frequently asked question in banking exams. Remember: Crisis → Capital → Control.
Key Facts at a Glance
2010
Year Introduced
BCBS
Issued By
BIS
Housed At
Basel
City, Switzerland
45
Member Countries
3
Key Pillars
2️⃣ Evolution Timeline — Basel I → II → III
1988 — Basel I
First international capital standard. Focused only on credit risk. Minimum capital = 8% of RWA.
2004 — Basel II
Added three pillars — included market risk & operational risk. More risk-sensitive approaches.
2008 — Global Financial Crisis
Lehman Brothers collapse. Exposed fatal weaknesses in banking regulation worldwide.
2010 — Basel III Published
BCBS releases Basel III framework with higher capital, liquidity & leverage requirements.
2013 — India Implementation Begins
RBI begins phased implementation of Basel III for Indian scheduled commercial banks.
2017 — Basel III.1 (Basel IV)
BCBS finalises reforms to address remaining gaps — revised standardised approaches for credit risk.
2020 — COVID-19 Extensions
Implementation deadlines extended globally due to pandemic-related financial stress.
2023–2025 — Full Implementation
Basel III fully implemented in India. RBI’s additional requirements (9% CRAR) fully operational.
3️⃣ Basel I vs Basel II vs Basel III — Key Differences
Basel I
1988
Only credit risk
Simple approach
No pillars
8% capital ratio
Basel II
2004
Credit + Market + Operational risk
3 Pillars framework
Risk-sensitive
8% capital ratio
Basel III
2010
Capital + Liquidity + Leverage
3 Pillars enhanced
Buffers added
10.5%+ total capital
| Feature | Basel I | Basel II | Basel III |
|---|---|---|---|
| Year | 1988 | 2004 | 2010 |
| Risk Coverage | Credit Risk only | Credit + Market + Operational | All + Liquidity + Leverage |
| Pillar System | ❌ No | ✅ 3 Pillars | ✅ 3 Pillars (enhanced) |
| Min Capital Ratio | 8% | 8% | 8% (+ buffers = 10.5%) |
| CET-1 Requirement | Not specified | Not strict | 4.5% minimum |
| Liquidity Norms | ❌ None | ❌ None | ✅ LCR & NSFR |
| Leverage Ratio | ❌ No | ❌ No | ✅ Min 3% |
| Capital Buffers | ❌ None | ❌ None | ✅ CCB + CCyB + SIB |
| Capital Quality | Basic | Improved | Highest (CET-1 focus) |
| Trigger | Need for uniformity | Need for risk sensitivity | 2008 Financial Crisis |
📝 Exam Tip: Remember — Basel I = Credit only | Basel II = 3 Pillars | Basel III = Capital + Liquidity + Leverage. Each version builds on the previous one.
4️⃣ Three Pillars of Basel Framework
The Basel framework (originally introduced in Basel II, enhanced in Basel III) is built on three pillars:
Pillar 1
Minimum Capital Requirements
Defines how much capital banks must hold against credit, market & operational risks
Pillar 2
Supervisory Review
Regulators (RBI in India) review each bank’s internal risk assessment & capital planning
Pillar 3
Market Discipline
Banks must publicly disclose risk exposure, capital adequacy & risk management info
📝 Exam Tip: Memory trick → “Pillar 1-2-3 = Capital-Supervision-Disclosure” or “CSE” = Capital, Supervision, Exposure disclosure
5️⃣ Capital Structure — CET1, AT1, Tier 2
| Type of Capital | Full Form | Quality | Components |
|---|---|---|---|
| CET-1 | Common Equity Tier 1 | 🟢 Highest quality | Equity shares + Retained earnings + Share premium |
| AT1 | Additional Tier 1 | 🟡 High quality | Perpetual non-cumulative preference shares + AT1 bonds (can convert to equity) |
| Tier 1 | Core Capital | 🟢 Going-concern capital | CET-1 + AT1 |
| Tier 2 | Supplementary Capital | 🟠 Lower quality | Subordinated debt + Revaluation reserves + General provisions |
| Total Capital | Regulatory Capital | — | Tier 1 (CET-1 + AT1) + Tier 2 |
🔑 Key Concept:
• Tier 1 = Going-concern capital → absorbs losses while bank is still operating
• Tier 2 = Gone-concern capital → absorbs losses when bank is being wound up
• CET-1 is the purest form — equity shares are permanent, cannot be recalled
• Tier 1 = Going-concern capital → absorbs losses while bank is still operating
• Tier 2 = Gone-concern capital → absorbs losses when bank is being wound up
• CET-1 is the purest form — equity shares are permanent, cannot be recalled
Total Capital = CET-1 + AT1 + Tier 2
Tier 1 = CET-1 + AT1
Tier 1 = CET-1 + AT1
6️⃣ Capital Requirements & Ratios
| Requirement | Basel III (Global) | India (RBI) |
|---|---|---|
| Minimum CET-1 | 4.5% of RWA | 5.5% of RWA ⬆️ |
| Minimum Tier 1 Capital | 6% of RWA | 7% of RWA ⬆️ |
| Minimum Total Capital (CRAR) | 8% of RWA | 9% of RWA ⬆️ |
| Capital Conservation Buffer | 2.5% | 2.5% |
| Countercyclical Buffer | 0–2.5% | 0–2.5% |
| Min Total incl. CCB | 10.5% | 11.5% ⬆️ |
⚠️ Critical Exam Point: India’s RBI requires higher capital than global Basel III minimums!
• Global CRAR = 8% → India CRAR = 9%
• Global CET-1 = 4.5% → India CET-1 = 5.5%
This is asked very frequently in JAIIB/CAIIB/Banking exams.
• Global CRAR = 8% → India CRAR = 9%
• Global CET-1 = 4.5% → India CET-1 = 5.5%
This is asked very frequently in JAIIB/CAIIB/Banking exams.
CRAR (CAR) = Total Capital (Tier 1 + Tier 2) ÷ Risk Weighted Assets (RWA) × 100
What are Risk Weighted Assets (RWA)?
Assets are assigned risk weights based on their risk level. Higher risk = higher weight = more capital required.
| Asset Type | Risk Weight | Example |
|---|---|---|
| Cash & Gold | 0% | No risk — safest |
| Government Securities | 0% | Backed by sovereign guarantee |
| Loans to Banks (AAA rated) | 20% | Low counterparty risk |
| Home Loans (up to ₹35 lakh) | 35% | Secured against property |
| Commercial Loans | 100% | Higher default risk |
| Venture Capital / Equity | 150%+ | Highest risk category |
7️⃣ Capital Buffers — CCB, CCyB, SIB Surcharge
| Buffer Type | Rate | Purpose | When Used |
|---|---|---|---|
| Capital Conservation Buffer (CCB) | 2.5% | Extra cushion to absorb losses during stress | Always maintained |
| Countercyclical Buffer (CCyB) | 0–2.5% | Protect against excessive credit growth | Activated during economic boom |
| D-SIB Surcharge | 0.2%–0.8% | Extra buffer for “Too Big to Fail” banks | For D-SIBs like SBI, ICICI, HDFC Bank |
💡 CCB vs CCyB — How to Remember:
• CCB = Always ON (permanent extra cushion) → like wearing a seatbelt always
• CCyB = Switched ON/OFF by regulator → like activating airbags only during crash risk
• If CCB is breached → Dividend/bonus restrictions on the bank
• CCB = Always ON (permanent extra cushion) → like wearing a seatbelt always
• CCyB = Switched ON/OFF by regulator → like activating airbags only during crash risk
• If CCB is breached → Dividend/bonus restrictions on the bank
8️⃣ Liquidity Standards — LCR & NSFR
Basel III introduced two liquidity standards — these were completely new and did not exist in Basel I or II.
| Standard | Full Form | Measures | Minimum | Time Horizon |
|---|---|---|---|---|
| LCR | Liquidity Coverage Ratio | Short-term liquidity resilience | ≥ 100% | 30 days |
| NSFR | Net Stable Funding Ratio | Long-term funding stability | ≥ 100% | 1 year |
LCR = High Quality Liquid Assets (HQLA) ÷ Total Net Cash Outflows (30 days) × 100 ≥ 100%
NSFR = Available Stable Funding (ASF) ÷ Required Stable Funding (RSF) × 100 ≥ 100%
HQLA Classification (for LCR)
| Level | Assets Included | Haircut |
|---|---|---|
| Level 1 HQLA | Cash, Government Securities, Central Bank Reserves | 0% (no haircut) |
| Level 2A HQLA | Corporate bonds (AA- & above), Covered bonds | 15% |
| Level 2B HQLA | Corporate bonds (A+ to BBB-), Equity shares (major index) | 25–50% |
📝 Exam Tip: LCR = 30 days | NSFR = 1 year — this is the most asked distinction. Also remember: Both must be ≥ 100%.
9️⃣ Leverage Ratio
The leverage ratio is a non-risk-based measure that limits excessive borrowing. It acts as a backstop to the risk-based capital ratios.
Leverage Ratio = Tier 1 Capital ÷ Total Exposure × 100 ≥ 3%
| Parameter | Global (BCBS) | India (RBI) |
|---|---|---|
| Minimum Leverage Ratio | 3% | 3.5% – 4% (higher for D-SIBs) |
| Numerator | Tier 1 Capital | |
| Denominator | Total Exposure (on-balance + off-balance sheet items) | |
💡 Why Leverage Ratio? Risk-weighted capital ratios can be gamed by banks using complex models. The leverage ratio is simple and non-manipulable — it ignores risk weights entirely.
🔟 Risk Categories & Measurement Approaches
| Risk Type | What It Covers | Approaches |
|---|---|---|
| Credit Risk | Risk of borrower defaulting on loan | Standardised Approach (SA) / Internal Ratings-Based (IRB) |
| Market Risk | Risk from changes in market prices (interest rates, forex, equity) | Standardised / Internal Models Approach (IMA) |
| Operational Risk | Risk from internal failures (fraud, IT failures, process errors) | Basic Indicator / Standardised / Advanced Measurement |
📝 Exam Tip: Remember “CMO” → Credit, Market, Operational — the three types of risks covered under Pillar 1 of Basel.
1️⃣1️⃣ India-Specific Requirements (RBI)
🇮🇳 CRITICAL: RBI has imposed stricter norms than global Basel III minimums to protect India’s banking system.
| Parameter | Global Basel III | India (RBI) | Difference |
|---|---|---|---|
| CRAR / CAR | 8% | 9% | +1% |
| CET-1 | 4.5% | 5.5% | +1% |
| Tier 1 | 6% | 7% | +1% |
| Total incl. CCB | 10.5% | 11.5% | +1% |
| Leverage Ratio | 3% | 3.5–4% | +0.5–1% |
| LCR | ≥ 100% | ≥ 100% | Same |
| NSFR | ≥ 100% | ≥ 100% | Same |
Key Indian Regulatory Acts & Bodies
| Entity/Act | Role in Basel III |
|---|---|
| RBI | Implements and enforces Basel III norms for Indian banks |
| Banking Regulation Act, 1949 | Legal framework under which RBI regulates Basel compliance |
| SEBI | Regulates AT1 bond issuance in capital markets |
| Financial Stability & Development Council (FSDC) | Monitors systemic risk and macro-prudential oversight |
| RBI DPSS | Oversees payment system liquidity norms |
📝 Exam Tip: India’s CRAR = 9% (not 8%). This is the most important India-specific Basel III fact for competitive exams!
1️⃣2️⃣ D-SIB & G-SIB Framework
What are SIBs?
Systemically Important Banks (SIBs) are banks whose failure would cause significant disruption to the entire financial system and economy — often called “Too Big to Fail” banks.
| Type | Full Form | Identified By | India’s Banks |
|---|---|---|---|
| D-SIB | Domestic Systemically Important Bank | RBI (annually) | SBI, ICICI Bank, HDFC Bank |
| G-SIB | Global Systemically Important Bank | Financial Stability Board (FSB) | No Indian bank currently |
D-SIB Buckets & Additional CET-1 Surcharge (India)
| Bucket | Additional CET-1 | Bank (as of 2024–25) |
|---|---|---|
| Bucket 4 | 0.8% | — |
| Bucket 3 | 0.6% | SBI |
| Bucket 2 | 0.4% | — |
| Bucket 1 | 0.2% | ICICI Bank, HDFC Bank |
📝 Exam Tip: SBI is in Bucket 3 (highest among Indian D-SIBs) with additional 0.6% CET-1. This means SBI must hold more capital than other banks.
1️⃣3️⃣ PCA Framework & AT1 Bonds
Prompt Corrective Action (PCA) Framework
RBI’s PCA framework is a warning system triggered when banks breach Basel III thresholds on capital, asset quality, or profitability.
| PCA Trigger | Threshold | Risk |
|---|---|---|
| CRAR | Falls below 9% | Capital Risk |
| Net NPA | Exceeds 6% | Asset Quality Risk |
| CET-1 | Falls below 5.5% | Capital Risk |
| Leverage Ratio | Falls below 3.5% | Leverage Risk |
AT1 Bonds — Key Concepts
⚠️ Important Case Study: In March 2020, RBI wrote down ₹8,415 crore of Yes Bank’s AT1 bonds to zero when the bank was being rescued. This shocked investors and highlighted the risky nature of AT1 bonds.
| Feature | AT1 Bonds |
|---|---|
| Full Form | Additional Tier 1 Bonds |
| Nature | Perpetual (no maturity date) |
| Coupon | Higher interest rate (compensates for risk) |
| Loss Absorption | Can be written down or converted to equity during stress |
| Trigger | When CET-1 falls below threshold (Point of Non-Viability) |
| SEBI Min Investment | ₹1 crore (to protect retail investors after Yes Bank case) |
| Listed on | Stock exchanges (NSE/BSE) |
1️⃣4️⃣ Advantages & Disadvantages
✅ Advantages
- Stronger financial stability
- Reduces bank collapse risk
- Increases depositor & investor trust
- Better risk management practices
- Prevents excessive leverage
- Ensures liquidity during crises
- Greater market transparency (Pillar 3)
- Protects taxpayers from bailouts
❌ Disadvantages
- Higher capital = reduced lending ability
- Increased compliance cost for banks
- Smaller banks struggle to meet standards
- May slow economic expansion
- Complex implementation requirements
- Higher borrowing costs for customers
- Doesn’t cover all risk types (e.g., cyber)
- Can push risky activities to shadow banking
1️⃣5️⃣ ⚡ Quick Revision Cheat Sheet
Introduced
2010 (post 2008 crisis)
Issued By
BCBS (at BIS)
HQ City
Basel, Switzerland
3 Focus Areas
Capital + Liquidity + Leverage
CET-1 (Global)
4.5%
CET-1 (India)
5.5% ⬆️
Tier 1 (India)
7%
CRAR (India)
9% (Global = 8%)
CCB
2.5% (always ON)
CCyB
0–2.5% (variable)
Total incl. CCB (India)
11.5%
LCR
≥ 100% (30 days)
NSFR
≥ 100% (1 year)
Leverage Ratio
≥ 3% (India: 3.5–4%)
D-SIBs (India)
SBI, ICICI, HDFC Bank
AT1 Bonds
Perpetual, loss-absorbing
3 Pillars
Capital → Supervision → Disclosure
3 Risks (Pillar 1)
Credit + Market + Operational
PCA Trigger CRAR
Below 9%
Yes Bank AT1
₹8,415 Cr written off (2020)
🧠 Memory Tricks
| Trick | What to Remember |
|---|---|
| 3Ls of Basel III | Liquidity + Leverage + Loss absorption |
| “4-6-8” Rule | CET-1 = 4.5% | Tier 1 = 6% | Total = 8% (global) |
| “5-7-9” Rule (India) | CET-1 = 5.5% | Tier 1 = 7% | CRAR = 9% (India) |
| LCR = 30, NSFR = 365 | LCR = 30 days liquidity | NSFR = 1 year stability |
| “CSE” for 3 Pillars | Capital → Supervision → Exposure disclosure |
| “CMO” for 3 Risks | Credit → Market → Operational |
| “SIH” for D-SIBs | SBI → ICICI → HDFC Bank |
1️⃣6️⃣ 📝 60+ Important MCQs — Chapter-wise
Click on any question to reveal the answer. Questions marked HIGHLY IMPORTANT are most frequently asked.
📍 Chapter 1: Basics of Basel III (12 MCQs)
Q1. Basel III framework was introduced mainly in response to which event? HIGHLY IMPORTANT
a) Dot-com bubble crash
b) 2008 Global Financial Crisis
c) 9/11 Attacks
d) COVID-19 Pandemic
b) 2008 Global Financial Crisis
c) 9/11 Attacks
d) COVID-19 Pandemic
Answer: b) 2008 Global Financial Crisis
Basel III directly addressed weaknesses exposed by the 2008 crisis (Lehman Brothers collapse).
Basel III directly addressed weaknesses exposed by the 2008 crisis (Lehman Brothers collapse).
Q2. Basel III is issued by: HIGHLY IMPORTANT
a) IMF
b) World Bank
c) Basel Committee on Banking Supervision (BCBS)
d) BIS Monetary Council
b) World Bank
c) Basel Committee on Banking Supervision (BCBS)
d) BIS Monetary Council
Answer: c) BCBS
BCBS is headquartered at Bank for International Settlements, Basel, Switzerland.
BCBS is headquartered at Bank for International Settlements, Basel, Switzerland.
Q3. The main objective of Basel III is:
a) Promote foreign investment
b) Increase cash transactions
c) Improve banking sector stability and reduce failure risk
d) Increase employment in banking
b) Increase cash transactions
c) Improve banking sector stability and reduce failure risk
d) Increase employment in banking
Answer: c) Improve banking sector stability and reduce failure risk
Q4. Basel III focuses on which three critical parameters? HIGHLY IMPORTANT
a) Profit, Customer Count, NPA
b) Capital, Liquidity, Leverage
c) CASA, CAR, CRR
d) ATM, Cards, Cheques
b) Capital, Liquidity, Leverage
c) CASA, CAR, CRR
d) ATM, Cards, Cheques
Answer: b) Capital, Liquidity, Leverage
These 3 areas control a bank’s ability to absorb shocks.
These 3 areas control a bank’s ability to absorb shocks.
Q5. Basel III guidelines apply to:
a) Only NBFCs
b) All scheduled commercial banks
c) Only foreign banks
d) Only rural banks
b) All scheduled commercial banks
c) Only foreign banks
d) Only rural banks
Answer: b) All scheduled commercial banks
Q6. RWA stands for:
a) Risk Weighted Assets
b) Reserve Weighted Allocation
c) Regional Wealth Assets
d) Real Worth Accounting
b) Reserve Weighted Allocation
c) Regional Wealth Assets
d) Real Worth Accounting
Answer: a) Risk Weighted Assets
Assets weighted by their risk level — riskier assets need more capital.
Assets weighted by their risk level — riskier assets need more capital.
Q7. Basel standards are named after which country?
a) Sweden
b) Switzerland
c) Germany
d) Norway
b) Switzerland
c) Germany
d) Norway
Answer: b) Switzerland
Named after the city of Basel in Switzerland where BCBS/BIS is headquartered.
Named after the city of Basel in Switzerland where BCBS/BIS is headquartered.
Q8. Basel III succeeded which previous standard?
a) Basel 0
b) Basel I
c) Basel II
d) Basel IV
b) Basel I
c) Basel II
d) Basel IV
Answer: c) Basel II
Q9. Capital structure under Basel III consists of:
a) Tier 1 and Tier 2
b) Working capital & fixed capital
c) Rural and Urban capital
d) Loans and Advances
b) Working capital & fixed capital
c) Rural and Urban capital
d) Loans and Advances
Answer: a) Tier 1 and Tier 2
Q10. The highest quality capital under Basel III is: HIGHLY IMPORTANT
a) Tier 2
b) AT-1
c) CET-1
d) Subordinated loans
b) AT-1
c) CET-1
d) Subordinated loans
Answer: c) CET-1 (Common Equity Tier 1)
Includes equity shares and retained earnings — purest form of capital.
Includes equity shares and retained earnings — purest form of capital.
Q11. Basel I was introduced in which year?
a) 1975
b) 1988
c) 1998
d) 2004
b) 1988
c) 1998
d) 2004
Answer: b) 1988
Q12. The Basel III reform package was finalised in:
a) 2005
b) 2008
c) 2010
d) 2020
b) 2008
c) 2010
d) 2020
Answer: c) 2010
📍 Chapter 2: Capital Requirements & Buffers (15 MCQs)
Q13. Minimum CET-1 capital ratio under Basel III (global) is:
a) 2%
b) 3%
c) 4.5%
d) 6.5%
b) 3%
c) 4.5%
d) 6.5%
Answer: c) 4.5%
Q14. Minimum Tier 1 capital requirement under Basel III is:
a) 4%
b) 6%
c) 8%
d) 10%
b) 6%
c) 8%
d) 10%
Answer: b) 6%
Q15. Total minimum capital ratio (Tier 1 + Tier 2) without buffers is:
a) 6%
b) 8%
c) 10%
d) 12%
b) 8%
c) 10%
d) 12%
Answer: b) 8%
Q16. Capital Conservation Buffer (CCB) is:
a) 0.5%
b) 1.5%
c) 2.5%
d) 4.5%
b) 1.5%
c) 2.5%
d) 4.5%
Answer: c) 2.5%
Q17. Total minimum regulatory capital including CCB (global) is: HIGHLY IMPORTANT
a) 8.5%
b) 10.5%
c) 12%
d) 15%
b) 10.5%
c) 12%
d) 15%
Answer: b) 10.5%
= 8% total capital + 2.5% CCB
= 8% total capital + 2.5% CCB
Q18. Countercyclical Buffer range is:
a) 0–1%
b) 0–2.5%
c) 2%–5%
d) 5%–10%
b) 0–2.5%
c) 2%–5%
d) 5%–10%
Answer: b) 0–2.5%
Q19. Additional buffer for SIBs is required because:
a) They are close to customers
b) Their failure affects the entire economy
c) They handle foreign exchange
d) They have agricultural lending
b) Their failure affects the entire economy
c) They handle foreign exchange
d) They have agricultural lending
Answer: b) Their failure affects the entire economy
Q20. Which Indian bank is classified as D-SIB requiring the highest additional capital buffer? HIGHLY IMPORTANT
a) PNB
b) SBI
c) IDBI Bank
d) Indian Bank
b) SBI
c) IDBI Bank
d) Indian Bank
Answer: b) SBI
SBI is in Bucket 3 (0.6% additional CET-1), the highest among Indian D-SIBs.
SBI is in Bucket 3 (0.6% additional CET-1), the highest among Indian D-SIBs.
Q21. AT1 capital includes:
a) Common equity shares
b) Perpetual non-cumulative preference shares
c) Revaluation reserves
d) Govt. securities
b) Perpetual non-cumulative preference shares
c) Revaluation reserves
d) Govt. securities
Answer: b) Perpetual non-cumulative preference shares
Q22. Tier 2 capital mainly includes:
a) Cash
b) Subordinated debt & revaluation reserves
c) CASA balances
d) Gold reserves
b) Subordinated debt & revaluation reserves
c) CASA balances
d) Gold reserves
Answer: b) Subordinated debt & revaluation reserves
Q23. Capital adequacy ratio (CAR/CRAR) minimum level in India is: HIGHLY IMPORTANT
a) 6%
b) 8%
c) 9%
d) 10%
b) 8%
c) 9%
d) 10%
Answer: c) 9% (India-specific)
RBI’s requirement is 1% higher than global Basel III minimum of 8%.
RBI’s requirement is 1% higher than global Basel III minimum of 8%.
Q24. CET-1 Ratio Formula: HIGHLY IMPORTANT
a) CET1 / Total Assets
b) CET1 / Risk Weighted Assets
c) Tier 1 / Equity
d) Tier 2 / Liquidity
b) CET1 / Risk Weighted Assets
c) Tier 1 / Equity
d) Tier 2 / Liquidity
Answer: b) CET1 / Risk Weighted Assets
Q25. Risk-weighted assets are:
a) All assets valued equally
b) Assets weighted by risk level
c) Only cash assets
d) Only public sector assets
b) Assets weighted by risk level
c) Only cash assets
d) Only public sector assets
Answer: b) Assets weighted by risk level
Q26. Which instrument can convert into equity during stress as per Basel III?
a) FCNR
b) CRR deposit
c) AT1 Bonds
d) Cheque book
b) CRR deposit
c) AT1 Bonds
d) Cheque book
Answer: c) AT1 Bonds
AT1 bonds can be written down or converted to equity at Point of Non-Viability (PONV).
AT1 bonds can be written down or converted to equity at Point of Non-Viability (PONV).
Q27. CET-1 minimum in India (RBI) is:
a) 4.5%
b) 5.5%
c) 6.5%
d) 7.5%
b) 5.5%
c) 6.5%
d) 7.5%
Answer: b) 5.5%
India’s RBI requires 1% more CET-1 than the global 4.5% minimum.
India’s RBI requires 1% more CET-1 than the global 4.5% minimum.
📍 Chapter 3: Liquidity & Leverage Requirements (15 MCQs)
Q28. LCR stands for: HIGHLY IMPORTANT
a) Liquidity Carry Ratio
b) Liquidity Coverage Ratio
c) Loan Conversion Ratio
d) Lowest Cash Reserve
b) Liquidity Coverage Ratio
c) Loan Conversion Ratio
d) Lowest Cash Reserve
Answer: b) Liquidity Coverage Ratio
Q29. LCR ensures:
a) Bank retains more branches
b) Bank maintains enough liquid assets to survive 30-day stress
c) Customers get more loans
d) Employees get higher salary
b) Bank maintains enough liquid assets to survive 30-day stress
c) Customers get more loans
d) Employees get higher salary
Answer: b) Bank maintains enough liquid assets to survive 30-day stress
Q30. NSFR stands for:
a) Net Stable Funding Ratio
b) National Savings Fund Reserve
c) Net Securities Fund Ratio
d) Network Stable Finance Ratio
b) National Savings Fund Reserve
c) Net Securities Fund Ratio
d) Network Stable Finance Ratio
Answer: a) Net Stable Funding Ratio
Q31. NSFR requirement ensures stability for:
a) 24 hours
b) 7 days
c) 30 days
d) 1 year
b) 7 days
c) 30 days
d) 1 year
Answer: d) 1 year
Q32. Minimum required LCR and NSFR under Basel III is: HIGHLY IMPORTANT
a) 75%
b) 90%
c) 100%
d) 150%
b) 90%
c) 100%
d) 150%
Answer: c) 100%
Q33. Leverage Ratio under Basel III must be at least:
a) 1%
b) 2%
c) 3%
d) 12%
b) 2%
c) 3%
d) 12%
Answer: c) 3%
Q34. Leverage Ratio Formula:
a) Tier 1 Capital / Total Exposure
b) Tier 2 / Total Liabilities
c) CET1 / Loans Issued
d) AT1 / Total Assets
b) Tier 2 / Total Liabilities
c) CET1 / Loans Issued
d) AT1 / Total Assets
Answer: a) Tier 1 Capital / Total Exposure
Q35. The purpose of leverage ratio is to:
a) Increase bank profitability
b) Prevent excessive borrowing
c) Increase lending to agriculture
d) Expand ATM network
b) Prevent excessive borrowing
c) Increase lending to agriculture
d) Expand ATM network
Answer: b) Prevent excessive borrowing
Q36. High leverage means:
a) Lower financial risk
b) Higher financial risk due to more debt
c) More liquidity
d) Higher profitability
b) Higher financial risk due to more debt
c) More liquidity
d) Higher profitability
Answer: b) Higher financial risk due to more debt
Q37. Liquidity standards prevent:
a) Employee transfers
b) Cash crunch & run-on-the-bank situations
c) Fake currency circulation
d) Expansion of customer base
b) Cash crunch & run-on-the-bank situations
c) Fake currency circulation
d) Expansion of customer base
Answer: b) Cash crunch & run-on-the-bank situations
Q38. HQLA in LCR calculation stands for:
a) High Quality Lending Assets
b) High Quality Liquid Assets
c) Higher Quarterly Loan Allocation
d) Home Quality Loan Assessment
b) High Quality Liquid Assets
c) Higher Quarterly Loan Allocation
d) Home Quality Loan Assessment
Answer: b) High Quality Liquid Assets
Includes cash, government securities, high-rated corporate bonds.
Includes cash, government securities, high-rated corporate bonds.
Q39. Level 1 HQLA includes: HIGHLY IMPORTANT
a) Corporate bonds
b) Equity shares
c) Cash & Government Securities
d) Real estate
b) Equity shares
c) Cash & Government Securities
d) Real estate
Answer: c) Cash & Government Securities
Level 1 HQLA have 0% haircut — highest quality.
Level 1 HQLA have 0% haircut — highest quality.
Q40. LCR formula is:
a) Total Assets / Total Liabilities
b) HQLA / Total Net Cash Outflows over 30 days
c) Cash / Deposits
d) Loans / Deposits
b) HQLA / Total Net Cash Outflows over 30 days
c) Cash / Deposits
d) Loans / Deposits
Answer: b) HQLA / Total Net Cash Outflows over 30 days
Q41. Which was NOT part of Basel I or Basel II but introduced in Basel III?
a) Credit risk measurement
b) Liquidity standards (LCR & NSFR)
c) Pillar system
d) Market risk
b) Liquidity standards (LCR & NSFR)
c) Pillar system
d) Market risk
Answer: b) Liquidity standards (LCR & NSFR)
These are entirely new additions in Basel III.
These are entirely new additions in Basel III.
Q42. NSFR formula is:
a) Available Stable Funding / Required Stable Funding
b) Total Deposits / Total Loans
c) Cash / Short-term liabilities
d) Tier 1 / Total Assets
b) Total Deposits / Total Loans
c) Cash / Short-term liabilities
d) Tier 1 / Total Assets
Answer: a) Available Stable Funding / Required Stable Funding
Must be ≥ 100% to ensure stable funding over 1 year horizon.
Must be ≥ 100% to ensure stable funding over 1 year horizon.
📍 Chapter 4: India-Specific, D-SIBs & Recent Developments (15 MCQs)
Q43. Basel III implementation in India was extended due to:
a) Inflation
b) COVID-19 financial stress
c) Change in government
d) Demonetisation
b) COVID-19 financial stress
c) Change in government
d) Demonetisation
Answer: b) COVID-19 financial stress
Q44. RBI regulates Basel III norms under:
a) FEMA Act
b) Banking Regulation Act
c) Companies Act
d) Payment & Settlement Act
b) Banking Regulation Act
c) Companies Act
d) Payment & Settlement Act
Answer: b) Banking Regulation Act
Q45. D-SIBs in India include: HIGHLY IMPORTANT
a) SBI, ICICI Bank, HDFC Bank
b) UCO Bank & IOB
c) Indian Bank & BOI
d) Axis & PNB only
b) UCO Bank & IOB
c) Indian Bank & BOI
d) Axis & PNB only
Answer: a) SBI, ICICI Bank, HDFC Bank
Q46. Primary advantage of Basel III:
a) Reduces credit risk significantly
b) Increases bank operational cost
c) Reduces staff requirement
d) Promotes corruption-free banking
b) Increases bank operational cost
c) Reduces staff requirement
d) Promotes corruption-free banking
Answer: a) Reduces credit risk significantly
Q47. Main disadvantage of Basel III:
a) Encourages NPAs
b) Reduces lending capacity due to higher capital requirement
c) Encourages inflation
d) Reduces customer deposits
b) Reduces lending capacity due to higher capital requirement
c) Encourages inflation
d) Reduces customer deposits
Answer: b) Reduces lending capacity due to higher capital
Q48. Which Basel requirement is used during economic boom to slow excessive credit?
a) CCB
b) Countercyclical Buffer (CCyB)
c) NSFR
d) AT1
b) Countercyclical Buffer (CCyB)
c) NSFR
d) AT1
Answer: b) Countercyclical Buffer (CCyB)
Activated by regulators during periods of excessive credit growth.
Activated by regulators during periods of excessive credit growth.
Q49. Basel III increases focus on:
a) Market discipline and transparency
b) Reducing bank technology usage
c) Removing capital adequacy
d) Increasing branch count
b) Reducing bank technology usage
c) Removing capital adequacy
d) Increasing branch count
Answer: a) Market discipline and transparency
Q50. Basel III is effective in India through:
a) RBI notifications/circulars
b) SEBI circular
c) IRDA guidelines
d) TRAI orders
b) SEBI circular
c) IRDA guidelines
d) TRAI orders
Answer: a) RBI notifications/circulars
Q51. A bank failing Basel III requirements may face:
a) Restrictions on lending & dividend payout
b) Promotion of staff
c) Increase in interest earnings
d) Merger with telecom companies
b) Promotion of staff
c) Increase in interest earnings
d) Merger with telecom companies
Answer: a) Restrictions on lending & dividend payout
Q52. Basel III emphasises “loss absorption” mainly through:
a) Tier 1 capital
b) Tier 2 capital only
c) Deposits
d) Investments
b) Tier 2 capital only
c) Deposits
d) Investments
Answer: a) Tier 1 capital
Q53. Yes Bank’s AT1 bonds worth ₹8,415 crore were written down in: HIGHLY IMPORTANT
a) 2018
b) 2019
c) 2020
d) 2021
b) 2019
c) 2020
d) 2021
Answer: c) 2020 (March 2020)
RBI invoked AT1 bond write-down during Yes Bank rescue. Supreme Court later upheld this.
RBI invoked AT1 bond write-down during Yes Bank rescue. Supreme Court later upheld this.
Q54. PCA framework is triggered when CRAR falls below: HIGHLY IMPORTANT
a) 8%
b) 9%
c) 10%
d) 12%
b) 9%
c) 10%
d) 12%
Answer: b) 9%
RBI’s Prompt Corrective Action is triggered when capital falls below India’s minimum CRAR of 9%.
RBI’s Prompt Corrective Action is triggered when capital falls below India’s minimum CRAR of 9%.
Q55. G-SIB stands for:
a) Government Savings & Investment Board
b) Global Systemically Important Bank
c) General Standard for Indian Banks
d) Gross Stable Income Benchmark
b) Global Systemically Important Bank
c) General Standard for Indian Banks
d) Gross Stable Income Benchmark
Answer: b) Global Systemically Important Bank
Identified by the Financial Stability Board (FSB). No Indian bank is currently a G-SIB.
Identified by the Financial Stability Board (FSB). No Indian bank is currently a G-SIB.
Q56. SBI is in which D-SIB bucket?
a) Bucket 1 (0.2%)
b) Bucket 2 (0.4%)
c) Bucket 3 (0.6%)
d) Bucket 4 (0.8%)
b) Bucket 2 (0.4%)
c) Bucket 3 (0.6%)
d) Bucket 4 (0.8%)
Answer: c) Bucket 3 (0.6% additional CET-1)
SBI requires the highest additional capital among Indian D-SIBs.
SBI requires the highest additional capital among Indian D-SIBs.
Q57. Risk weight for Government Securities under Basel III is:
a) 0%
b) 20%
c) 50%
d) 100%
b) 20%
c) 50%
d) 100%
Answer: a) 0%
Government securities are considered risk-free (sovereign guarantee).
Government securities are considered risk-free (sovereign guarantee).
📍 Chapter 5: Pillars, Risks & Advanced Concepts (8 MCQs)
Q58. Pillar 1 of Basel framework covers: HIGHLY IMPORTANT
a) Market discipline
b) Supervisory review
c) Minimum capital requirements
d) Disclosure norms
b) Supervisory review
c) Minimum capital requirements
d) Disclosure norms
Answer: c) Minimum capital requirements
Pillar 1 = Capital, Pillar 2 = Supervisory Review, Pillar 3 = Market Discipline.
Pillar 1 = Capital, Pillar 2 = Supervisory Review, Pillar 3 = Market Discipline.
Q59. Pillar 2 (Supervisory Review) in India is conducted by:
a) SEBI
b) RBI
c) NABARD
d) Finance Ministry
b) RBI
c) NABARD
d) Finance Ministry
Answer: b) RBI
Q60. Pillar 3 requires banks to:
a) Increase profits
b) Publicly disclose risk and capital information
c) Open more branches
d) Reduce staff cost
b) Publicly disclose risk and capital information
c) Open more branches
d) Reduce staff cost
Answer: b) Publicly disclose risk and capital information
This enables market discipline — investors/depositors can assess bank health.
This enables market discipline — investors/depositors can assess bank health.
Q61. Operational risk includes:
a) Interest rate changes
b) Internal fraud, system failures, process errors
c) Stock market crashes
d) Loan defaults
b) Internal fraud, system failures, process errors
c) Stock market crashes
d) Loan defaults
Answer: b) Internal fraud, system failures, process errors
Q62. Credit risk is the risk of:
a) System failure
b) Borrower defaulting on repayment
c) Currency fluctuation
d) Fire in branch
b) Borrower defaulting on repayment
c) Currency fluctuation
d) Fire in branch
Answer: b) Borrower defaulting on repayment
Q63. Market risk arises from:
a) Employee attrition
b) Changes in interest rates, forex rates, equity prices
c) Customer complaints
d) Branch expansion
b) Changes in interest rates, forex rates, equity prices
c) Customer complaints
d) Branch expansion
Answer: b) Changes in interest rates, forex rates, equity prices
Q64. “Going-concern” capital refers to:
a) Tier 2 capital
b) Tier 1 capital (absorbs losses while bank is still operating)
c) Off-balance sheet items
d) Non-performing assets
b) Tier 1 capital (absorbs losses while bank is still operating)
c) Off-balance sheet items
d) Non-performing assets
Answer: b) Tier 1 capital
Going-concern = bank is still alive. Gone-concern (Tier 2) = bank is being wound up.
Going-concern = bank is still alive. Gone-concern (Tier 2) = bank is being wound up.
Q65. Basel III impacts customers by: HIGHLY IMPORTANT
a) Increasing ATM charges
b) Strengthening deposit safety
c) Removing cheque facilities
d) Restricting debit cards
b) Strengthening deposit safety
c) Removing cheque facilities
d) Restricting debit cards
Answer: b) Strengthening deposit safety
Higher capital & liquidity = banks are better equipped to protect depositors.
Higher capital & liquidity = banks are better equipped to protect depositors.
📚 GyanDesk — Basel III Complete Study Guide
Last Updated: May 2026 | 65 MCQs | 16 Sections | Exam-Ready Content
For JAIIB, CAIIB, Banking, SSC CGL, UPSC, RBI Grade B & all competitive examinations