🏦 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

Member Countries

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

Total Capital = CET-1 + AT1 + Tier 2
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.

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

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)

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

Answer: b) 2008 Global Financial Crisis
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

Answer: c) BCBS
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

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

Answer: b) Capital, Liquidity, Leverage
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

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

Answer: a) Risk Weighted Assets
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

Answer: b) Switzerland
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

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

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

Answer: c) CET-1 (Common Equity Tier 1)
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

Answer: b) 1988

Q12. The Basel III reform package was finalised in:

a) 2005
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%

Answer: c) 4.5%

Q14. Minimum Tier 1 capital requirement under Basel III is:

a) 4%
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%

Answer: b) 8%

Q16. Capital Conservation Buffer (CCB) is:

a) 0.5%
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%

Answer: b) 10.5%
= 8% total capital + 2.5% CCB

Q18. Countercyclical Buffer range is:

a) 0–1%
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

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

Answer: b) SBI
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

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

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%

Answer: c) 9% (India-specific)
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

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

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

Answer: c) AT1 Bonds
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%

Answer: b) 5.5%
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

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

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

Answer: a) Net Stable Funding Ratio

Q31. NSFR requirement ensures stability for:

a) 24 hours
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%

Answer: c) 100%

Q33. Leverage Ratio under Basel III must be at least:

a) 1%
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

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

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

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

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

Answer: b) High Quality Liquid Assets
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

Answer: c) Cash & Government Securities
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

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

Answer: b) Liquidity standards (LCR & NSFR)
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

Answer: a) Available Stable Funding / Required Stable Funding
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

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

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

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

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

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

Answer: b) Countercyclical Buffer (CCyB)
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

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

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

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

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

Answer: c) 2020 (March 2020)
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%

Answer: b) 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

Answer: b) Global Systemically Important Bank
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%)

Answer: c) Bucket 3 (0.6% additional CET-1)
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%

Answer: a) 0%
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

Answer: c) Minimum capital requirements
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

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

Answer: b) Publicly disclose risk and capital information
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

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

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

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

Answer: b) Tier 1 capital
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

Answer: b) Strengthening deposit safety
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