Basel III from next month; banks must have Rs 5 arba paid-up in 6 yrs

ShareSansar, December 11:

Nepal Rastra Bank has decided to enforce Basel III from next month, a year after Basel II expired.

Basel III, an internationally practiced regulation for the BFIs, inter alias, will make it mandatory for all the commercial banks to maintain a paid-up capital of Rs 5 arba within six years.

“Basel III will be fully enforced by 2019, starting from next month itself,” central bank spokesperson Bhaskar Mani Gyawali said. “Among other things, the commercial banks that have not soared up their capital to Rs 5 arba must do so within six years.”

NRB is preparing a draft on implementation of Basel III, and has started seeking inputs from the stakeholders from Monday.

What is Basel III?

Basel III (or the Third Basel Accord) is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk.

It was agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11, and was scheduled to be introduced from 2013 until 2015; however, changes from April 1, 2013 extended implementation until March 31, 2018.

The third installment of the Basel Accords was developed in response to the deficiencies in financial regulation revealed by the late-2000s financial crisis. Basel III was supposed to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.

Unlike Basel I and Basel II which are primarily related to the required level of bank loss reserves that must be held by banks for various classes of loans and other investments and assets that they have, Basel III is primarily related to the risks for the banks of a run on the bank by requiring differing levels of reserves for different forms of bank deposits and other borrowings.

Therefore contrary to what might be expected by the name, Basel III rules do not for the most part supersede the guidelines known as Basel I and Basel II but work alongside them.