Explain the Composition of Regulatory Capital. What is the minimum regulatory capital requirement for Banks in India as per Basel III Accord?

Composition of Regulatory Capital Banks are required to maintain a minimum Pillar 1 Capital to Risk-weighted Assets Ratio (CRAR) of 9% on an on-going basis (other than capital conservation buffer and countercyclical capital buffer etc.). The Reserve Bank will take into account the relevant risk factors and the internal capital adequacy assessments of each bank to ensure that the capital held by a bank is commensurate with the bank's overall risk profile. This would include, among others, the effectiveness of the bank's risk management systems in identifying, assessing/measuring, monitoring and managing various risks including interest rate risk in the banking book, liquidity risk, concentration risk and residual risk. Accordingly, the Reserve Bank will consider prescribing a higher level of minimum capital ratio for each bank under the Pillar 2 framework on the basis of their respective risk profiles and their risk management systems. Further, in terms of the Pillar 2 requirements, banks are expected to operate at a level well above the minimum requirement. Common Equity Tier 1 Capital Ratio = Common Equity Tier 1 Capital / (Credit Risk RWA + Market Risk RWA + Operational Risk RWA) Tier 1 Capital Ratio = Eligible Tier 1 Capital / (Credit Risk RWA + Market Risk RWA + Operational Risk RWA) Total Capital (CRAR#) = Total Capital (Tier 1 Capital + Tier 2 Capital) / (Credit Risk RWA + Market Risk RWA + Operational Risk RWA) *RWA = Risk Weighted Assets #CRAR = Capital to Risk Weighted Asset Ratio Components of Capital Total regulatory capital consists of the sum of the following categories: (i) Tier 1 Capital (going-concern capital) (a) Common Equity Tier-1 (b) Additional Tier (ii) Tier 2 Capital (gone-concern capital) Minimum regulatory capital requirement for Banks in India as per Basel III Accord: With full implementation of capital ratios and Capital Conservation Buffer (CCB) the capital requirements are summarised as follows: Regulatory Capital As % to RWAs (i) Minimum Common Equity Tier 1 Ratio 5.5 (ii) Capital Conservation Buffer (comprised of Common Equity) 2.5 (iii) Minimum Common Equity Tier 1 Ratio plus Capital Conservation Buffer [(i)+(ii)] 8.0 (iv) Additional Tier 1 Capital 1.5 (v) Minimum Tier 1 Capital Ratio [(i)+(iv)] 7.0 (vi) Tier 2 Capital 2.0 (vii) Minimum Total Capital Ratio (MTC) [(v)+(vi)] 9.0 (viii) Minimum Total Capital Ratio plus Capital Conservation Buffer [(vii+(ii)] 11.5