Module: | Capital Adequacy, Basel Norms & Monetary Policy
Q14: Consider the following statements regarding the Leverage Ratio and Additional Capital Buffers prescribed by the Reserve Bank of India:
1. Domestic Systemically Important Banks (D-SIBs) must maintain a minimum Leverage Ratio of 4.0%, while standard commercial banks are subject to a minimum requirement of 3.5%.
2. The Countercyclical Capital Buffer (CCCB) framework operates within a range of 0% to 2.5% of Risk-Weighted Assets, though the currently activated rate stands at 0%.
3. D-SIBs are mandated to maintain an additional CET1 capital surcharge ranging from 0.20% to 0.80% based on their specific systemic importance bucket.
4. The capital adequacy framework requires banks to compute capital charges exclusively for Credit Risk and Market Risk, entirely exempting Operational Risk calculations.
Which of the statements given above is/are correct?
2. The Countercyclical Capital Buffer (CCCB) framework operates within a range of 0% to 2.5% of Risk-Weighted Assets, though the currently activated rate stands at 0%.
3. D-SIBs are mandated to maintain an additional CET1 capital surcharge ranging from 0.20% to 0.80% based on their specific systemic importance bucket.
4. The capital adequacy framework requires banks to compute capital charges exclusively for Credit Risk and Market Risk, entirely exempting Operational Risk calculations.
Which of the statements given above is/are correct?
✅ Correct Answer: B
The correct answer is B. Statement 1 is correct: To restrict the build-up of leverage, the RBI mandates a strict 4.0% minimum Leverage Ratio for Domestic Systemically Important Banks (D-SIBs) and a 3.5% minimum for all other commercial banks.
Statement 2 is correct: The Countercyclical Capital Buffer (CCCB) is designed to restrict credit supply during boom phases; it can range from 0% to 2.5%, but the RBI has currently maintained the active rate at 0%. Statement 3 is correct: D-SIBs face tighter regulations and must maintain an additional CET1 surcharge between 0.20% and 0.80% of their RWAs depending on their assigned bucket.
Statement 4 is incorrect: The Basel III capital adequacy framework mandates that commercial banks rigorously calculate and hold capital charges for three distinct pillars: Credit Risk, Market Risk, and Operational Risk.
Operational risk is never exempted.
Statement 2 is correct: The Countercyclical Capital Buffer (CCCB) is designed to restrict credit supply during boom phases; it can range from 0% to 2.5%, but the RBI has currently maintained the active rate at 0%. Statement 3 is correct: D-SIBs face tighter regulations and must maintain an additional CET1 surcharge between 0.20% and 0.80% of their RWAs depending on their assigned bucket.
Statement 4 is incorrect: The Basel III capital adequacy framework mandates that commercial banks rigorously calculate and hold capital charges for three distinct pillars: Credit Risk, Market Risk, and Operational Risk.
Operational risk is never exempted.