A Study on the Capital Requirement to Asset Ratio (CRAR) calculation of On Balance Sheet items of banks in India

Banks deal in public money as t hey lend and invest funds they generate in the form of deposits. This exposes them to solvency risk. After the major banking crisis in U.S. which took place between 2007-2010, the banks of US and Europe led by the Bank for International Settlement (BIS), came up with a comprehensive set of norms for banks known as Basel Accord, which was assumed to address the solvency risk of banks across the globe. Basel norms are applicable in India with minor modifications made by the Reserve Bank of India. This paper throws light on the calculation of capital Requirement to Asset Ratio (CRAR) of on balance items of the banks under pillar I of the Basel Norms. Calculation of Capital Requirement to Assets Ratio calculation typically includes the calculation of risk weighted assets for credit risk, market risk and operational risk. In India, 9% of the total risk weighted assets should be in the form of capital to be maintained by the banks to avoid solvency risk.

Capital Requirement to Assets Ratio (CRAR), Risk Weighted Assets ( RWAs), Held till Maturity ( HTM), Held for Trading ( HFT), Available for Sale

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