The Basel III rule introduced several measures to strengthen the capital requirement of banks across the globe and presented more capital buffers to supplement the risk-based minimum capital requirements. This is to ensure that adequate funding is maintained in case there are other severe banking crises.The Reserve Bank of India introduced Basel III norms in…
Three Pillars of Basel II accord: First Pillar of Basel II deals with maintenance of regulatory Capital calculated on three major risks the bankers are facing viz. Credit risk, Operation risk and Market risk. Second Pillar of Basel II deals with the regulatory answer to the first pillar, which enables the banks to review their…
(This post provides the risk weight table for on balance sheet and off-balance sheet category of assets) Updated on November 17: RBI increases risk weights on consumer credit exposure of banks, NBFCs to 125% from 100%. Measures announced to contain the risk emanating from a sharp rise in unsecured loans – mostly personal loans and…
In terms of Accounting Standard (AS) 11 FCTR or foreign currency translation reserve arises due to the translation of financial statements of bank’s foreign operations. FCTR is reckoned at a discount of 25% for the purpose of determining bank’s regulatory capital. The above treatment is subject to a condition that the FCTR are shown as…
Trial balance is a part of accounting process which is a list of debit and credit balances taken from all the ledger accounts. The trial balance may be prepared on daily or weekly or monthly or at the end of the accounting period to check the arithmetical accuracy in recording and posting .The periodicity of…
Types of accounting errors include ‘Error of principle’,’ Error of Omission in accounting’, ‘Error of commission’, ‘Compensating Error’, ‘Error of original entry’, ‘Complete reversal of entries’. Error of principle in accounting: When correct amount is posted to wrong type of account, such error is called error of principle. Suppose machinery installation charges is debited to…
The Capital of a bank is divided into different tiers according to the characteristics / qualities of each qualifying instrument. The Basel III framework tightens the capital requirements by limiting the type of capital into two categories viz. Tier I and Tier II for supervisory purposes of capital. The Tier II or Tier 2 capital…
The maxim practiced by the banks is “Buy Low Sell High” for direct quotations and “Buy high Sell Low” for indirect quotation. Let us take an example of a fruit vendor who purchases apple from the market at 1 KG apple for Rs.75 and sells the same to his customers at 1KG apple for Rs.90/-.…
There are two ways to quote a currency pair, known as direct quote and indirect quote. A direct currency quote or home currency quote is simply a currency pair in which the domestic currency is the quoted currency and the foreign currency is the base currency. In the other words, the direct quote varies the…
Cash/ready rate, tom rate, Spot and forward rates are settlement prices of cash, tom, spot & forward contracts. The cross rates are exchange rate between two currencies computed by reference to a third currency, usually the US dollar. For example, USD is used to compute a business transaction between India and Germany although USD is…