Resources for Basel II Capital Accord (Basel II)

Bank`s capital need may increase on Basel - II norms

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Capital requirements of banks may further increase with Basel II norms set to be effective from April 2008, reports Business Standard. The apex bank of India proposes to include residual risks, in addition to the market, operational and credit risks.

The residual risk forms a part of the second pillar of Basel-II norms. The first pillar deals with the maintenance of credit, market and operational risks. The residual risk involves management of various other risks, including systemic, pension, concentration, strategic and legal risks.

The credit risk relates to the management of risk arising from default by a borrower, while the market risk arises from an adverse movement of interest rates, which affect the investment portfolio. The operational risk is when a bank sets aside funds to take care of eventualities arising from day-to-day operations.

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