Basel III Capital Adequacy: The CAIIB Cheat Sheet for 2026
If you only learn one BFM topic well, learn Basel III. It runs across the syllabus, repeats every cycle, and the numerics are deterministic. The exam will ask you which capital is which, the minimum ratios, the buffers on top, and the leverage / liquidity ratios. Here is the entire framework on one page.
The Basel III capital stack — six numbers that anchor everything
| Layer | Minimum (% of RWA) | What's in it |
|---|---|---|
| Common Equity Tier 1 (CET1) | 5.5% | Paid-up equity + disclosed reserves |
| Additional Tier 1 (AT1) | 1.5% | Perpetual non-cumulative preference shares, perpetual debt with loss absorption |
| Tier 1 (CET1 + AT1) | 7.0% | |
| Tier 2 | 2.0% | Subordinated debt > 5 years, general provisions (capped) |
| Total CRAR | 9.0% | Tier 1 + Tier 2 |
| Capital Conservation Buffer (CCB) | +2.5% (in CET1) | On top of minimums |
| Total with CCB | 11.5% | Effective floor |
RBI India figures, not the original BCBS 8%. India's 9% CRAR is a deliberate over-compliance.
Buffers on top of the minimum
- Capital Conservation Buffer (CCB) 2.5% — always on, in CET1. Pushes the effective Total CRAR to 11.5%.
- Countercyclical Capital Buffer (CCyB) 0% to 2.5% — switched on by RBI when credit-to-GDP gap suggests overheating. Currently 0%.
- D-SIB surcharge 0.2% to 0.8% — extra CET1 for SBI, ICICI, HDFC.
The leverage ratio (LR) — non-risk-weighted backstop
Tier 1 capital divided by total exposure (on-balance + off-balance). Minimum 3.5% for Indian banks (DSIBs 4%). The point: even if RWAs are gamed, the LR catches over-leverage.
LCR and NSFR — the liquidity twins
- Liquidity Coverage Ratio (LCR) 100% — High Quality Liquid Assets ÷ Net Cash Outflows over 30 days. Survives a one-month stress.
- Net Stable Funding Ratio (NSFR) 100% — Available Stable Funding ÷ Required Stable Funding over one year. Survives structural funding mismatch.
Risk weights you should remember
- Sovereign (India): 0%
- Sovereign (foreign, depends on rating): 0% to 150%
- Banks (depends on rating): 20% to 150%
- Retail (regulatory retail): 75%
- Residential mortgage (LTV < 75%): 35%
- Commercial real estate: 100%
- Unrated corporate (above ₹100 cr exposure): 100% — but 150% if it has a long-running rating gap.
How the pillars map
- Pillar 1: Minimum capital requirements (the table above).
- Pillar 2: Supervisory Review and Evaluation Process (SREP), ICAAP, stress testing.
- Pillar 3: Market discipline through disclosure.
Common traps the exam plants
- "Tier 1 minimum is 5.5%" — that's CET1, not Tier 1. Tier 1 is 7%.
- "CCB is in Tier 1" — must be in CET1, not just any Tier 1.
- "Reverse repo balances count as HQLA" — only Level 1 HQLA, but they do count.
- "NSFR window is 90 days" — no, it's one year. LCR is 30 days.
- "Tier 2 unlimited" — Tier 2 is capped at 2% of RWA after deductions.
Memorisation rhythm
The night before the exam, write this on a sticky note:
5.5 / 1.5 / 7 / 2 / 9 / +2.5 = 11.5 / LR 3.5 / LCR 100 / NSFR 100
That string covers every Basel question CAIIB throws at you. You can derive AT1 (7 - 5.5 = 1.5), CCB-loaded Total (9 + 2.5 = 11.5), and the buffers from these eight numbers.
FAQ
Is the RBI 9% CRAR mandatory or recommended? Mandatory. RBI prudential guidelines override BCBS minimums in India.
What happens if a bank breaches CCB? It triggers automatic distribution restrictions (no dividends or bonuses) until the buffer is rebuilt.
Is AT1 the same as perpetual bonds? Perpetual non-cumulative preference shares and Basel III-compliant perpetual debt with loss-absorption clauses both qualify as AT1.
Next step: Lock these numbers and attempt the CAIIB BFM mock test on our platform — Basel III is 25-30% of the marks in any Risk Management paper.
Take a free mock test, download chapter PDFs, or watch a video class — all included on iibf.store.
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