Dear All, RBI amends Prudential Guidelines on Capital Adequacy and Liquidity Standards Reserve Bank of India has issued and implemented prudential guidelines on capital adequacy framework and liquidity standards for banks operating in India. These guidelines have been framed based on the internationally accepted reform package, as agreed to by the Basel Committee on Banking Supervision (BCBS) and endorsed by the G20 Leaders post-crisis. Accordingly, it is important to adopt and implement these minimum prudential standards in a manner which is consistent across all member jurisdictions. Such consistent implementation not only provides a level playing field for banks but also reduces regulatory arbitrage and promotes financial stability to a great extent.   In this context, RBI has considered desirable to make certain modifications / amendments to the guidelines on Basel III capital and liquidity regulations, implementation of advanced model-based approaches for credit, market and operational risk, guidelines on compensation and securitisation exposures, etc., with a view to more closely align the regulatory framework with the internationally agreed standards. Some of the revised guidelines are mentioned below: ·         All investments in the paid-up equity of non-financial entities (other than subsidiaries) which exceed 10% of the issued common share capital of the issuing entity or where the entity  is an unconsolidated affiliate will receive a risk weight of 1250%(increased from 1111%) ·         Countercyclical Capital Buffer (CCCB) may be maintained in the form of Common Equity  Tier 1 (CET 1) capital only,  and the amount of the CCCB may vary from 0 to 2.5% of total risk weighted assets (RWA) of the banks. If, as per the  Reserve Bank of India directives, banks are required to hold CCCB at a given point in time, the same may be disclosed as indicated in Basel III Master Circular. ·         Banks must update their data sets no less frequently than once every month and should also reassess them whenever market prices are subject to material changes. This updating process must be flexible enough to allow for more frequent updates. RBI may also require a bank to  calculate its value-at-risk using a shorter observation period  if, it is considered necessary due to a significant upsurge in  price volatility. Detailed amendments to prudential Guidelines on Capital Adequacy and Liquidity Standards by RBI has been attached for your kind perusal.    Dr. S P Sharma Chief Economist & Director-Research Skilling India for global competitiveness