It was only in 1996 that an amendment was made to cover the market risks also. The Accord had adopted a risk-sensitive approach for making the banks’ capital more responsive to the riskiness of their operations. This meant that a bank with a higher risk profile would have to maintain a higher quantum of regulatory capital while also ensuring the minimum capital ratio.
The framework also stipulated, for the first time, a regulatory capital charge for the offbalance sheet business of the banks so as to capture their risk exposures more comprehensively. Pursuant to the recommendations of the Committee on the Financial System (the first Narsimham Committee, 1991), this framework was implemented in India in 1992 in a phased manner. The imperatives for Basel II 5.