Solution

The three pillars as given by Basel accords are:

• First Pillar: Minimum Capital Requirement - The first pillar Minimum Capital Requirement is mainly for total risk including the credit risk, market risk as well as Operational Risk.
• Second Pillar: Supervisory Review Process is basically intended to ensure that the banks have adequate capital to support all the risks associated in their businesses. As per RBI guidelines ICAAP or Internal Capital Adequacy Assessment Process is done by banks themselves while SREP or Supervisory Review and Evaluation Process is conducted by RBI.
• Third Pillar: Market Discipline - The idea of the third pillar is to complement the first and second pillar. This is basically a discipline followed by the bank such as disclosing its capital structure, tier-I and Tier –II Capital and approaches to assess the capital adequacy.