Capital adequacy stipulations at the global level have become more demanding following the Basel Committee’s initiative to introduce internal model-based capital charge. This article considers the three alternative paradigms—Value at Risk (VaR), Expected Shortfall (ES) and Expected Excess Loss (EEL) that may be used to determine the regulatory capital. The study also articulates the methodology for dealing with the granularity problem. Furthermore, it outlines the Indian banking sector scenario in respect of capital adequacy for the period 1996-97 to 2002-03. Results of panel regression show that Tier I CRAR of Indian commercial banks is positively related to operating efficiency and has a negative relationship with NPA ratio. But no definite relationship between the CRAR and bank size could be determined from the analysis
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