basel report

8/10/2019 Basel Report

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ICICI BLP BATCH IV

TERM IV INTERNSHIP IN CRMG

Basel & Norms

Introduction

It is a committee of banking supervision wic provi!e recommen!ations on

banking "aws # regu"ations$

Tere are tree accor!s of %ase"&'

Basel I Basel II Basel III

Pub"ise! in ()** ca""e!as %ase" Capita" +ccor!$

Pub"ise! in ,--.Pub"ise! in /ecember,-(-$

Main"0 focusse! on cre!itrisk$

Consist of 1 pi""ars wicare minimum capita"re2uirement3 rigoroussupervisor0 reviewprocess an! market!iscip"ine$

G"oba" regu"ator0stan!ar! on bank capita"a!e2uac03 stress testingan! market "i2ui!it0 risk$

Minimum capita"re2uirement was *4 ofrisk weigte! asset$

Cre!it risk3 market riskan! operationa" risk are2uanti5e! base! on !ataan! forma" tecni2ues$

6ocusse! on more "i2ui!asset un!er capita"reserve$

Capital Adequacy

+ measure of a!e2uac0 of an entit07s capita" resources in re"ation to its

current "iabi"ities an! a"so in re"ation to risk associate! wit its assets$

+n appropriate "eve" of capita" a!e2uac0 ensures tat te entit0 as

su8cient capita" to support its activities an! its net wort is su8cient to

absorb a!verse canges in te va"ue of its assets witout becoming

inso"vent e$g$ %anks are re2uire! to maintain a certain "eve" of capita"

against teir 9risk a!:uste!; assets$

%anks are re2uire! to maintain minimum Capita" to Risk E"igib"e Capita" 6un!s?Risk


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ICICI BLP BATCH IV


In sort capita" a!e2uac0 is provi!e! to counter "osses$ Tere are two t0pes of

possibi"it0 of "osses @

($ EApecte! Boss,$ neApecte! "oss

Probability of losses

%ase! on te istorica" !ata an! its ana"0sis probabi"it0 of "osses is

scematica""0 eAp"aine! as be"ow'

+$ EApecte! Boss @

Safet0 for !efau"ts

%ase! on stu!0 of eAposures$

Ca"cu"ate! for a 0ear$

Covere! troug provisions$

EApecte! "oss >9Probabi"it0 of !efau"t D eAposure at !efau"t D "oss

given !efau"t;

%$ neApecte! Boss @

Safet0 for worst scenario

%ase! on stu!0 of past worst scenario

Ca"cu"ate! for entire eAposure tenure$

Covere! troug capita" reserve$

C$ Scenario ana"0sis @

Safet0 for tai" risks$ %ase! on stu!0 of various scenarios$


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ICICI BLP BATCH IV


Ca"cu"ate! for entire eAposure tenure$

Covere! troug capita" reserve ca"cu"ate! after stress testing$

Minimum Capital equirement for !"olesale ban#in$ portfolio%

Tere are two main approaces for computing minimum capita"'

($ Stan!ar!ise! +pproac,$ Interna" Rating %ase! +pproac 9IR%;$

% 'tandardised Approac" (

%ase! on te corporate ratings receive! from eAterna" agenc0$

Speci5c risk weigts are assigne! for te correspon!ing ratings$

Tese risk weigts gives te risk weigte! assets for cre!it3 market an!

operation risks$

Capita" a!e2uac0 ratio > 9risk weigte! assets;

Cre!it risk R


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ICICI BLP BATCH IV


EAaustive formu"a to compute minimum capita" un!er IR% is @

Minimum capita" re2uirement in term of percentage of tota" eAposure at

!efau"t

> Maturit0 a!:ustment

Risk J(,$-JE+/

Summar0 for factors to compute '

011 Accord'tandardi2ed

Approac"3IB AIB

P* %ase" CommitteeEAterna" Cre!it+ssessmentInstitution

%anks7 ownassessment


L,*6ew co""atera"recognise!

EApan!e! "ist ofco""atera"

6iAe! BG/s%anks7 ownassessment

.A*Cre!it conversionfactors

Cre!itconversionfactors

Cre!it conversionfactors3 5Ae! E+/s


MHar!"0

recognise!

Har!"0

recognise!,$ 0ears

%anks7 ownassessment or,$ 0ears

CorrelationsNot eAp"icit"0recognise!

Not eAp"icit"0recognise!

Preset Corre"ationsPresetCorre"ations

'tress Testin$ for !"olesale ban#in$ portfolio

Stress test is being intro!uce! as one of te pi""ar in %ase" III +ccor!s$

Stress testing is !one for

a$ /omestic banks

b$ 6oreign banksc$ Corporate


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ICICI BLP BATCH IV


!$ Concentration riske$ Speci5c Risk

f$ Countr0 Risk

a$ /omestic banks @%ank7s CR+R is re!uce! b0 14 # if it is sti"" witin "imit prescribe! b0 R%I

i$e$ )4 ten te risk weigt of ,-4 is assigne! to suc banks$If te CR+R is between =4')4 after re!ucing it b0 14 ten risk weigt of

-4 is assigne! to suc banksSo for !omestic banks re!uction of 1 4 in CR+R+ is stress test$

%ase" II Risk weigts @base! on CR+R of counterpart0 bank

CR+R )4 # above =4 to ) 4 14 to =4 - to 14 Negative

Sce!u"e! bank ,-4 -4 (--4 (-4 =,4

Non sce!u"e!bank

(--4 (-4 ,-4 1-4 =,4

b$ 6oreign %anks'Transition matriA wic is a"so ca""e! as 6itc MatriA is use! for stress

testing of foreign banks$Steps Invo"ve! @

(; + matriA of ratings assigne! to foreign matriA is prepare! at te

beginning of 0ear on te basis of rating receive! from te eAterna"

agenc0,; +t te en! of 0ear again te same matriA prepare! an! movement

of ratings is observe! across a"" foreign banks$1; Te movement of ratings is reporte! in term of percentage in

anoter matriA after comparing it wit origina" rating matriA$.; + sing"e co"umn matriA is prepare! for te eAposure for te

respective rating c"ass$; Tis eAposure matriA is mu"tip"ie! b0 percentage matriA an! te

va"ue obtaine! is taken as R


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ICICI BLP BATCH IV


ii$ EAposure to a group of companies is more tan , 4 of net wort

ten its rating gets !egra!e! b0 one notc aan! revise! risk weigt

is assigne!$

e$ Speci5c risk'Speci5c is assigne! to !efau"ts of te investment ma!e$Ever0 investment as been assigne! speci5c risk weigt an! if it is not

tere ten it is ca"cu"ate! using fo""owing formu"a'

CR+R 9)4; > Capita" carge ? R


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ICICI BLP BATCH IV


%$ 6or non'!efau"t portfo"io'

6or non !efau"te! portfo"io BG/ is base! on'

i$ Co""atera" t0peii$ Haircut on co""atera"iii$ Va"ue of co""atera"

BG/ for respective t0pe of co""atera" ave been given b0 R%I as

fo""ows'

Co""atera" T0pe BG/

6inancia" 9Go"!3 6/3 G'Sec3 %on!s3etc$;

-4

Rea" Estate 14

Receivab"e 14Fter .-4

nsecure! .4

'tress Testin$ for retail ban#in$ portfolio

Retai" portfo"io is stresse! for worst environmenta" an! eAterna" situation an!

observing te "osses an! canges in capita" a!e2uac0 ratio$

4utloo# on Basel II and e5olution of Basel III (

6iancia" crisis !uring ,--*'-) as sown tat te average "eve" an! 2ua"it0 of

capita" re2uire! b0 te %ase" II accor! is ina!e2uate

Te tir! insta"ment of te %ase" +ccor!swic is a g"oba"3 vo"untar0 regu"ator0

stan!ar! on bank capita" a!e2uac03 stress testingan! market "i2ui!it0risk$

It was !eve"ope! in response to te !e5ciencies in 5nancia" regu"ationrevea"e!

b0 te "ate',---s 5nancia" crisis$ %ase" III was suppose! to strengten bank

capita" re2uirementsb0 increasing bank "i2ui!it0 an! !ecreasing bank "everage$

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