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Risk Profiling of Indian Banks - Basel

Disclosure
Course: Risk Modelling and Simulation
Bhavik Vakil Shagun Verma
Devyash Jain Saurin Shah
Mridul Bhansali Vivek Sisodia
Rahul Srinivasan

Credit Risk and Market Risk


Credit Risk

Market Risk

Potential that a banks borrower


or counterparty may fail to meet
its obligations

Possibility of loss to a bank


caused by changes in the
market variables

Inability or unwillingness of a
customer or a counterpart to
meet commitments

Interest rates, foreign


exchange rates and equity and
commodity prices

Actual or perceived
deterioration in credit quality

Value of on or off balance


sheet positions

Loans, the banking book, the


trading book, and both on and
off balance sheet
Maximizing banks risk-adjusted
rate of return by maintaining

The Bank for Banks


International
Settlements
(BIS)
earnings
and capital
defines market risk as
the risk that the value of on or off balance sheet
positions will be adversely affected by movements in equity
and interest rate markets, currency exchange rates and
commodity prices.

Capital Adequacy Framework


Approach To have sufficient capital to provide a stable resource to absorb any losses arising from
the risks in its business

Tier I capital

Paid-up capital (ordinary


shares), statutory reserves, and
other disclosed free reserves, if
any;
Perpetual Non-cumulative
Preference Shares (PNCPS)
eligible for inclusion as Tier I
capital - subject to laws in force
from time to time;
Innovative Perpetual Debt
Instruments (IPDI) eligible for
inclusion as Tier I capital; and
Capital reserves representing
surplus arising out of sale

Tier II capital

Undisclosed Reserves - Post Tax profits,


unencumbered, not used for absorbing
normal operating losses
Revaluation Reserves Discounted by 55%
for inclusion in Tier II capital
General Provisions and Loss Reserves - Not
attributable to diminution in value or
identifiable potential loss in any specific
asset, available to meet unexpected losses
Hybrid Debt Capital Instruments instruments which have close similarities to
equity
Investment Reserve Account - Excess

Basel Framework
Basel Norms Set of agreements by the BCBS, focusing on risks to banks and the financial system,
introduced for banking community

Basel II

Basel I

Basel III

Provided a paradigm to risk


management from a banks
capital adequacy perspective

Introduced market and operational


risk

Introduced liquidity risk & leverage


ratios

Focused on banks existing


assets

Forward looking option to smaller


banks to adopt more risk sensitive
and less standardized approach in
capital calculation

Stricter data governance and data


requirements

Fixed, pre-determined risk


weights for different asset
classes
Differentiated assets between
trading and banking books

Improved the oversight by raising


the bar on supervisory
responsibilities

No advanced measurement of
risk
Simple Tier calculations - Tier 1
Source:
The ABCs
of Basel
I_II_III (Capgemini Resources)
(4%) and
Total
(8%)

Increased standardized approach risk


sensitivity for residential mortgages,
certain commercial credit facilities, etc.
Emphasis on reducing systematic risk

Basel Disclosures
Credit Risk: Management Policy,
Exposure, Portfolio Management, NPAs
Credit Risk: Mitigation

Securitisation

Market Risk in Trading Book

Scope of Application & Capital


Adequacy
Qualitative Disclosure
Quantitative Disclosure
Capital Adequacy
Risk Management: Objective &
Organisation Structure

Operational Risk

Interest Rate Risk in the Banking


Book
Liquidity Risk
Exposure related to Counterparty
Credit Risk
Composition of Capital
The Reconciliation of Regulatory
Capital items

Summary of Basel Disclosures by Indian Banks (Basel II)

Banks

CER

Tier 1

Tier II

Total

Banks

CER

Tier 1

Tier II

Total

SBI

10.41

3.53

13.94

OBC

PNB

9.56

4.10

13.66

PSB

8.77

2.98

11.75

Indian

12.29

1.38

13.67

UCO

10.49

IDFC

7.30

3.43

10.73

IndusInd

Allahaba
d

RBL

ICICI

Dena

7.56

3.71

11.27

Yes

10.66

11.21

3.00

14.21

Axis

7.57

4.48

12.05

HDFC

KMB

Baroda
BOI

Summary of Basel Disclosures by Indian Banks (Basel III)

Banks

CER

Tier 1

Tier II

Total

Banks

CER

Tier 1

Tier II

Total

SBI

9.81

9.92

3.20

13.12

OBC

9.10

2.66

11.76

PNB

8.48

10.16

2.99

13.15

PSB

9.29

9.29

1.62

10.91

Indian

11.68

12.08

1.12

13.20

UCO

7.52

7.63

2.00

9.63

IDFC

21.50

21.50

0.54

22.04

8.30

8.41

2.61

11.02

IndusInd

14.92

14.92

0.58

15.50

Allahaba
d

RBL

11.10

11.10

1.84

12.94

ICICI

13.00

13.09

3.55

16.64

7.14

8.59

2.41

11.00

Yes

10.30

10.70

5.80

16.50

10.29

10.79

2.39

13.18

Axis

12.56

12.62

2.79

15.41

7.97

9.03

2.98

12.01

HDFC

13.22

13.22

2.31

15.53

KMB

16.10

16.10

0.90

17.00

Dena
Baroda
BOI

Basel Disclosures by Axis Bank

Axis Bank Annual


Report (Excerpts)

Thank You!