Basel II - GP

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IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION
By:Pratik Shah Anant Gajjar

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A COMPREHENSIVE PROJECT REPORT ON
Prepared At SLIBM Ahmedabad
In the partial fulfillment of Gujarat technological university requirement for the award of the title master of business administration Under the Guidance Of:
MR. ATUL PARIKH [Ex. Sr. Vice President (Axis Bank), Mgmt. Consultant and Trainer] Submitted to: Compiled and prepared by:-
GUJARAT TECHNOLOGICAL UNIVERSITY
PRATIK SHAH [37] [Enroll no: - 097780592039]
ANANT GAJJAR [12] [Enroll no: - 097780592042] 2|Page
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SOM-LALIT INSTITUTE OF BUSINESS MANAGEMENT

SLIMS Campus, Near St. Xavires College Navarangpura , Ahmedabad 380009
CERTIFICATE
This is to certify that the project title IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION is a bonafide work done by Mr.Pratik Shah and Mr. Anant Gajjar , students of Som Lalit Institute of Business Management. They have successfully completed and submitted their project under my guidance, towards partial fulfilment of MBA Programme, year 2009-11. I am sure that the experience gained during the project work will enable them to take similar challenges in future.
Date: 19-04-2011
Place: Ahmedabad
Project Guide ........................... . MR.ATUL PARIKH [Ex Sr. Vice President, Axis Bank]
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DECLARATION
We, Mr Pratik Shah and Mr Anant Gajjar , students of MBA , hereby declare that the project work presented in this report is our contribution and has been carried out under supervision and guidance of Mr Atul Parikh. The objective of the grand project is to gain knowledge about Banking industry and impact of Basel II norms and its implementation. This work has not been previously submitted to any other university for any other examination.
Date: 19-04-2011
Place: Ahmedabad
Signature:
Mr Pratik Shah
Mr Anant Gajjar
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ACKNOWLEDGEMENT
It takes a combined effort of both of us to complete a report. Through this brief note, we would like to express our gratitude to all those who contributed to the making of this report. This report is a step to pen down whatever we have learnt while studying the Project Management.
We would like to thank our Guide Mr. Atul Parikh for giving us an opportunity to work on such a broad and interesting topic and help us gaining the maximum out of this whole process.
We would also like to thank Mr. Atul Parikh, for providing us such a fabulous opportunity to work on this project. Moreover, we thank our college Som-Lalit Institute of Business Management for availing us such an efficient infrastructural facility throughout the process.
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PREFACE
This report gives an overview of the Banking sector in India. With proposal of the Basel II Norms, the report explains the scope and applications of Basel II Norms. It states the particulars about the 3 pillars of the Basel II Norms. It studies the initiatives taken by the RBI for the implementation of the Basel II Accords.
After studying the framework and implementation of the norms, the report studies the probable impact of the implementation of Basel II Norms on the Indian Banking Sector. It considers two points while discussing the impact of Basel II Norms on the emerging economy like India. The first are the consequences emerging economies will have to face because of Implementation in advanced countries. The second is the impact because of the implementation within the emerging economy.
Simple language has been used throughout the report. Report is illustrated with figure, charts and diagrams as and when required.
Finally we hope that this report will be able to give current scenario of banking sector to the readers.
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EXECUTIVE SUMMARY
This report gives an overview of the Banking sector in India. With proposal of the Basel II Norms, the report explains the scope and applications of Basel II Norms. It states the particulars about the 3 pillars of the Basel II Norms. It studies the initiatives taken by the RBI for the implementation of the Basel II Accords.
After studying the framework and implementation of the norms, the report studies the probable impact of the implementation of Basel II Norms on the Indian Banking Sector. It considers two points while discussing the impact of Basel II Norms on the emerging economy like India. The first are the consequences emerging economies will have to face because of Implementation in advanced countries. The second is the impact because of the implementation within the emerging economy.
The research carried out is basically explanatory type, the problems faced by the emerging economies and the positive & negative impacts of implementation.
The report also states finding of the current scenario of major banks in India with respect to Basel II implementation. Further the report talks about possible impact of Basel II norms on the Indian Banking industry.
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SR.NO 1 2 3 4 5 6 7 8 9 10 11 12 12.1 12.2 12.3 13 16.1 14 15 16 17
CONTENT OBJECTIVE OF THE STUDY METHODOLOGY INTRODUCTION TO BANKING SECTOR INTRODUCTION TO BASEL II NORMS CAPITAL ADEQUACY NEED FOR BASEL II NORMS SCOPE OF APPLICATION HISTORY OF BASEL II 'DRAFT' GUIDELINES FOR IMPLEMENTATION OF BASEL II IN INDIA BASEL II CREATES ADVANTAGES DISADVANTAGES FOR BANKS BUSINESS BASEL II FRAMEWORK PILLAR I : MINIMUM CAPITAL REQUIREMENT TIER I CAPITAL TIER II CAPITAL TIER III CAPITAL PILLAR II: SUPERVISORY REQUIREMENTS FOUR KEY REVIEW PRINCIPLES OF SUPERVISORY AND
PAGE NO. 01 02 03 07 09 11 13 15 16 21 23 24 30 31 33 35 36 49 50 54 61
PILLAR 3: MARKET DISCIPLINE IMPLEMENTATION OF BASEL II NORMS EXPECTED IMPACT OF BASEL II NORMS OVERVIEW OF BASEL II DISCLOSURES OF VARIOUS BANKS
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17.1 17.2 17.3 17.4 17.5 18 19 20 21
FOREIGN BANKS NATIONALIZED BANKS NEW PRIVATE BANKS OLD PRIVATE BANKS PUBLIC SECTOR BANK FINDINGS RECOMMENDATIONS CONCLUSION BIBLIOGRAPHY
61 63 65 69 71 72 78 80 82
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OBJECTIVE OF THE STUDY
The objective of the report is to comprehend the impact of Basel II Norms on the Indian Banking sector and its implementation thereof. With the Indian economy moving on to a high growth trajectory, consumption levels soaring and investment riding high, the Indian banking sector is at a defining moment. A rapidly growing economy, financial sector reforms, rising foreign investment, favorable regulatory climate and demographic profile has led to India becoming one of the fastest growing banking markets in the world. It is generally agreed the implementation of Basel II is likely to provide momentum for mergers and acquisitions in the Indian banking industry. With all this, there is the proposal for the implementation of Basel II Norms.
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METHODOLOGY
Research type Descriptive Research
Here, we are under going to have descriptive research i.e. analysis of banks financial statements which will make us understand the position of one bank in comparison of another and their financial position.
Data Source
1) PRIMARY DATA
Banks balance sheet, Banks income statement & Basel II Disclosures.
2) SECONDARY DATA
Banks prospectus, journals, papers & articles, annual reports and other related websites
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INTRODUCTION TO BANKING SECTOR
Indian Banking Industry Banking in India originated in the first decade of 18th century with The General Bank of India coming into existence in 1786. This was followed by Bank of Hindustan. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as "The Bank of Bengal" in Calcutta in June 1806. A couple of decades later, foreign banks like Credit Lyonnais started their Calcutta operations in the 1850s. At that point of time, Calcutta was the most active trading port, mainly due to the trade of the British Empire, and due to which banking activity took roots there and prospered. The first fully Indian owned bank was the Allahabad Bank, which was established in 1865.
By the 1900s, the market expanded with the establishment of banks such as Punjab National Bank, in 1895 in Lahore and Bank of India, in 1906, in Mumbai - both of which were founded under private ownership. The Reserve Bank of India formally took on the responsibility of regulating the Indian banking sector from 1935. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers.
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Nationalization By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it emerged as a large employer, and a debate has ensued about the possibility to nationalize the banking industry. Indira Gandhi, the-then Prime Minister of India expressed the intention of the GOI in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalization." The paper was received with positive enthusiasm. Thereafter, her move was swift and sudden, and the GOI issued an ordinance and nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the GOI controlled around 91% of the banking business of India.
After this, until the 1990s, the nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.
Liberalization In the early 1990s the then Narasimha Rao government embarked on a policy of liberalization and gave licenses to a small number of private banks, which came to be known as New Generation tech-savvy banks, which included banks such as UTI Bank(now re-named as Axis Bank) (the first of such new generation banks to be set up), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, kick started the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks.
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The next stage for the Indian banking has been setup with the proposed relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in banks may be given voting rights which could exceed the present cap of 10%,at present it has gone up to 49% with some restrictions.
The new policy shook the Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%;Go home at 4) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People not just demanded more from their banks but also received more.
Current Situation Currently (2007), banking in India is generally fairly mature in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the government. The stated policy of the Bank on the Indian Rupee is to manage volatility but without any fixed exchange rate-and this has mostly been true.
With the growth in the Indian economy expected to be strong for quite some timeespecially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. One may also expect M&As, takeovers, and asset sales.
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In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak Mahindra Bank (a private sector bank) to 10%. This is the first time an investor has been allowed to hold more than 5% in a private sector bank since the RBI announced norms in 2005 that any stake exceeding 5% in the private sector banks would need to be vetted by them.
Currently, India has 88 scheduled commercial banks (SCBs) - 28 public sector banks (that is with the Government of India holding a stake), 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.
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INTRODUCTION TO BASEL II NORMS
In the four years since it was introduced by the Basel Committee for Banking Supervision, the Basel II Capital Accord has evolved as a complex set of recommendations that will likely create avariety of regulatory compliance challenges for banks in Europe and around the globe.
More important, however, are the wide range of business implications and risk management challenges that Basel II (the New Accord) could trigger for banks, their non-bank competitors, customers, rating agencies, regulators, and, ultimately, the global capital markets.
For example:
_ Banks will be asked to implement an enterprise-wide risk management framework that ties regulatory capital to economic capital. _ Non-banks outside the scope of Basel II will not face its compliance challenges but may nonetheless want to use it as a competitive benchmark. _ Bank customers will need to collect and disclose new information and likely will face new risk structures as a result of increased transparency. _ Rating agencies have new prominence under Basel II and thus could experience new competition. _ Regulators are asked to provide a level playing field as the Basel Committees recommendations are implemented by legislatures in various countries. _ The global banks could experience extended trends toward securitization as financial institutions adapt to Basel II requirements.
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The complexity of the New Accord, as well as its interdependencies with International Financial Reporting Standards and local regulation worldwide, makes implementation of Basel II a highly complex project. For a bank, a project will be driven by the structure of its business, beginning with its strategy and encompassing its risk management and capital calculation methods, business processes, data requirements, and IT systems. With a structured and disciplined approach, banks can begin to achieve the Basel Committees intended benefits of enhanced risk management and lower capital requirements. Such changes, in turn, could influence banks strategies, customer relations, and, over time, their business models.
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CAPITAL ADEQUACY
Capital Adequacy is a measure that ensures that the banks have enough capital to absorb a reasonable amount of loss in any adverse situations. It is calculated using the Capital Adequacy Ratio (CAR). Capital Adequacy Ratio is also called as called Capital to Risk Assets Ratio.
Capital adequacy ratio is the ratio, which determines the capacity of the bank in terms of meeting the time liabilities and other risk such as credit risk, operational risk, etc. In the simplest formulation, a bank's capital is the "cushion" for potential losses, which protects the bank's depositors or other lenders. Banking regulators in most countries define and monitor CAR to protect depositors, thereby maintaining confidence in the banking system.
Since different types of assets have different risk profiles, CAR primarily adjusts for assets that are less risky by allowing banks to "discount" lower-risk assets. The specifics of CAR calculation vary from country to country, but general approaches tend to be similar for countries that apply the Basel Accords.
In the most basic application, government debt is allowed a zero percent "risk weightage" this is because in case of losses or non-repayment of loans the government takes care of the payments. Thus they are subtracted from total assets for purposes of calculating the CAR.
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Objectives of CAR: The fundamental objective behind the norms is to strengthen the soundness and stability of the banking system.
Capital Adequacy Ratio or CAR or CRAR: It is ratio of capital fund to risk weighted assets expressed in percentage terms i.e.
Minimum requirements of capital fund in India: * Existing Banks 09 % * New Private Sector Banks 10 % * Banks undertaking Insurance business 10 % * Local Area Banks 15%
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NEED FOR BASEL II NORMS
In 1988 the Bank for International Settlements Basel Committee on Banking Supervision, commonly known as the Basel Committee, imposed the Basel Capital Accord. The Basel Capital Accord introduced a system for implementing a credit risk framework for determining the minimum amount of capital that a bank must hold as a cushion against risks. The Basel Capital Accord was adopted over time not only in member countries, but in virtually all countries operating international banks. One problem with the original Basel Capital Accord was that it took a "one size fits all" approach, without regard for the actual operational risk incurred by the bank. In 2004, the Basel II Accord was established. The new accord aligns the requirement for capital on hand with the actual risk involved, providing an incentive for banks to improve risk management. Basel II is the second of the Basel Accords recommended on banking laws and regulations issued by the Basel Committee on Banking Supervision. The purpose of Basel II is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risk banks face. These international standards can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. Basel II insists on setting up rigorous risk and capital management requirements designed to ensure that a bank holds capital reserves appropriate to the risk The underlying assumption behind these rules is that the greater risk to which the bank is exposed, the greater the amount of capital the bank needs to hold to safeguard its solvency and overall economic stability. It will also oblige banks to enhance disclosures.
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Thus Indian banks require Basel II compliance for the following reasons:-
1) Basel II norms will facilitate introduction of new complex financial products in Indian Banking Sector.
2) Indian banks require a more risk sensitive framework. There is improvement in risk management system by Indian banks.
3) New rules will provide a range of options for estimating regulatory capital and will reduce gap between regulatory capital & economic capital.
Indian banks today, operate in an environment characterized by progressive deregulation, increased global integration and IT usage which have opened up a plethora of domestic and international opportunities for them. In light of this, RBI has enforced mandatory adoption of Basel II guidelines for Indian banks which are a set of prudential regulatory norms with an almost universal acceptance.
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SCOPE OF APPLICATION
This Framework will be applied on a consolidated basis to internationally active banks. The scope of application of the Framework will include, on a fully consolidated basis, any holding company that has the parent entity within a banking group to ensure that it captures the risk of the whole banking group. The Framework will also apply to all internationally active banks at every tier within a banking group, also on a fully consolidated basis. A three-year transitional period for applying full sub-consolidation will be provided for those countries where this is not currently a requirement.
Further, as one of the principal objectives of supervision is the protection of depositors, it is essential to ensure that capital recognized in capital adequacy measures is readily available for those depositors. Accordingly, supervisors should test that individual banks are adequately capitalized on a stand-alone basis.
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Diversified Financial Group Holding Company

Internationally Active Bank
[1]
[2]
[3]
[4] Internationally Active Bank Internationally Active Bank
Domestic Banks
Securities Firm
[1] Boundary of predominant banking group. The framework is applied at this level on a consolidated basis, i.e. up to holding company level. [2] [3] & [4] : The framework is also applied to lower levels to all internationally active banks on a consolidated basis.
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HISTORY OF BASEL II
The initial Basel Accord in 1988 was based on a simple model to measure capital. In today's world this approach is less meaningful for many banks. For example, in the 1998 Accord the risk was based across exposure groups and not the individual elements of credit worthiness within these groups. There have been many advances which will allow a more detailed approach to calculating Capital, such as better Credit ratings information and the development of Information technology.
Also, improvements in internal processes and better risk management practices such as securitisation have changed leading organisations monitoring and management of exposures and activities. Supervisors and sophisticated banking organisations have found that the static rules set out in the 1988 Accord have not kept pace with advances in sound risk management practices. It's likely that existing capital regulations may not reflect banks actual business practices.
The upgraded Basel II Framework relates more to the underlying risks in banking and provides better incentives for improved risk management. It builds on the 1988 Accords basic structure for setting capital requirements and improves the capital frameworks sensitivity to the risks that banks actually face. This will be achieved in part by aligning capital requirements more closely to the risk of credit loss and by introducing a new capital charge for exposures to the risk of loss caused by operational failures.
Basel will demand that a certain minimum Capital requirement is met, as well as another two important factors, the Supervisory Role and Market Discipline.
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'DRAFT' GUIDELINES FOR IMPLEMENTATION OF BASEL II IN INDIA
The Basel Committee on Banking Supervision (BCBS) has released the document, "International Convergence of Capital Measurement and Capital Standards: A Revised Framework" on June 26, 2004. The revised Framework has been designed to provide options for banks and banking systems, for determining the capital requirements for credit risk and operational risk and enables banks / supervisors to select approaches that are most appropriate for their operations and financial markets. The Framework is expected to promote adoption of stronger risk management practices in banks.
The Revised Framework, popularly known as Basel II, builds on the current framework to align regulatory capital requirements more closely with underlying risks and to provide banks and their supervisors with several options for assessment of capital adequacy. Basel II is based on three mutually reinforcing pillars minimum capital requirements, supervisory review, and market discipline. The three pillars attempt to achieve comprehensive coverage of risks, enhance risk sensitivity of capital requirements and provide a menu of options to choose for achieving a refined measurement of capital requirements.
The Revised Framework consists of three-mutually reinforcing Pillars, viz. minimum capital requirements, supervisory review of capital adequacy, and market discipline. Under Pillar 1, the Framework offers three distinct options for computing capital requirement for credit risk and three other options for computing capital requirement for operational risk. These approaches for credit and operational risks are based on increasing risk sensitivity and allow banks to select an approach that is most appropriate to the stage of development of bank's operations.
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The approaches available for computing capital for credit risk are Standardised Approach, Foundation Internal Rating Based Approach and Advanced Internal Rating Based Approach. The approaches available for computing capital for operational risk are Basic Indicator Approach, Standardised Approach and Advanced Measurement Approach.
With a view to ensuring migration to Basel II in a non-disruptive manner, the Reserve Bank has adopted a consultative approach. A Steering Committee comprising of senior officials from 14 banks (private, public and foreign) has been constituted where Indian Banks' Association is also represented.
Keeping in view the Reserve Bank's goal to have consistency and harmony with international standards it has been decided that at a minimum, all banks in India will adopt Standardized Approach for credit risk and Basic Indicator Approach for operational risk with effect from March 31, 2007. After adequate skills are developed, both in banks and at supervisory levels, some banks may be allowed to migrate to IRB Approach after obtaining the specific approval of Reserve Bank.
As the Basel II Capital Accord continues to evolve, the Basel Committee on Banking Supervision1 moves closer to its goal of aligning banking risks and their management with capital requirements. By redefining how banks worldwide calculate regulatory capital and report compliance to regulators and the public,
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Basel II is intended to improve safety and soundness in the financial system by placing increased emphasis on banks own internal control and risk management processes and models, the supervisory review process, and market discipline.
While the 1988 Capital Accord addressed market and credit risks, Basel II substantially changes the treatment of credit risk and also requires that banks have sufficient capital to cover operational risks. It also imposes qualitative requirements on the management of all risks as well as new disclosures Basel II is scheduled to be implemented by various country bank regulators by the end of 2006, but banks must begin compliance efforts now if they are to strengthen their risk management capabilities and gather the extensive data that is required in some cases. They should make these efforts despite uncertainty about how local regulators will ultimately apply the New Accord to their regulatory capital requirements.
To be able to implement Basel II sufficiently, most banks will need to rethink their business strategies as well as the risks that underlie them. Indeed, calculating capital requirements under the New Accord requires a bank to implement a comprehensive risk framework across the institution. The risk management improvements that are the intended result may be rewarded by lower capital requirements. However, large implementation projects will likely have wide-ranging effects on a banks information technology systems, processes, people, and businessbeyond the regulatory compliance and finance functions.
Basel II also encourages ongoing improvements in risk assessment and mitigation. Thus, over time, it presents banks with the opportunity to gain competitive advantage by allocating capital to those processes, segments, and markets that demonstrate a strong risk/return ratio. Developing a better understanding of the risk/reward trade-off for capital supporting specific businesses, customers, products, and processes is one\ of the most important potential business benefits banks may derive from compliance, as envisioned by the Basel Committee.
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Since the first consultative paper on the New Accord was issued in July 1999, some banks have tended to treat compliance with Basel II as a technical issue. In fact, for institutions worldwide, Basel II compliance is a risk management challenge with strategic business implications. Indeed, even those institutions that are not required to comply with the New Accord will likely tend to use it as a risk management benchmark so they may remain competitive with those that must comply.
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TIME LINE FOR BASEL II IMPLEMENTATION
The capital allocation under Basel II is more risk sensitive and comprehensive and its implementation would result in improved risk management at banks. Nevertheless the implementation of New Accord is by no means an easy task especially in countries where risk management in banks is at its infancy stage. The proposed implementation plan has been prepared on the basis of;
a) Feedback obtained from the banks b) Assessment of financial impact derived from quantitative Impact Study carried out by Banking Supervision Department c) Implementation of Basel II across various countries, especially in developing economies.
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Basel II Creates Advantages and Disadvantages for Banks Business
With Basel IIs implementation, banks average capital requirements should not change significantly on an industry level, but an individual bank may experience a significant change. For example, capital requirements should drop substantially at a bank with a prime business portfolio that is well collateralized. On the other hand, a bank with a high-risk portfolio will likely face higher capital requirements and, consequently, limits on its business potential. Those deemed high risk could include banks that are pure risk takers with a buy-and-hold credit management approach, no clear customer segmentation, a lack of collateral management as well as inadequate processes, unstable IT systems, and a poor overall risk management function. Indeed, such entities may not be able to make the necessary investment in compliance; thus, consolidation in the banking industry can be expected to continue in certain regions and markets. As Basel II helps banks differentiate customers by risk, advantages and disadvantages will likely emerge for bank customers.
Those with a possible advantage:
_ Prime mortgage customers _ Well-rated entities _ High-quality liquidity portfolios _ Collateralized and hedged exposures _ Small and medium-sized businesses
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Those with a possible disadvantage:
_ higher credit risk individuals _ Uncollateralized credit _ specialized lending (in some cases)
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BASEL II FRAMEWORK:
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PILLAR I: MINIMUM CAPITAL REQUIREMENT Introduction: The first pillar deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: credit risk, operational risk, and market risk. Other risks are not considered fully quantifiable at this stage. The credit risk component can be calculated in three different ways of varying degree of sophistication, namely standardized approach, Foundation IRB and Advanced IRB. IRB stands for "Internal Rating-Based Approach". For operational risk, there are three different approaches - basic indicator approach or BIA, standardized approach or TSA, and the internal measurement approach (an advanced form of which is the advanced measurement approach or AMA). For market risk the preferred approach is VaR (value at risk). As the Basel 2 recommendations are phased in by the banking industry it will move from standardized requirements to more refined and specific requirements that have been developed for each risk category by each individual bank. The upside for banks that do develop their own bespoke risk measurement systems is that they will be rewarded with potentially lower risk capital requirements. In future there will be closer links between the concepts of economic profit and regulatory capital. Credit Risk can be calculated by using one of three approaches: 1. Standardized Approach 2. Foundation IRB (Internal Ratings Based) Approach 3. Advanced IRB Approach
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The standardized approach sets out specific risk weights for certain types of credit risk. The standard risk weight categories are used under Basel 1 and are 0% for short term government bonds, 20% for exposures to OECD Banks, 50% for residential mortgages and 100% weighting on unsecured commercial loans. A new 150% rating comes in for borrowers with poor credit ratings. The minimum capital requirement (the percentage of risk weighted assets to be held as capital) remains at 8%. For those Banks that decide to adopt the standardized ratings approach they will be forced to rely on the ratings generated by external agencies. Certain Banks are developing the IRB approach as a result.
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TYPES OF RISKS
Credit risk A bank always faces the risk that some of its borrowers may renege on their promises for timely repayments of loan, interest on loan or meet the other terms of contract. This risk is called credit risk, which varies from borrower to borrower depending on their credit quality. Basel II requires banks to accurately measure credit risk to hold sufficient capital to cover it. Factors affecting credit risk can be summarized by the following formula:
Expected Loss (EL) on a loan = Exposure at default (EAD) * Loss given default (LGD) * Probability of Default (PD)
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The bank can also suffer losses in excess of expected losses, say, during economic downturns. These losses are called unexpected losses. Ideally, a bank should recover expected loss on a loan from its customer through loan pricing. The capital base is required to absorb the unexpected losses, as and when they arise.
Market risk As part of the statutory requirement, in the form of SLR (statutory liquidity ratio), banks are required to invest in liquid assets such as cash, gold, government and other approved securities. For instance, Indian banks are required to invest 25 per cent of their net demand and term liabilities in cash, gold, government securities and other eligible securities to comply with SLR requirements. Such investments are risky because of the change in their prices. This volatility in the value of a bank's investment portfolio in known as the market risk, as it is driven by the market. The change in the value of the portfolio can be due to changes in the interest rates, foreign exchange rates or the changes in the values of equity or commodities.
Operational risk Several events that are neither due to default by third party nor because of the vagaries of the market. These events are called operational risks and can be attributed to internal systems, processes, people and external factors. Pillar I ensures that banks measure their risks properly and maintain adequate capital to cover them. But can Pillar I alone ensure that there are no more bank failures? No. As any stable structure cannot stand on a single pillar, Basel II relies on the pillars of supervisory reviews and market discipline to keep the banks healthy.
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:--The structure of several operational risk measurement methodologies. The Basic Indicator approach The Basic Indicator Approach is the simplest, but it will charge the most capital generally. It's based on a straight percentage of gross income, which includes net interest income and net non-interest income but excludes extraordinary or irregular items. While this approach may roughly capture the scale of an institutions operations, it surely has only the most questionable link to the risk of an expected loss due to internal or external events. The Standardized Approach The concept for applying the Standardized Approach is basically the same as the Basic Indicator Approach. The main difference between the two is that The Standardized Approach must divide the banks business operations into 8 business lines: corporate finance, trading & sales, retail banking, commercial banking, payment & settlement, agency services, asset management, and retail brokerage.
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Business Lines Corporate finance Trading and sales Retail Banking Commercial Banking Payment and Settlement Agency Services Asset Management Retail Brokerage
Risk Weights 18% 18% 12% 15% 18% 15% 12% 12%
:--Percentage of the relative weighting of the business lines In the Standardized Approach, the gross income is measured for each business line, not the whole institution. For example: in corporate finance, the indicator is the gross income generated in the corporate finance business line.
The Advanced Measurement Approach As one can see, the gross income is the basis for calculating a capital charge for both the Basic Indicator and Standardized Approaches. In practice, these two approaches calculate the most capital charges, compared to the Advanced Measurement Approach.
The Advanced Measurement Approach (AMA) is the last approach. This approach charges the least amount of capital; also this approach is comparatively more sophisticated. However, going by the sophistication of the AMA from the perspective of the cost beneficial factor, it will perhaps be wrong to conclude that it is thus far the best approach, for some banks. Consider that only large banks have the financial power to implement this approach and also make it profitable. The AMA, however, offers the greatest possibility to reduce capital requirements. It includes three approaches, namely the internal measurement approach (IMA), the scorecard approach and the Loss Distribution Approach.
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TIER I CAPITAL In order to protect the integrity of Tier 1 capital, the Committee has determined that minority interests in equity accounts of consolidated subsidiaries that take the form of SPVs should only be included in Tier 1 capital if the underlying instrument meets the following requirements which must, at a minimum, be fulfilled by all instruments included in Tier 1: issued and fully paid; non-cumulative; able to absorb losses within the bank on a going-concern basis; junior to depositors, general creditors, and subordinated debt of the bank; permanent; neither be secured nor covered by a guarantee of the issuer or related entity or other arrangement that legally or economically enhances the seniority of the claim vis--vis bank creditors; and callable at the initiative of the issuer only after a minimum of five years with supervisory approval and under the condition that it will be replaced with capital of same or better quality unless the supervisor determines that the bank has capital that is more than adequate to its risks.
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TIER II CAPITAL:
1. Undisclosed reserves Under this heading are included only reserves which, though unpublished, have been passed through the profit and loss account and which are accepted by the bank's supervisory authorities.
2. Revaluation reserves Some countries, under their national regulatory or accounting arrangements, allow certain assets to be revalue to reflect their current value, or something closer to their current value than historic cost, and the resultant revaluation reserves to be included in the capital base.
3. General provisions/general loan-loss reserves General provisions or general loan-loss reserves are created against the possibility of losses not yet identified. Where they do not reflect a known deterioration in the valuation of particular assets, these reserves qualify for inclusion in Tier 2 capital.
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4. Hybrid debt capital instruments In this category fall a number of capital instruments which combine certain characteristics of equity and certain characteristics of debt. Each of these has particular features which can be considered to affect its quality as capital.
5. Subordinated term debt The Committee is agreed that subordinated term debt instruments have significant deficiencies as constituents of capital in view of their fixed maturity and inability to absorb losses except in liquidation.
Both Tier I and Tier II capital were first defined in the Basel I capital accord. More specifically, Tier I Capital is a measure of capital adequacy of a bank, and is the ratio of a bank's core equity capital to its total risk-weighted assets.
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TIER III CAPITAL:
Tier III capital consists of short-term subordinated debt maintained for the sole purpose of meeting a portion of the capital requirements for market risks, subject to the condition that PDs (Perpetual Debts) will be entitled to use Tier-II capital solely to support market risks. This means that capital requirements arising in respect of credit and counter-party risk, including the credit counter-party risk in respect of derivatives, need to be met by Tier-I and Tier-II capital only. The sum total of Tier-II plus Tier-III capital should not exceed the total Tier-I capital.
Risk weighted assets is the total of all assets held by the bank which are weighted for credit risk according to a formula determined by the Regulator (usually the country's Central Bank). Most Central Banks follow the BIS - Bank of International Settlements guidelines in setting asset risk weights. Assets like cash and coins usually have zero risk weights, while unsecured loans might have a risk weight of 100%.
The first pillar sets out minimum capital requirement. The new framework maintains minimum capital requirement of 8% of risk assets. In India though, RBI norms on capital requirement is at 9%, which is more stringent than the Basel Committee stipulation of 8%.
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Under the new accord capital adequacy ratio will be measured as under Capital Adequacy Ratio (CAR) = Total Capital
Risk Weighted Assets
i.e. CAR =
Tier I Capital + Tier II Capital +Tier III Capital
Credit risk + Market risk + Operational risk
(Tier III capital has not yet been introduced in India.)
Basel II focuses on improvement in measurement of risks. The revised credit risk measurement methods are more elaborate than the current accord. It proposes, for the first time, a measure for operational risk, while the market risk measure remains unchanged
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PILLAR II: SUPERVISORY REQUIREMENTS
Introduction: This section discusses the key principles of supervisory review, supervisory Transparency and accountability and risk management guidance produced by the Committee with respect to banking risks, including guidance pertaining to the treatment of interest rate risk in the banking book
Pillar II is based on a series of four key principles of supervisory Review. These principles address two central issues:
1) The need for banks to assess capital adequacy relative to risks overall, and
2) The need for supervisors to review banks assessments and, consequently, to determine whether to require banks to hold additional capital beyond that required under Pillar I.
To comply with Pillar II, banks must implement a consistent risk-adjusted management framework that is comparable in its sophistication to, and closely linked with, the risk approaches the bank chose under Pillar I. The four principles provide necessary guidance, as does the Basel Committees other guidance related to the supervisory review process.
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FOUR KEY PRINCIPLES OF SUPERVISORY REVIEW
The Committee has identified four key principles of supervisory review, which are discussed in the Supervisory Review Process.
The four key principles complement those outlined in the extensive supervisory guidance that has been developed by the Basel Committee, the keystone of which is the Core Principles for Effective Banking Supervision and the Core Principles Methodology. Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.
Banks must be able to demonstrate that chosen internal capital targets are well founded and these targets are consistent with their overall risk profile and current operating environment. In assessing capital adequacy, bank management needs to be mindful of the particular stage of the business cycle in which the bank is operating. Rigorous, forward looking stress testing that identifies possible events or changes in market conditions that could adversely impact the bank should be performed. Bank management clearly bears primary responsibility for ensuring that the bank has adequate capital to support its risks.
The five main features of a rigorous process are as follows:
1. Board and senior management oversight; 2. Sound capital assessment; 3. Comprehensive assessment of risks; 4. Monitoring and reporting; and 5. Internal control review.
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1. BOARD AND SENIOR MANAGEMENT OVERSIGHT
A sound risk management process is the foundation for an effective assessment of the adequacy of banks. Capital positions. Bank management is responsible for understanding the nature and level of risk being taken by the bank and how these risks relate to adequate capital levels. It is also responsible for ensuring that the formality and sophistication of the risk management processes are appropriate in light of the risk profile and business plan. The analysis of banks. current and future capital requirements in relation to strategic objectives is a vital element of the strategic planning process.
This section of the paper refers to a management structure composed of a board of directors and senior management. The Committee is aware that there are significant differences in legislative and regulatory frameworks across countries as regards the functions of the board of directors and senior management. In some countries, the board has the main, if not exclusive, function of supervising the executive body (senior management, general management) so as to ensure that the latter fulfils its tasks. For this reason, in some cases, it is known as a supervisory board. This means that the board has no executive functions. In other countries, by contrast, the board has a broader competence in that it lays down the general framework for the management of the bank.
Owing to these differences, the notions of the board of directors and senior management are used in this section not to identify legal constructs but rather to label two decision-making functions within a bank. clearly outline the banks capital needs, anticipated capital expenditures, desirable capital level, and external capital sources. Senior management and the board should view capital planning as a crucial element in being able to achieve its desired strategic objectives. The banks board of directors has responsibility for setting the banks tolerance for risks. They should also ensure that management establishes a measurement system for assessing the
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various risks, develops a system to relate risk to the banks capital level, and establishes a method for monitoring compliance with internal policies. It is likewise important that the board of directors adopts and supports strong internal controls and written policies and procedures and ensures that management effectively communicates these throughout the organisation.
2. SOUND CAPITAL ASSESSMENT
Fundamental elements of sound capital assessment include:
1. Policies and procedures designed to ensure that the bank identifies, measures, and reports all material risks; 2. a process that relates capital to the level of risk; 3. a process that states capital adequacy goals with respect to risk, taking account of the banks strategic focus and business plan; and 4. a process of internal controls, reviews and audit to ensure the integrity of the overall management process.
3. COMPREHENSIVE ASSESSMENT OF RISKS
All material risks faced by the bank should be addressed in the capital assessment process. While it is recognised that not all risks can be measured precisely, a process should be developed to estimate risks. Therefore, the following risk exposures, which by no means constitute a comprehensive list of all risks, should be considered.
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Credit risk: Banks should have methodologies that enable them to assess the credit risk involved in exposures to individual borrowers or counterparties as well as at the portfolio level. For more sophisticated banks, the credit review assessment of capital adequacy, at a minimum, should cover four areas: risk rating systems, portfolio analysis/aggregation, securitisation/complex credit derivatives, and large exposures and risk concentrations. Internal risk ratings are an important tool in monitoring credit risk. Internal risk ratings should be adequate to support the identification and measurement of risk from all credit exposures, and should be integrated into an institutions overall analysis of credit risk and capital adequacy. The ratings system should provide detailed ratings for all assets, not only for criticised or problem assets. Loan loss reserves should be included in the credit risk assessment for capital adequacy.
The analysis of credit risk should adequately identify any weaknesses at the portfolio level, including any concentrations of risk. It should also adequately take into consideration the risks involved in managing credit concentrations and other portfolio issues through such mechanisms as securitisation programs and complex credit derivatives. Further, the analysis of counterparty credit risk should include consideration of public evaluation of the supervisors compliance with the Core Principles of Effective Banking Supervision.
Market risk: This assessment is based largely on the banks own measure of valueat-risk. Emphasis should also be on the institution performing stress testing in evaluating the adequacy of capital to support the trading function. Interest rate risk in the banking book: The measurement process should include all material interest rate positions of the bank and consider all relevant reprising and maturity data. Such information will generally include: current balance and contractual rate of interest associated with the instruments and portfolios, principal
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payments, interest reset dates, maturities, and the rate index used for reprising and contractual interest rate ceilings or floors for adjustable-rate items. The system should also have well-documented assumptions and techniques. Regardless of the type and level of complexity of the measurement system used, bank management should ensure the adequacy and completeness of the system. Because the quality and reliability of the measurement system is largely dependent on the quality of the data and various assumptions used in the model, management should give particular attention to these items.
Liquidity Risk: Liquidity is crucial to the ongoing viability of any banking organisation. Banks. Capital positions can have an effect on their ability to obtain liquidity, especially in a crisis. Each bank must have adequate systems for measuring, monitoring and controlling liquidity risk. Banks should evaluate the adequacy of capital given their own liquidity profile and the liquidity of the markets in which they operate.
Other risk: The Committee recognises that within the other risk category, operational risk tends to be more measurable than risks such as strategic and reputational. The Committee wants to enhance operational risk assessment efforts by encouraging the industry to develop methodologies and collect data related to managing operational risk. For the purposes of measurement under Pillar 1 the Committee expects the industry to focus primarily upon the operational risk component of other risks. However, it also expects the industry to further develop techniques for measuring, monitoring and mitigating all aspects of other risks.
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4. MONITORING AND REPORTING
The bank should establish an adequate system for monitoring and reporting risk exposures and how the banks changing risk profile affects the need for capital. The banks senior management or board of directors should, on a regular basis, receive reports on the banks risk profile and capital needs.
These reports should allow senior management to:
1. evaluate the level and trend of material risks and their effect on capital levels; 2. evaluate the sensitivity and reasonableness of key assumptions used in the capital assessment measurement system; 3. determine that the bank holds sufficient capital against the various risks and that they are in compliance with established capital adequacy goals; and 4. assess its future capital requirements based on the bank.s reported risk profile and make necessary adjustments to the banks strategic plan accordingly.
5. INTERNAL CONTROL REVIEW
The banks internal control structure is essential to the capital assessment process. Effective control of the capital assessment process includes an independent review and, where appropriate, the involvement of internal or external audits. The banks board of directors has a responsibility to ensure that management establishes a measurement system for assessing the various risks, develops a system to relate risk to the bank.s capital level, and establishes a method for monitoring compliance with internal policies. The board should regularly verify whether its system of internal controls is adequate to ensure well-ordered and prudent conduct of business. The bank should conduct periodic reviews of its risk management process to ensure its integrity, accuracy, and reasonableness.
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Areas that should be reviewed include:
1. the appropriateness of the bank.s capital assessment process given the nature, scope and complexity of its activities; 2. the identification of large exposures and risk concentrations; 3. the accuracy and completeness of data inputs into the banks assessment process; 4. the reasonableness and validity of scenarios used in the assessment process, and 5. stress testing and analysis of assumptions and inputs.
Principle 2: Supervisors should review and evaluate banks internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this process.
The supervisory authorities should regularly review the process by which banks assess their capital adequacy, the risk position of the bank, the resulting capital levels and quality of capital held. Supervisors should also evaluate the degree to which banks have in place a sound internal process to assess capital adequacy. The emphasis of the review should be on the quality of the bank.s risk management and controls and should not result in supervisors functioning as bank management.
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The periodic review can involve some combination of:
1. on-site examinations or inspections; 2. off-site review; 3. discussions with bank management; 4. review of work done by external auditors (provided it is adequately focused on the necessary capital issues), and 5. periodic reporting.
The substantial impact that errors in the methodology or assumptions of formal analyses can have on resulting capital requirements requires a detailed review by supervisors of each banks internal analysis. (i) Review of adequacy of risk assessment
Supervisors should assess the degree to which internal targets and processes incorporate the full range of material risks faced by the bank. Supervisors should also review the adequacy of risk measures used in assessing internal capital adequacy and the extent to which these risk measures are also used operationally in setting limits, evaluating business line performance and evaluating and controlling risks more generally. Supervisors should consider the results of sensitivity analyses and stress tests conducted by the institution and how these results relate to capital plans.
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(ii) Assessment of capital adequacy
Supervisors should review the banks processes to determine:
1. that the target levels of capital chosen are comprehensive and relevant to the current operating environment; 2. that these levels are properly monitored and reviewed by senior management; and 3. that the composition of capital is appropriate for the nature and scale of the banks business. Supervisors should also consider the extent to which the bank has provided for unexpected events in setting its capital levels. This analysis should cover a wide range of external conditions and scenarios, and the sophistication of techniques and stress tests used should be commensurate with the bank.s activities. (iii) Assessment of the control environment
Supervisors should consider the quality of the banks management information reporting and systems, the manner in which business risks and activities are aggregated, and managements record in responding to emerging or changing risks. In all instances, the economic capital levels at individual banks should be determined according to the banks risk profile and adequacy of its risk management process and internal controls. External factors such as business cycle effects and the macroeconomic environment should also be considered.
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(iv) Supervisory review of compliance with minimum standards In order for certain internal methodologies, credit risk mitigation techniques and asset securitisations to be recognised for regulatory capital purposes, banks will need to meet a number of requirements, including risk management standards and disclosure. In particular, banks will be required to disclose features of their internal methodologies used in calculating minimum capital requirements. As part of the supervisory review process, supervisors must ensure that these conditions are being met on an ongoing basis.The Committee regards this review of minimum standards and qualifying criteria as an integral part of the supervisory review process under Principle 2. In setting the minimum criteria the Committee has considered current industry practice and so anticipates that these minimum standards will provide supervisors with a useful set of benchmarks which are aligned with bank management expectations for effective risk management and capital allocation.There is also an important role for supervisory review of compliance with certain conditions and requirements set for standardised approaches. In this context, there will be a particular need to ensure that use of various instruments that can reduce Pillar 1 capital requirements are utilised and understood as part of a sound, tested, and properly documented risk management process. (v) Supervisory response Having carried out the review process described above, supervisors should take appropriate action if they are not satisfied with the results of the banks own risk assessment and capital allocation. Supervisors should consider a range of actions, such as those set out under Principle 3 and 4 below.
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Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum.
Pillar 1 capital requirements will include a buffer for uncertainties surrounding the Pillar 1 regime which affect the banking population as a whole. Bank-specific uncertainties will be treated under Pillar 2. It is anticipated that such buffers under Pillar 1 will be set to provide reasonable assurance that banks with good internal systems and controls, a well diversified risk profile and a business profile well covered by the Pillar 1 regime, and who operate with capital equal to Pillar 1 requirements will meet the minimum goals for soundness embodied in Pillar 1. Supervisors will need to consider, however, whether the particular features of the markets for which it is responsible are adequately covered. Supervisors will typically require (or encourage) banks to operate with a buffer, over and above the Pillar 1 standard.
Banks should maintain this buffer for a combination of the following:
(a) Pillar 1 minimums are anticipated to be set to achieve a level of bank creditworthiness in markets that is below the level of creditworthiness sought by many banks for their own reasons. For example, most international banks appear to prefer to be highly rated by internationally recognised rating agencies. Thus, banks are likely to chose to operate above Pillar 1 minimums for competitive reasons.
(b) In the normal course of business, the type and volume of activities will change, as will the different risk requirements, causing fluctuations in the overall capital ratio.
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(c) It may be costly for banks to raise additional capital, especially if this needs to be done quickly or at a time when market conditions are unfavourable.
(d) For banks to fall below minimum regulatory capital requirements is a serious matter. It may place banks in breach of the relevant law and/or prompt nondiscretionary corrective action on the part of supervisors.
(e) There may be risks, either specific to individual banks, or more generally to an economy at large, that are not taken into account in Pillar 1.
There are several means available to supervisors for ensuring that individual banks are operating with adequate levels of capital. Among other methods, the supervisor may set trigger and target capital ratios or define categories above minimum ratios (e.g. well capitalised and adequately capitalised) for identifying the capitalisation level of the bank.
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Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored.
Supervisors should consider a range of options if they become concerned that banks are not meeting the requirements embodied in the supervisory principles outlined above. These actions may include intensifying the monitoring of the bank; restricting the payment of dividends; requiring the bank to prepare and implement a satisfactory capital adequacy restoration plan; and requiring the bank to raise additional capital immediately. Supervisors should have the discretion to use the tools best suited to the circumstances of the bank and its operating environment.
The permanent solution to banks difficulties is not always increased capital. However, some of the required measures (such as improving systems and controls) may take a period of time to implement. Therefore, increased capital might be used as an interim measure while permanent measures to improve the bank.s position are being put in place. Once these permanent measures have been put in place and have been seen by supervisors to be effective, the interim increase in capital requirements can be removed.
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PILLAR 3 : MARKET DISCIPLINE
Market discipline imposes strong incentives to banks to conduct their business in a safe, sound and effective manner. It is proposed to be effected through a series of disclosure requirements on capital, risk exposure etc. so that market participants can assess a banks capital adequacy. These disclosures should be made at least semiannually and more frequently if appropriate. Qualitative disclosures such as risk management objectives and policies, definitions etc. may be published annually.
The third pillar greatly increases the disclosures that the bank must make. This is designed to allow the market to have a better picture of the overall risk position of the bank and to allow the counterparties of the bank to price and deal appropriately.
The new Basel Accord has its foundation on three mutually reinforcing pillars that allow banks and bank supervisors to evaluate properly the various risks that banks face and realign regulatory capital more closely with underlying risks. The first pillar is compatible with the credit risk, market risk and operational risk. The regulatory capital will be focused on these three risks. The second pillar gives the bank responsibility to exercise the best ways to manage the risk specific to that bank. Concurrently, it also casts responsibility on the supervisors to review and validate banks risk measurement models.
The third pillar on market discipline is used to leverage the influence that other market players can bring. This is aimed at improving the transparency in banks and improves reporting.
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IMPLEMENTATION OF BASEL II NORMS
RBIs Initiative: The Reserve Bank of India (RBI) has asked banks to move in the direction of implementing the Basel II norms, and in the process identify the areas that need strengthening. In implementing Basel II, the RBI is in favour of gradual convergence with the new standards and best practices. The aim is to reach the global best standards in a phased manner, taking a consultative approach rather than a directive one. In anticipation of Basel II, RBI has requested banks to examine the choices available to them and draw a roadmap for migrating to Basel II. The RBI has set up a steering committee to suggest migration methodology to Basel II. RBI expects banks to adopt the Standardized Approach for the measurement of Credit Risk and the Basic Indicator Approach for the assessment of Operational Risk. RBI has also specified that the migration to Basel II will be effective March 31, 2007 and has suggested that banks should adopt the new capital adequacy guidelines and parallel run effective April 1, 2006.
Gaining Benefit from Basel II
Reducing the Operational Risk charge The first pillar of the new accord includes the setting of an operational risk charge. This charge is based on the banks risk of exposure to unexpected internal and/or external losses. It is possible to reduce this charge by increasing the sophistication of the operational risk assessment and management processes employed.
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Measuring Operational Risk Although the activity of measuring indirect losses is recognized as being difficult the Regulators consider a certain amount of capital necessary, to cover expected as well as unexpected loss. This is due to the fact that relatively few banks make provision for expected operational risk loss.
Three approaches are proposed by the BASEL Accord for calculating the operational risk capital charge:
Approach 1: The basic indicator approach Approach 2: The standardized approach Approach 3: The internal measurement approach.
The Basic Indicator Approach CHARGE = GROSS REVENUE x FACTOR
This is the most likely approach to be adopted by non-G10 organizations. There are no qualifying criteria and it requires very little change to current practices.
The Standardized Approach CHARGE = BUSINESS LINE STANDARD RISK INDICATOR x FACTOR
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The firm is divided by business line, with each business line having its own standard risk indicator. The charge to be levied will represent the standard risk indicator, for each business line, multiplied by a factor. The total charge is the sum total of the business line charges.
The Internal Measurement Approach CHARGE = EXPECTED LOSS x FACTOR EXPECTED LOSS = EXPOSURE INDICATOR x PROBABILITY OF LOSS EVENT x LOSS GIVEN EVENT
A process similar to stage 2 is followed; however individual risk types will be identified per business line. For each business line/risk type, a bank will have to provide an exposure indicator, probability of loss event and loss given event in order to calculate their expected loss. The charge for operational risk will therefore correspond with the expected loss multiplied by a factor. The benefit with stage 3 is that a firm can use its own internal loss data to demonstrate to the regulatory body that it should qualify for a further reduced charge.
The banks are not restricted as to which approach they adopt; it is generally accepted that recognized internationally active banks will use either Approach 2 or 3. Banks wishing to use Approach 2 or 3 will have to satisfy criteria relating to operational risk management. As a rule of thumb, the more complex the solution that is adopted, the greater the charge reduction will be.
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RBI Suggests Standardized Approach: Standardized approach as suggested by RBI may not significantly alter Credit Risk measurement for Indian banks. In the Standardized approach proposed by Basel II Accord, credit risk is measured on the basis of the risk ratings assigned by external credit assessment institutions, primarily international credit rating agencies like Moodys Investors Service
This approach is different from the one under Basel I in the sense that the earlier norms had a one size fits all approach, i.e. 100% risk weight for all corporate exposures. Thus, the risk weighted corporate assets measured using the standardized approach of Basel II would get lower risk weights as compared with 100% risk weights under Basel I accords.
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EXPECTED IMPACT OF BASEL II NORMS
Depending on its current risk management processes, size, customers, portfolio, and market, a particular bank is likely to experience varying effects of Basel II on at least four levels, as described below.
Reward Credit Quality: The new norms bring forward the issues of bank-wide risk measurement and active risk management. These norms will help in better pricing of the loans in alignment with their actual risks. The beneficiary will be the customers with high creditworthiness and ratings as they will be able to get cheaper loans.
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Benefits for IT Sector: Basel II norms require vast amount of historical data and advanced techniques and software for calculation of risk measures. This will lead to huge demand for IT, BPO and outsourcing services.(According to estimates, cost of implementation of the new norms may range from $10 million to $150 million depending on the size of the bank.) For India, these norms provide massive opportunities in the form of software services, outsourcing and consultancy services.
Dearth of Skilled Professionals & Training Costs: The implementation of the Basel II norms will require skilled manpower. There is an unavailability of trained manpower for risk management & audits. Many countries have a paucity of skilled manpower in this area. The training cost will be a major expense for the implementation of Basel II Norms, especially in state owned banks where majority of workforce needs to be trained.
The availability of trained risk auditors is another problem. Basel II calls for a Risk Management structure in banks with Risk Management committees for Credit, Market & operational Risk formulating the Risk Management standards. While banks in India are implementing this, it has remained a ceremonial process without the training at the grass root level to see every activity with the lens of risk.
Multiple Supervisory Bodies: As per Basel IIs definition of banking company is very broad and includes banking subsidiaries such as insurance companies. In India there is no single regulator to govern the whole bank as per Basel II. Here we have IRDA, SEBI, NABARD & RBI would regulate different aspects of Basel II.
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The complex banking structure in India is another stumbling block. The Pillar II implementation is the more difficult portion of the three pillars. Risk Audits in banks are still in their nascent stages in India.
Entry Barriers: The flip side is that the knowledge acquired by the big banks due to the implementation of complex norms would act as an entry barrier to any new competition entering into the market, as international markets provide incentive to sovereigns and banks that have implemented Basel II.
Mergers and Acquisitions With the capital requirements loaded in favour of larger banks having better systems and ability to benefit from the lower capital requirement that goes with implementing the more advanced approaches, there could be a spate of large-scale bank mergers worldwide, especially among internationally active banks in their struggle to remain competitive.
Another reason for the Merger and Acquisitions is the small and medium sized banks that will find it difficult to finance high implementation costs of the norms. If national supervisors make the norms compulsory to implement, these banks might have no other option but to merge with other banks. Therefore, consolidation in banking industry with increased mergers and acquisitions is expected.
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Free Market Play: Higher risk sensitivity of the norms provides no incentive to lend to borrowers with declining credit quality. During economic downturns, corporate profits and ratings tend to decline. This can lead to banks pulling the plugs on lending to corporate with falling credit ratings, at a time when these companies will be in desperate need of credit. The opposite is expected during economic booms, when corporate credit worthiness improves and banks will be more than willing to lend to corporate.
Appropriate Capital Allocation: With better risk measurement practices in place the capital allocation for loans to sub-standard quality borrowers are going to decrease. Banks can use this capital for other purposes to increase profits. But the population of rated corporate is small in India. The benefit of lower risk weight of 20 % and 50 % would, therefore, be available only for loans to a few corporate. The cover required for bad loans will increase exponentially with deteriorating credit quality, which can lead to an increase in capital requirement.
Better Risk Management: Sophisticated banks with better risk management and data collection mechanisms can choose to introduce these norms, with the approval of their supervisors. These methods are expected to entail lower capital requirements, thereby giving banks an incentive to adopt better risk management practices.
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Effect on Small Sector: Risk-aversion of banks with regard to loans to the small and medium industries have their origin in the quick adoption of the Basel-approved credit risk adjusted ratios (CRAR: Capital To Risk Weighted Assets Ratio) for capital. Implementing Basel II will further emphasize the ongoing trend by moving credit away from the deserving industrial units in the small sector.
The Vicious Circle of Curtailment of Credit: The lower ratings will reduce the availability of funds in the emerging countries. This has the potential to deteriorate the situation in these countries leading to further recession. The reduced market access and high costs of funding will further impact the ratings of these countries leading to a vicious circle with each aspect feeding the other in a downward spiral.
Higher Interest Costs & Competitive advantage of corporate borrowers: Globalization has meant increased competition with financial engineering an important source of the competitive advantage, more so for emerging economies where the strength has been cost competitiveness. The Higher Interest costs to the banks will ultimately translate into higher cost of borrowing for the corporate skewing the playing field in favour of the developed countries.
Hampering Infrastructure Development: Major sources of funding for infrastructure in India and in many other emerging market countries have been multilateral lending institutions such as World Bank. The Basel II document impacts the interest rate determination process and attributes higher risk to project finance than corporate finance. All the emerging economies like India have been suffering from lack of infrastructure to sustain development and this has the potential of severely hampering the infrastructure development process.
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Impact on Companies: The Shortened term funding of banks will find its way to the balance sheets of companies because of the need for matching maturities. This would impact output levels in corporate and an imbalanced capital structure in favor of short-term borrowings and working capital finance. The Liquidity position and the companies ability to globalize would be hampered by this difficulty in raising long-term capital.
Sovereign ratings have a significant impact on stock returns: Studies conducted on this topic have shown that sovereign ratings have a significant impact on stock returns. Poor performance of the broader S&P 500 over the past few years has meant that FII investment plays a significant role in emerging economies stock markets. The Market Risk norms could see an outflow of capital from the emerging economies hitting stock returns.
Standardized Approach and External Credit Rating Problems: One of the two approaches prescribed for Credit Risk in Basel II is the standardized approach, which makes use of external credit ratings for attaching risk weights. Being the easier of the two approaches and also because of the continuity from the Basel I norms it is most likely to be implemented in emerging countries.
One of the major problems is the availability of credit ratings in emerging countries. While India has been fortunate in this respect with three major Credit Rating agencies in CRISIL, FITCH & ICRA in this field many emerging countries are not so equipped. Even in India the penetration of credit ratings is not deep. The supplydemand imbalance would make it even more difficult for smaller players to get ratings, High prices making credit more costly for them.
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IRB based Credit Risk Management Approach: Various models have been proposed for the Internal Rating Based Credit Risk Assessment. A major problem is data availability. In India a large number of PSU banks are still in the process of computerization. The extent of historical data required formulating and then convincingly testing Indigenous IRB models is simply not available. The IRB based approach being one of the more stringent approaches is the more ideal of the two to strengthen the financial system. The actual implementation of an IRB based model for credit risk mitigation would require excellent information retrieval and assessment capabilities.
Hurrying into an IRB based approach could cost banks dearly because of the High Capital Expenditures involved. Inaccurate IRB models could defeat the very purpose of better risk mitigation.
Consolidation in the banking Industries: The Inadequacy of Tier I Capital would hasten the process of consolidation within the banking Industry. The RBI has recently capped the stake of single enterprises in banks at 5%. This coupled with high government holdings in PSU banks and the unwillingness of politicians to disinvest could lead to a crisis situation. Implementation cost of Basel II is very high and would dent the Tier II capital, worsening the situations.
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OVERVIEW OF BASEL II DISCLOSURES OF VARIOUS BANKS
FOREIGN BANKS:-
CITI BANK
Capital adequacy as at December 31, 2010 Rs. In crores Particulars Tier-1 Capital [95.15%] Tier-2 Capital [4.85%] Total Capital funds of the bank Total capital required Tier-1 Capital adequacy ratio Total capital adequacy ratio Amount 12635.50 643.60
13279.10
7,225 15.74%
16.54%
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HSBC BANK
10982.70
5,665 16.19%
17.45%
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NATIONALIZED BANKS:-
ALLAHABAD BANK
11464.32
8,075 8.14%
12.78%
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CENTRAL BANK OF INDIA
5307.83
3,607 7.38%
13.24%
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NEW PRIVATE BANKS:-
AXIS BANK
22135.00
15,993 8.86%
12.46%
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HDFC BANK
Capital adequacy as at December 31, 2010 Rs. In crore Particulars Tier-1 Capital [74.31%] Tier-2 Capital [25.69%] Total Capital funds of the bank Total capital required Tier-1 Capital adequacy ratio Total capital adequacy ratio Amount 22496.86 7777.67
30274.53
16,754 12.10%
16.30%
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ICICI BANK
65919.00
29697 13.72%
19.98%
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INDUSIND BANK
4381.00
2527 11.67%
15.61%
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OLD PRIVATE BANKS:-
FEDERAL BANK
Capital adequacy as at December 31, 2010 Rs. In crore Particulars Tier-1 Capital [92.55%] Tier-2 Capital [7.45%] Total Capital funds of the bank Total capital required Tier-1 Capital adequacy ratio Total capital adequacy ratio Amount 4679.58 376.28 5055.86 2771.17 15.20% 16.42%
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THE KARUR VYSYA BANK LIMITED
1820.49
1501.42 10.73%
12.13%
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PUBLIC SECTOR BANK:-
IDBI BANK
Capital adequacy as at December 31, 2010 Rs. In crore Particulars Tier-1 Capital [62.56%] Tier-2 Capital [37.44%] Total Capital funds of the bank Total capital required Tier-1 Capital adequacy ratio Total capital adequacy ratio Amount 15420.48 9230.35 24650.83 15611.28 8.89% 14.20%
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FINDINGS Bank CAR Tier-I Tier-I Capital % CAR TierII Tier-II Capital % Gross NPAs Gross Advances Gross NPA Ratio (%)
Citi
15.74%
95.15%
0.80%
4.85%
2086.93 40956.17
5.10
Hsbc
16.19%
92.79%
1.26%
7.21%
Allahabad
8.14%
63.70%
4.64%
36.30%
1078.25 59443.40
1.81
CBI
7.38%
55.72%
5.86%
44.28%
2316.55 86740.27
2.67
Axis
8.86%
71.14%
3.60%
28.86%
890.48
82120.12
1.08
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HDFC
12.1%
74.31%
4.20%
25.69%
1983.92 100239.35
1.98
ICICI
13.72%
68.66%
6.26%
31.34%
9649.31 223621.09
4.32
Indusind
11.67%
74.80%
3.94%
25.20%
255.02
15846.53
1.61
Federal
15.2%
92.55%
1.22%
7.45%
589.54
22906.80
2.57
Karur vysya
10.73%
88.44%
1.40%
11.56%
205.86
10562.90
1.95
Idbi
8.89%
62.56%
5.31%
37.44%
1435.69 103915.07
1.38
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CITY BANK: By looking at the above table, one can see that Tier I capital % of CITY BANK is 15.74%, which is easily above the minimum capital requirement (i.e.8%). As CITY BANK is a Foreign Bank which do have certain restrictions, It means that they cannot open any branch at any place without the prior permission of the RBIs guidelines. For this reason their capital funds are not utilised and their TIER I capital % remains above the minimum requirements. The NPAs % (i.e. 5.10%) is also high as compared to other banks. For the reason that, they give loans without looking at their probability of default, which in returns give rise to their NPA.
HSBC BANK: By looking at the above table, one can see that Tier I capital % of HSBC BANK is 16.19%, which is easily above the minimum capital requirement (i.e.8%). As HSBC BANK is also a Foreign Bank which do have certain restrictions like CITY BANK, It means that they cannot open any branch at any place without the prior permission of the RBIs guidelines. For this reason their capital funds are not utilised and their TIER I capital % remains above the minimum requirements.
ALLAHABAD BANK: By looking at the above table, one can see that Tier I capital % of ALLAHABAD BANK is 8.14%, which is only a little above the minimum capital requirement (i.e.8%). As ALLAHABAD BANK is a Nationalized Bank which dont have any restrictions like that of Foreign Banks, they can open many branches across the country with the help of RBIs permission, which helps them to utilise their funds, which in turn leads to deduct the % of Tier I capital. The NPAs % (i.e. 1.81%) is the best view of a Nationalized Bank, and which also shows that the probability of default of ALLAHABAD BANK is much less than the Foreign Banks.
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CENTRAL BANK OF INDIA: By looking at the above table, one can see that Tier I capital % of CENTRAL BANK OF INDIA is 7.38%, which is only a little below the minimum capital requirement (i.e.8%). As CENTRAL BANK OF INDIA is a Nationalized Bank which dont have any restrictions like that of Foreign Banks, they can open many branches across the country with the help of RBIs permission, and as it is a central bank, which has to help the local banks when they face shortage of funds. This all activities help them to utilise their funds, which in turn leads to deduct the % of Tier I capital. The NPAs % (i.e. 2.67%) is a normal view of a Nationalized Bank, and which also shows that the probability of default of CENTRAL BANK OF INDIA is more than ALLAHABAD BANK.
AXIS BANK: By looking at the above table, one can see that Tier I capital % of AXIS BANK is 8.86%, which is only a little above the minimum capital requirement (i.e.8%). As AXIS BANK is a New Private Bank which does have certain restrictions like that of Foreign Banks, they can open limited branches across the country with the help of RBIs permission. This activity helps them to utilise their funds, which in turn leads to deduct the % of Tier I capital. The NPAs % (i.e. 1.08%) is much lower as compared to other sector banks. The ratio shows that their probability of default is very low which in turn increase their brand name.
HDFC BANK: By looking at the above table, one can see that Tier I capital % of HDFC BANK is 12.10%, which is a good % above the minimum capital requirement (i.e.8%). As HDFC BANK is a New Private Bank which does have certain restrictions like that of Foreign Banks, they can open limited branches across the country with the help of RBIs permission. These restrictions help them to occupy their funds with themselves only, which in turn leads to increases the % of Tier I capital. The NPAs % (i.e. 1.98%) is a little high as compared to other banks. The ratio shows that their probability of default is more than other banks.
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ICICI BANK: By looking at the above table, one can see that Tier I capital % of ICICI BANK is 13.72%, which is above the minimum capital requirement (i.e.8%). As ICICI BANK is a New Private Bank which also does have certain restrictions like that of other Private Banks, they can open limited branches across the country with the help of RBIs permission. These restrictions help them to occupy their funds with themselves only, which in turn leads to increases the % of Tier I capital. The NPAs % (i.e. 4.32%) is a way high as compared to other banks. The ratio shows that their probability of default is much more than other banks, which should be controlled strictly.
INDUSIND BANK: By looking at the above table, one can see that Tier I capital % of INDUSIND BANK is 11.67%, which is above the minimum capital requirement (i.e.8%). As INDUSIND BANK is a New Private Bank which also does have certain restrictions like that of other Private Banks, they can open limited branches across the country with the help of RBIs permission. These restrictions help them to occupy their funds with themselves only, which in turn leads to increases the % of Tier I capital. The NPAs % (i.e. 1.61%) is low as compared to other banks. The ratio shows that their probability of default is much less than other banks, which shows that their policies are strict related to loans. FEDERAL BANK: By looking at the above table, one can see that Tier I capital % of FEDERAL BANK is 15.20%, which is almost double the minimum capital requirement (i.e.8%). As FEDERAL BANK is an Old Private Bank which also does have certain restrictions like that of other Private Banks, they can open limited branches across the country with the help of RBIs permission. These restrictions help them to occupy their funds with themselves only, which in turn leads to increases the % of Tier I capital. The NPAs % (i.e. 2.57%) is high as compared to other banks. The ratio shows that their probability of default is more than other banks, which shows that their policies are liberal towards loans.
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KARUR VYSYA BANK: By looking at the above table, one can see that Tier I capital % of KARUR VYSYA BANK is 10.73%, which is above the minimum capital requirement (i.e.8%). As KARUR VYSYA BANK is an Old Private Bank which also does have certain restrictions like that of other Private Banks, they can open limited branches across the country with the help of RBIs permission. These restrictions help them to occupy their funds with themselves only, which in turn leads to increases the % of Tier I capital. The NPAs % (i.e. 1.95%) is low as compared to FEDERAL BANK. The ratio shows that their probability of default is a little low than FEDERAL BANK, which shows that their policies are somewhat strict towards loans.
IDBI BANK: By looking at the above table, one can see that Tier I capital % of IDBI BANK is 8.89%, which is just above the minimum capital requirement (i.e.8%). As IDBI BANK is a Public Bank which has little amount of restrictions as compared to other sector Banks. They can open many branches across the country with the help of RBIs permission. These help them to utilise their funds, which in turn leads to decreases the % of Tier I capital. The NPAs % (i.e. 1.38%) is low as compared to other sector banks. The ratio shows that their probability of default is lower than other sector banks, which shows that their policies are strict towards loans.
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RECOMMENDATIONS
A bank must develop specific criteria for assigning loss data arising from an event in a centralised function (e.g. an information technology department) or an activity that spans more than one business line, as well as from related events over time.
Operational risk losses that are related to credit risk and have historically been included in banks credit risk databases (e.g. collateral management failures) will continue to be treated as credit risk for the purposes of calculating minimum regulatory capital under this Framework.
Nevertheless, for the purposes of internal operational risk management, banks must identify all material operational risk losses consistent with the scope of the definition of operational risk.
IT Expenditure Improvements in Information Technology will a major expense for implementation of Basel II Norms. It is hence necessary for the governments to provide for capitalization measures to the banks so that they can are not affected adversely by the sudden increase in the cost.
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Revision of Curricula to incorporate Risk Management & retraining With the implementation of the Basel II Norms the demand for trained, professional employees will increase tremendously. To ensure that there in no dearth of the trained professionals it will be necessary to revise the curricula of the ICAI, ICSI, Banking Professional courses, etc and they need to incorporate risk management & risk audits and create a fresh body of professionals to meet the growing demand.
There is also a problem of overstaffing at the regulators end, across many emerging market economies, which needs to be handled to improve productivity
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CONCLUSION
Basel II represents a long-term opportunity but with budget issues and operating profits under pressure worldwide, the initial investments banks must make to comply with the New Accord also represent a short-term challenge. Over time, however, the improvements in risk management Basel II is intended to drive may enhance risk culture, reduce volatility of all risks, lower provision for bad debts, reduce operational losses, improve the institutions external ratings, and thereby help ensure access to capital markets and raise organizational efficiency.
The New Accords risk management requirements are likely to prompt significant changes in the core business of an individual bank as well as in its organizational structure. Under Basel II, the outputs of better management of credit and operational risk will be the inputs of an economic capital model by which banks can allocate capital to various functions and transactions depending on risk. This new focus on risk will likely have broad implications for institutions not obliged to comply with Basel II as well as customers and the capital markets.
Aside from new or altered methods that must be employed, the new capital requirements will also drive change in resource needs, processes, and IT system architecture. These changes could ultimately pose broad challenges for a banks board of directors and its senior management, who are charged with new risk management and reporting responsibilities under the New Accord. These senior leaders will need to consider how Basel II compliance could (or should) integrate with other efforts they are making to improve corporate governance.
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To avoid the potential for higher capital reserve requirements that could jeopardize market position, banks need to ensure that they have a comprehensive implementation approach inplace. They also need to consider how Basel IIs challenges and opportunities could affect their business and their customer relationships over time.
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BIBLIOGRAPHY Prospectus, journals, papers & articles, annual reports of various banks. Basel II Disclosures of various banks www.rbi.org.in www.baselcert.org www.icraratings.com
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CP-MAY-2011

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

By:Pratik Shah Anant Gajjar

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

A COMPREHENSIVE PROJECT REPORT ON

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

Prepared At SLIBM Ahmedabad

GUJARAT TECHNOLOGICAL UNIVERSITY

PRATIK SHAH [37] [Enroll no: - 097780592039]

ANANT GAJJAR [12] [Enroll no: - 097780592042] 2|Page

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

SOM-LALIT INSTITUTE OF BUSINESS MANAGEMENT

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

SR.NO 1 2 3 4 5 6 7 8 9 10 11 12 12.1 12.2 12.3 13 16.1 14 15 16 17

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

17.1 17.2 17.3 17.4 17.5 18 19 20 21

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

OBJECTIVE OF THE STUDY

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

Research type Descriptive Research

Banks balance sheet, Banks income statement & Basel II Disclosures.

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

INTRODUCTION TO BANKING SECTOR

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

INTRODUCTION TO BASEL II NORMS

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

NEED FOR BASEL II NORMS

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

Diversified Financial Group Holding Company

[4] Internationally Active Bank Internationally Active Bank

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

'DRAFT' GUIDELINES FOR IMPLEMENTATION OF BASEL II IN INDIA

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

TIME LINE FOR BASEL II IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

Basel II Creates Advantages and Disadvantages for Banks Business

Those with a possible advantage:

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

Those with a possible disadvantage:

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION

IMPACT OF BASEL II NORMS & ITS IMPLEMENTATION