PRESENTED BY: NISHANT SINHA

CONTENTS Introduction.
Basel accord and its implementation in India. Limitation of basel 1. The Rise and Fall of GTB. Research Methodology- THE CAMEL MODEL.

INTRODUCTION 1980s a committee was A series of bank failures in the

formed comprising central bank and supervisory authorities of 12 countries in 1987.It was famously known as BASEL COMMITTEE ON BANKING SUPERVISION (BCBS). It was entrusted with the task of setting standards for banking operations.

BASEL 1 ACCORD
The BCBS developed a set of international capital adequacy guidelines for commercial banks, which came to be known as Basel 1 Accord. India implemented the Basel framework with effect from 1992-93 which was spread over three yearsbanks with branches abroad were required to comply fully by the end of March 1994,while other banks were required to comply by the end of March 1996.

Basel accord and its Implementation in India provides recommendations It is a set of agreements which

on banking regulations with regard to capital risk, market risk and operational risk. The purpose of the accord is to ensure that financial institutions have enough capital on account to meet obligations and absorb unexpected losses. The first accord was Basel 1.It was issued in 1988 and focused primarily on credit risk T-the risk of loss due to borrower or counter party default, by creating a bank classification system. This classification system grouped a banks assets into five risk categories:

Five categories 0%- Cash, Central bank and government debt, OECD govt.

debt. 0%,10%,20%or 50%- public sector debt. 20%- development bank debt, OECD bank debt, OECD securities firm debt, non-OECD public sector debt, cash in collection. 50%-residential mortgages 100%-private sector debt, non OECD bank debt, real estate, plant and equipment, capital instrument issued at other banks.

 It gave an equal risk weighting to all corporate credit, irrespective of the difference in their underlying credit risk. It failed to recognize that by undertaking credit portfolio diversification , banks can have potential capital savings It led to an extensive regulatory capital arbitrage, which adds to the riskiness of bank asset portfolios.

Limitations of Basel 1

Basel II
The experience with Basel 1 (1988),the Bank for International Settlements (BIS) proposed a new capital adequacy framework (1999) also known as Basel II .The characteristic feature of Basel II is that it uses a three-pillars. A minimum capital requirement pillar, A supervisory review pillar to ensure that the banks capital is aligned to its actual risk profile A market discipline pillar to enhance the role of other market participants in ensuring that appropriate capital is held by prescribing greater discloser.

The rise and fall of GTB was headquartered in GTB was established in 1993 and

secunderabad . It was a private sector bank . With 40 % contribution by the core promoters , the bank was the first in India to attract equity participation from two international institutions IFC and ADB. GTB had been running successfully with Rs. 11.8 cr in net profits for the nine-month period ending. The banks IPO of Rs. 1040 mn was oversubscribed by a record 60 times, with subscriptions of Rs 62.40 bn from over 1 million investor.

CONTD
GTB was also recognized as one of the fastest growing banks in India when it received Rs 1 bn worth of deposit in its first day of the operations. The Bank was given top billing in a survey of Indias best banks conducted by The Financial Express in February 2001. At the end of 35 months , its total business exceeded Rs 43.02 bn.

Fall of GTB
Its financial position start deteriorating from 2002. On 24 of July, the RBI and the government issued a three month moratorium on GTB. It aimed at freezing the asset and liabilities of the bank in order to protect the banks health from further deterioration. The bank was amalgamated with the Oriental Bank of Commerce on August 14, 2004.

CONTD net loss in FY03 mainly The bank had a large Rs 2.7 bn

due to large provisioning for NPAs. The failure of the bank is also attributed to its poor operational efficiency . After amalgamation with OBC it has been detected that the actual loss of GTB ran into over Rs 1400 cr. It has also been noticed that GTB had taken high credit exposure in certain accounts, even exceeding exposure norms prescribed by the RBI. There is also a view that its failure lies in GTBs involvement in the Ketan Parekh securities scam in 2001 and the ouster of promoter Ramesh Gelli.

 To anticipate a banks financial deterioration , procedures have been developed to identify banks approaching financial distress a model was designed which was called CAMEL MODEL. C - Capital adequacy. A - Asset quality. M - Management competency. E - Earning quality. L Liquidity.

CAMEL MODEL

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