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Presented by :
Khushboo Routray
 ïbjectives of study
þ To understand and gain knowledge as regards
BASEL II principles and implementation in India
þ To analyze and seek knowledge into the
disclosures
þ To study the disclosure as regards risk
management prevalent after the phased
implementation of the new accord in the Indian
banking system.
þ Impact on Loan Pricing, Portfolio Composition,
Bank Performance and the Lending Process as a
Whole
 BASEL II: A brief framework
þ h
 stipulates the minimum capital ratio and
requires allocation of regulatory capital not only for credit risk
and market risk but additionally, for operational risk as well

þ h
 of the framework deals with the ͚Supervisory

Review Process͛ (SRP)

þ h

of the framework, Market Discipline, focuses
on the effective public disclosures to be made by the banks,
and is a critical complement to the other two Pillars.
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Single option for computing regulatory A menu of options

capital
ï
  
  In addition to CRAR, prescribes
supervisory review and market
disclosures
Risk weights by regulator on govt, banks, Risk weights linked to external ratings
corporate assigned by IRB by banks

Capital charge on credit risk & market risk 


ï 
 
   




Minimum CRAR @ 8% for all banks   

  
p  
 
þ Inflexible
þ Focus was primarily on credit risk
þ Broad brush approach
þ Uses aribitary risk categories& risk weights
þ Lack of incentives for credit risk mitigation
techniques & risk management
 *eed for Basel II
þ there was an inadequate estimation of the
overall risks faced by a bank
þ To deal with other forms of risk like
operational risks, interest rate risks, foreign
exchange risks, market risk.
þ to influence Corporate Governance and better
risk management through self assessed needs
 Impact Basel II on Indian banking
system
Impact on Loan Pricing-
þ The loan pricing will become more fine-tuned and will
reflect the risks and the costs involved. This will benefit
the more efficient borrowers while the more risky
borrowers will be penalized.
Impact on borrowers-
þ will force the inefficient players to get more disciplined in
order to be competitive in the market place. This will
promote greater efficiency and led to a more efficient
and stronger banking, financial and the corporate sector.
þ Enhanced Risk Management
þ Enhanced Role of Regulator
þ Impact on Business Model
þ Risk-Return Trade ïff
þ Areas of increasing importance for risk
concentration identification and management
 ï

 

þ Market discipline
þ Stability
þ Improved allocation of capital and other
resources
þ Greater transparency
Y
Y ïYhDp ïp 
þ Supervisors have appropriate powers
þ Penalty in case of non compliance
þ *o direct additional requirement as result of disclosure

_

 

þ In the balance sheet
þ To the stock exchanges
þ ïn the web sites
þ In the regulatory reports- which could be disclosed by the
regulator

 

þ Compliance as regards Intent, MIS, Cost
þ Uniformity of disclosures
þ Effect on competition in the banking system as
well as on the competitive edge of the banks
þ Disclosures as per supervisor may not be
sufficient for effective implementation of
BASEL II.
 Comparison of disclosures
þ STATE BA*K ïF I*DIA
þ HDFC BA*K
þ STA*DARD CHARTERED BA*K
 Comparison of disclosures
þ Capital structure
þ Capital adequacy
þ Market risk
þ Credit risk
þ Securitization activities
þ ïperational risk
þ Interest rate risk
Capital structure-
þ Summary information on the main features of all
capital instruments eligible for inclusion under Tier I
and Tier II capital outstanding as of March 31, 2009

Capital adequacy-
þ Bank͛s approach to assess the adequacy of capital to
support current and future trends
Credit risk ʹ
þ Credit Risk is defined as the possibility of losses
associated with diminution in the credit quality of
borrowers or counterparties. In a bank͛s portfolio,
losses stem from outright default due to inability or
unwillingness of a customer or counterparty to meet
commitments in relation to lending, trading,
settlement and other financial transactions.
Securitization activities-
þ Securitization involves pooling together future cash
flows and assigning them to a Special Purpose
Vehicle (SPV). ïn sale, the assets move out of the
balance sheet of the seller entirely
Market risk-
þ The risk of loss resulting from changes in market
prices and rates
ïperational risk-
þ ïperational risk is the risk of losses resulting from
inadequate or failed internal processes, people and
systems or from external events.
Interest rate risk-
þ Interest rate risk refers to fluctuations in Bank͛s *et
Interest Income and the value of its Assets and
Liabilities arising from internal and external factors.
Internal factors include the composition of the Bank͛s
assets and liabilities, quality, maturity, interest rate
and re-pricing period of deposits, borrowings, loans
and investments. External factors cover general
economic conditions