Professional Documents
Culture Documents
A PRESENTATION BY
BASEL II
In 1998, Committee started revising the 1988 Accord:
International Convergence of capital measurement and capital
standards:
More risk sensitive
More consistent with current best practice in banks risk
management
Numerator (definition of capital) remains unchanged.
Basel II provides Banks incentives to Banks invest and
increase sophistication of their internal risk management
capabilities to gain reduction in capital.
Greater Disclosure by Banks.
Follow certain standards of market discipline.
Minimum Capital
Requirements
Credit risk
Operational risk
Market risk
Supervisory
Review Process
Evaluate Risk Assessment.
Banks own capital strategy.
Supervisors review.
Ensure soundness and integrity of banks internal
processes to assess the adequacy of capital.
Ensure maintenance of minimum capital
Prescribe differential capital where internal
Market Discipline
Enhanced disclosure
Core disclosures and
supplementary disclosures.
Type of Risk
Example
Stocks
Daily price
change (%)
Market
Time
Default
rate (%)
Credit
Time
Operational
Unexpected
price volatility
Monthly change
of revenue to cost
(%)
Business unit A
Unexpected
low cost
utilization
Time
rea
Inc
Standardized
Approach
se
s
phi
o
S
tic
n
a ti o
Foundation Internal
Ratings
Based Approach
Advanced
Internal
Ratings Based
Approach
Banks use internal estimations of
PD, loss given default (LGD) and
exposure at default (EAD) to
calculate risk weights for exposure
classes
rea
Inc
Basic Indicator
Approach
se
t
tica
s
i
ph
So
ion
Advanced
Measurement
Approach.
Standardized
approach
rea
Inc
se
s
phi
o
S
tic
n
a ti o
Internal Models
Method
(VaR based
approaches)
Standardized
Duration
Method.
Advantages of capital
Framework
Claims on corporates
Credit
assessment
by domestic
rating
agencies
AAA
AA
BBB
and
below
Unrate
d
Risk weight
20%
50%
100%
150%
100%
6%
to
<9%
Risk weight
150% 250
400
625%
Risk
weights
PR1+
P1+
F1+
A1+
20%
PR1
P1
F1
A1
30%
PR2
P2
F2
A2
50%
PR3
P3
F3
A3
100%
PR4/PR5
P4/P5
B/C/D
AR/A5
150%
UNRATED
100%
AAA
20%
AA
30%
A
50%
BBB
100%
BB AND BELOW: 150%
UNRATED
100%
+- SIGN CORROSPONDING MAIN
RATING WILL BE USED.
Eligible financial
collateral
PSEs at least BB
Other entities at least A
ST debt instruments at least P2+/A3/PL3/F3
Equities
Mutual Fund units daily NAV to be available on
public domain
Advanced
Goal: Should contain incentives for migration
from standardized to IRB approach
IRB approach
Operational Risk
GROSS INCOME
Operational Risk
Standardised ApproachCapital charge is calculated as a
simple summation of capital charges across 8 business lines
Business lines
% of gross income
Corporate finance
18
18
Retail Banking
12
Commercial Banking
15
18
Agency Services
15
Asset Management
12
Retail Brokerage
12
Supervisory review.
Supervisory Review
MARKET DISCIPLINE
a. Third Pillar to supplement first two pillars namely
minimum capital requirement and supervisory review.
b. The aim of this pillar is o encourage market discipline by
developing a set of disclosure requirements which allows
market participants to assess :
Scope of application
Capital
Risk Exposures
No direct penalty of additional capital for nondisclosure but indirectly by way of lower risk
weight under pillar-1 provided certain
disclosures are made etc.
Interest realized in NPA may be taken to income provided the credits towards the interest are
realized not from fresh or addl facilities.
facilities.
True
False.
Recovery in NPA account should be first appropriated towards
Interest
Principal
In equal proportion.
None of above.
Availability of security/networth of borrowers or guarantor
Should be taken into consideration for treating account as NPA
Should not be taken into consideration
do
None of above.
Both are true.
A non performing loan shall be a loan or advance:
Interest or instalment overdue for more than 90 days.
Accont remains out of order for 90 days in CC OD
Bill remain over due for more than 90 days for bill purchased or discounted.
All of above are true.
In case of agricultural loan it will be treated as NPA if
a. Installments of principal or interest over due for two crop season if loan is granted for
short duration crops.
b. Installment or interest over for one crop season if loan is for long duration crop.
c. Both are true.
d. Both are wrong.
In case when bank charges interest monthly, the date of classification of NPA in case of non
service of interest will be
a. 90 days after date of charging monthly interest.
b. 90 days after the end of quarter in which interest was charged.
c. none of above.
d. both are correct.
A CC account of borrower is out of order for 90 days. IN his Term Loan installment and interest
regularly served:
Only CC account is is NPA
Both CC and TL is NPA
None of accounts are NPA
Depends on security and NW of borrower's
A OD account of borrower is NPA. Investment made in debenture of same company and
interest is serviced regulr.:
Need not be classified as NPA
Need to be classified as NPA.
Depends on servicing of interest on debenture.
None of above.
OD account XYZ Ltd a partnership is NPA . One of partner is having a sole proprietorship
account with same bank and availing CC account and this account is in order:
This account will also be NPA
This account will not be NPA
Depends on out of order position.
Depdend on security.
TL account of ABC Ltd is NPA . It is partnership concern. One of partners A is having a CC
account which is in order:
order:
This account will also be NPA
This account will not be NPA.
Depends on account status.
Depends on security and NW
TL account granted to X partner is NPA. CC account of partnership where X is partner even if it
is not out order
Will be NPA
Will not be NPA
Depends on account status.
Depends on NW.
In account XYZ Ltd borrower committed fraud. But interest and instalment recovered regularly:
Account should be classified as DA or Loss account.
Account can continue as Standard.
Account will be SSA.
None of above.
Erosion in security value to 50% or more and it was sanctioned just 3 months back :
Classify account as SA
Classify account as SSA
Classify account as DA
Classify account as LA
Erosion in security value leaving value at 10% or less.
Classify account as SA
Classify account as SSA
Classify account as DA
Classify account as LA
In a CC account the stock statement is not submitted for last 3 months and DP is allowed
against old stock statement:
Account will be NPA now.
Account will be NPA if drawings are permitted in such account for 90 days based on such old
stock statement.
None of above.
Both are true.
A CC account no reviewed by branch due date:
It will be NPA on due date.
It will be NPA if not renewed in 180 days from due date.
If will be NPA if not renewed in 90 days from due date.
None .
X Co. is consortium account. No credits came to account for last 90 days. But party remitted the
money to consortium leader SBI in time.
Account will be NPA treating as non served in the b ooks of this Bank.
Account will be PA as money received by SBI leader of consortium.
None of above.
Both of above.
FCI given loan by your Bank against Govt Guarantee.
Loan is over due for more than 90 days.:
days.:
Will be treated as NPA.
Will be treated as NPA only if guaranteed is invoked and guarantee is not honoured.
Both are true.
None are true.
Interest on above loan to FCI can be taken to income
No as such exemption is not for recognition of income.
Yes can be taken to income.
None
State Govt guaranteed loans and investment in State Govt guaranteed bonds will
Attract loan provisions and asset classification if over due for 90 days.
Only loan provisioning required.
Only asset classification required.
No need to classify as NPA.
In a account 6 months moratorium is given.
Account will become NPA only if moratorium is over.
It will attract NPA provisions even before moratorium for interest servicing.
None of above.
Provision on standard assets:
assets:
.25%
.25% for SME and agricultural advances and .40% for others.
.40 for all
None of above.
Profit Planning.
Profit Planning.
Thank You!