Basel Accord and New Capital Adequacy Framework

7/26/2019 Basel Accord and New Capital Adequacy Framework

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BASEL ACCORD AND NEW CAPITAL ADEQUACY FRAMEWORK

N.Chandrasekaran, FCMA, FRM

Introduction

EOLUTION OF T!E BASEL CAPITAL ACCORDThe Base" Ca#$%a" A&&'rd $s an A(ree)en% &'n&"*ded a)'n( &'*n%r+re#resen%a%$es $n -// %' dee"'# s%andard$sed r$sk01ased &a#$%a"re2*$re)en%s 3'r 1anks a&r'ss &'*n%r$es. The -ST A&&'rd 4as re#"a&ed4$%h a ne4 &a#$%a" ade2*a&+ 3ra)e4'rk 5Base" II6, #*1"$shed $n 7*ne 899:.

The Re$sed Fra)e4'rk 4as *#da%ed $n N'e)1er 899; 3'""'4ed 1+ a

&')#rehens$e ers$'n '3 %he 3ra)e4'rk $ss*ed $n 7*ne 899


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&6Adan&ed Meas*re)en% A##r'a&h 5AMA6

Market Risk:

a6 Standardised Duration Approach (SDA) for computing capital requirement for marketrisks

16 Internal Models approach

A"" &'))er&$a" 1anks 5e&"*d$n( L'&a" Area Banks and Re($'na"R*ra" Banks6 are re2*$red %' ad'#% S%andard$sed A##r'a&h 5SA63'r Cred$% R$sk and Bas$& Ind$&a%'r A##r'a&h 5BIA6 3'r O#era%$'na"R$sk and S%andard$sed D*ra%$'n A##r'a&h 3'r Marke% R$sk 3'r&')#*%$n( Ca#$%a" %' R$sk We$(h%ed Asse%s 5CRAR6 s' as %' 3a"" $n"$ne 4$%h %he In%erna%$'na" s%andards and re#'r%$n( %' %he$r B'ards'n 2*ar%er"+ $n%era"s. When %he+ are a1"e %' )'e %'4ards %he)'re adan&ed a##r'a&hes, #er)$ss$'n 3r') RBI $s re2*$red %'1e %aken.

Tier I capital for Indian Banks (Regulation relating to foreign bank branches in

india are not discussed here)

It includes:-

a.Paid-up equity capital statutory reser!es and other disclosed free reser!es if any"

1.#apital reser!es representing surplus arising out of sale proceeds of assets"

&.Inno!ati!e perpetual de$t instruments (IPDI) eligi$le for inclusion in %ier I capital asper regulatory requirement

d.Perpetual &on-#umulati!e Preference Shares (PPS)

e.Any other type of instrument generally notified $y 'I from time to time for inclusionin %ier I capital

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*imits on eligi$le %ier I #apital

a.IPDIs upto +, of %ier I capital as on March .+of pre!ious financial year"

1.%he outstanding amount of %ier I preference shares ie Perpetual &on-#umulati!ePreference Shares (PPS) along /ith Inno!ati!e %ier I instruments shall not e0ceed 12

per cent of total %ier I capital at any point of time %he a$o!e limit /ill $e $ased on the

amount of %ier-+ capital as on .+stMarch of the pre!ious financial year after deduction of

good/ill D%A and other fictitious assets $ut $efore deduction of in!estments as specified

$y 'I

&.Inno!ati!e instruments3PPS in e0cess of the limit shall $e eligi$le for inclusionunder %ier II su$4ect to limits prescri$ed for %ier II capital

Tier II Capital

a.'e!aluation 'eser!e"

1.5eneral Pro!isions and *oss 'eser!es"

&.6y$rid de$t capital instruments"

d.Su$ordinated de$ts"

e.IPDI in e0cess of +, of %ier I capital and PPS in e0cess of o!erall ceiling of 12of %ier I capital" (upper tier-7 capital)

3.Any other type of instrument generally notified $y the 'eser!e ank from time to timefor inclusion in %ier II capital

%ier-7 capital is further su$di!ided into lo/er and upper tier-7 capital

Limits on eligible Tier II capital

a6It shall not e0ceed +22 of %ier I capital net of good/ill Deferred %a0 Assets (D%A)and other intangi$le assets $ut $efore deduction of in!estments"

16Su$ordinated de$t instruments (considered for inclusion as lo/er %ier-7 capital) arelimited to ,2 of %ier I capital after all deductions

(%he limitations of capital instruments under asel-III is pro!ided under asel-III in this

study-note else/here)

1.Ca#$%a" &har(e 3'r Cred$% R$sk

C"a$)s 'n D')es%$& S'ere$(ns 5S%andard Per3'r)$n( Asse%s6

a.B'%h 3*nd 1ased and n'n 3*nd 1ased &"a$)s 'n %he Cen%ra"'ern)en% $n&"*d$n( Cen%ra" '%. (*aran%eed &"a$)s &arr+ er'r$sk 4e$(h%.


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1.D$re&% L'ans&red$%'erdra3% e#'s*re, $3 an+, '3 1anks %' S%a%e'%. and $nes%)en% $n

S%a%e '%. se&*r$%$es &arr+ er' r$sk 4e$(h%. S%a%e'ern)en% (*aran%eed &"a$)s 4$"" a%%ra&% 89 #er &en% r$sk4e$(h%G.

&.R$sk 4e$(h% a##"$&a1"e %' &"a$)s 'n Cen%ra" '%. e#'s*res 4'*"da"s' a##"+ %' &"a$)s 'n RBI, DIHCC and Cred$% *aran%ee F*nd

Tr*s% 3'r M$&r' and S)a"" En%er#r$ses 5CTMSE6 and Cred$% R$sk*aran%ee F*nd Tr*s% 3'r L'4er $n&')e !'*s$n(. C"a$) 'n ECC4'*"d a%%ra&% 89 r$sk 4e$(h%.

d.JA)'*n% Re&e$a1"e 3r') OIG *nder A(r$&*"%*ra" De1% Wa$erS&he)e 899/ $s %' 1e %rea%ed as &"a$) 'n OI and a%%ra&% er' r$sk4e$(h% 4hereas %he a)'*n% '*%s%and$n( $n %he a&&'*n%s &'ered 1+%he De1% Re"$e3 S&he)e sha"" 1e %rea%ed as a &"a$) 'n %he 1'rr'4er

and r$sk 4e$(h%ed as #er %he e%an% n'r)s.

C"a$)s 'n F're$(n S'ere$(nsC"a$)s 'n F're$(n S'ere$(ns $n 3're$(n &*rren&+ 4'*"d 1e as #er%he ra%$n( ass$(ned as de%a$"ed $n %he RBI &$r&*"ar. In &ase '3 &"a$)sd')$na%ed $n d')es%$& &*rren&+ '3 F're$(n S'ere$(n )e% '*% '3 %heres'*r&es $n %he sa)e &*rren&+, %he er' r$sk 4e$(h% 4'*"d 1ea##"$&a1"e.C"a$)s 'n P*1"$& Se&%'r En%$%$es 5PSE6C"a$)s 'n d')es%$& PSEs and Pr$)ar+ Dea"ers 5PD6 4'*"d 1e r$sk4e$(h%ed $n %he sa)e )anner %ha% '3 &'r#'ra%e and 3're$(n PSEs as

#er %he ra%$n( ass$(ned 1+ 3're$(n ra%$n( a(en&$es as de%a$"ed $n %heC$r&*"ar.O%her &"a$)s

C"a$)s 'n IMF, Bank 3'r In%erna%$'na" Se%%"e)en%s 5BIS6,M*"%$"a%era" Dee"'#)en% Banks 5MDBs6 ea"*a%ed 1+ %heBCBS 4$"" 1e %rea%ed s$)$"ar %' &"a$)s 'n s&hed*"ed 1anks a% a*n$3'r) 89 r$sk 4e$(h%.

C"a$)s 'n Banks $n&'r#'ra%ed $n Ind$a and F're$(n BanksG

1ran&hes $n Ind$a, %he a##"$&a1"e r$sk 4e$(h% $s de%a$"ed $n %heRBI Mas%er C$r&*"ar.

C"a$)s 'n &'r#'ra%e Asse% F$nan&e C')#an$es 5AFCs6 and N'n0Bank$n( >nan&e C')#an$es0In3ras%r*&%*re F$nan&e C')#an$es

5NBFC0IFC6,

sha"" 1e r$sk 4e$(h%ed as #er %he ra%$n(s ass$(ned1+ %he ra%$n( a(en&$es re($s%ered 4$%h %he SEBI and a&&red$%ed1+ %he RBI 5De%a$"ed $n %he C$r&*"ar6.

The &"a$)s 'n n'n0res$den% &'r#'ra%e 4$"" 1e r$sk 4e$(h%ed as#er %he ra%$n(s ass$(ned 1+ $n%erna%$'na" ra%$n( a(en&$es.

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Re(*"a%'r+ Re%a$" &"a$)s 51'%h 3*nd and n'n03*nd 1ased64h$&h )ee% %he Q*a"$3+$n( &r$%er$a, $.

a6Orientation Criterion= E#'s*re %' $nd$$d*a" #ers'ns 'r %' as)a"" 1*s$ness 5Aera(e ann*a" %*rn'er "ess %han Rs. ;9 &r're 3'r"as% +ears 'r #r'e&%ed %*rn'er $n &ase '3 ne4 *n$%s6@

16Product Criterion= E#'s*re 51'%h 3*nd01ased and n'n 3*nd01ased6 $n 3'r) '3 re'"$n( &red$%s and "$nes '3 &red$% 5$n&".'erdra3%s6, %er) "'ans H "eases 5e.(. $ns%a")en% "'ans and "eases,s%*den% and ed*&a%$'na" "'ans6 and s)a"" 1*s$ness 3a&$"$%$es and&'))$%)en%s

&6Granularity Criterion S*&$en% d$ers$>&a%$'n %' red*&e %her$sk #'r%3'"$'@ and

d6Low value of individual exosures 0 The )a$)*) a((re(a%ed

re%a$" e#'s*re %' 'ne &'*n%er#ar% sh'*"d n'% e&eed %he a1s'"*%e%hresh'"d "$)$% '3 Rs. ; &r're.

!ould attract risk wei"#t of $%& e&e#% NPAs.

e6!')e "'ans %' $nd$$d*a"s sha"" &arr+ R$sk We$(h% 1ased 'n LT as*nder 4$%h ee&% 3r') 9/.-9.89-;.

Ca%e('r+ LT ra%$' R$sk 4e$(h% L'ans *#%' Rs. 9 "a&s /9 ;

/9 9 ;9A1'e Rs.9 "a&s *#%'Rs.; "a&s

; ;

;/9 ;9L'ans a1'e Rs.;"a&s

; ;

Res%r&%*red !'*s$n( L'ans sh'*"d 1e add$%$'na""+ r$sk 4e$(h%ed a%8;

(6C'))er&$a" Rea" Es%a%e 5CRE6e#'s*re, %he r$sk 4e$(h% $s %' 1e%aken a% -99 and 3'r C'))er&$a" Rea" Es%a%e0 Res$den%$a" !'*s$n(

5CRER!6 $% 4$"" 1e ; 3'r Res$den%$a" !'*s$n( Pr'e&%s 'n"+.

N'n0#er3'r)$n( Asse%s 5NPAs6

The r$sk 4e$(h% $n res#e&% '3 %he *nse&*red #'r%$'n '3 NPA5'%her %han a 2*a"$3+$n( res$den%$a" )'r%(a(e "'an6, ne% '3s#e&$>& #r'$s$'ns 5$n&"*d$n( #ar%$a" 4r$%e0's6, sha"" 1e=0

S#e&$>& Pr'$s$'ns R$sk We$(h% Less %han 89 '3 '*%s%and$n( a)% '3 NPA -;9A% "eas% 89 '3 '*%s%and$n( a)% '3 NPA -99A% "eas% ;9 '3 '*%s%and$n( a)% '3 NPA ;9

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The r$sk 4e$(h% a##"$&a1"e 3'r se&*red NPA $s -99, ne% '3 #r'$s$'ns4hen #r'$s$'ns rea&h -; '3 %he '*%s%and$n( a)'*n%.

NPA !')e L'an &"a$)s se&*red 1+ res$den%$a" #r'#er%+, %her$sk 4e$(h% sha"" 1e -99 ne% '3 s#e&$>& #r'$s$'ns. In &ase%he s#e&$>& #r'$s$'ns are a% "eas% 89 1*% "ess %han ;9 '3%he '*%s%and$n(, %he r$sk 4e$(h% sha"" 1e ; 5ne% '3 s#e&$>&

#r'$s$'ns6 and s#e&$>& #r'$s$'ns are ;9 'r )'re %hea##"$&a1"e r$sk 4e$(h% $s ;9.

Risk !ei"#t for ot#er seci'ed cate"ories:

F'r '%her s#e&$>& &a%e('r$es s*&h as en%*re &a#$%a" 3*nds, &'ns*)er

&red$%, &a#$%a" )arke%s, e#'s*re %' NBFC e%&, RBI )a+ #res&r$1e R$sk

We$(h% 3r') %$)e %' %$)e 54h$&h &*rren%"+ end O&% -; s%ands a%-;9, -8;, -8; H -99 e%&. res#e&%$e"+6. Readers )a+ re3er %'

RBI &$r&*"ar $n %h$s re(ard 3r') %$)e %' %$)e.

e.Br$&k4'rk Ra%$n(s Ind$a P%. L%d.3. SMERA Ra%$n(s L%d

In%erna%$'na" Ra%$n( A(en&$es 54here s#e&$>ed6

a.F$%&h

1.M''d+s@ and

&.S%andard H P''rGs

Banks are re2*$red %' *se %he &h'sen &red$% ra%$n( a(en&$es

and %he$r ra%$n(s &'ns$s%en%"+ 3'r ea&h %+#e '3 &"a$), 3'r 1'%hr$sk 4e$(h%$n( and r$sk )ana(e)en% #*r#'ses.


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Under %he Fra)e4'rk, ra%$n(s hae 1een )a##ed 3'ra##r'#r$a%e r$sk 4e$(h%s a##"$&a1"e as #er S%andard$seda##r'a&h. The r$sk 4e$(h% )a##$n( 3'r L'n( Ter) and Sh'r%

Ter) Ra%$n(s are ($en $n %he C$r&*"ar.

Cred$% R$sk M$%$(a%$'n Te&hn$2*esBanks *se a n*)1er '3 %e&hn$2*es %' )$%$(a%e %he Cred$% r$sk %'

4h$&h %he+ are e#'sed. These are d$s&*ssed 1e"'4=a6Collaterali(ed transactions The &red$% e#'s*re $s hed(ed $n 4h'"e 'r #ar% 1+ &'""a%era"s

1+ a &'*n%er#ar%+ 5#ar%+ %' 4h') a 1ank has an 'n0'r '1a"an&e shee% &red$% e#'s*re6 'r 1+ a %h$rd #ar%+ 'n 1eha"3 '3%he &'*n%er#ar%+ and 1anks hae s#e&$>& "$en 'er %he&'""a%era"s and %he re2*$re)en%s '3 "e(a" &er%a$n%+ are )e%.

Under %he Fra)e4'rk, 1anks are a""'4ed %' ad'#% e$%herS$)#"e A##r'a&h 'r C')#rehens$e A##r'a&h. The 3'r)era##r'a&h s*1s%$%*%es %he r$sk 4e$(h%$n( '3 %he &'""a%era" 3'r

%he r$sk 4e$(h%$n( '3 %he &'*n%er#ar%+ 3'r %he &'""a%era$sed#'r%$'n '3 %he e#'s*re 4h$"e %he "a%%er a##r'a&h a""'4s 3*""er'se% '3 &'""a%era"s a(a$ns% e#'s*res. C')#rehens$ea##r'a&h $s 1e$n( ad'#%ed 1+ 1anks $n Ind$a.

Cash, '"d, Se&*r$%$es $ss*ed 1+ Cen%ra" and S%a%e ('%s, KP,NSC 5#r'$ded %here $s n' "'&k $n #er$'d6, LIC #'"$&$es, De1%se&*r$%$es, Un$%s '3 M*%*a" F*nds, e%&. are e"$($1"e >nan&$a"$ns%r*)en%s 3'r re&'(n$%$'n $n %he C')#rehens$e A##r'a&h.

16On alance *#eet +ettin"

Under %h$s %e&hn$2*e, 1anks sh'*"d hae "e(a""+ en3'r&ea1"e ne%%$n(arran(e)en%s $n'"$n( s#e&$>& "$en 4$%h #r''3 '3 d'&*)en%a%$'n.Ca#$%a" re2*$re)en% $s re&k'ned 'n %he 1as$s '3 ne% &red$% e#'s*re.

&6Guarantees

D$re&%, e#"$&$%, $rre'&a1"e, and *n&'nd$%$'na" (*aran%ees )a+ 1e%aken as &red$% #r'%e&%$'n $n &a"&*"a%$n( &a#$%a" re2*$re)en%s.

*aran%ees $ss*ed 1+ en%$%$es 4$%h "'4er r$sk 4e$(h% as &')#ared %'%he &'*n%er#ar%+ 4$"" "ead %' red*&ed &a#$%a" &har(es.

Ca#$%a" &har(e 3'r Marke% R$sk

Marke% R$sk re"a%es %' r$sk '3 "'sses $n 'n01a"an&e shee% and '01a"an&e shee% #'s$%$'ns ar$s$n( 'n a&&'*n% '3 )'e)en% $n )arke%#r$&es. The )arke% r$sk #'s$%$'ns s*1e&% %' &a#$%a" &har(ere2*$re)en% are r$sks #er%a$n$n( %' interest rate re"a%ed$ns%r*)en%s and e2*$%$es $n %rad$n( 1''ks and ,orei"n -xc#an"erisk 5$n&"*d$n( '#en #'s$%$'n $n ('"d and '%her #re&$'*s )e%a"s6 $n1'%h %rad$n( and 1ank$n( 1''ks.


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radin" /ook for t#e urose of caital ade0uacy willinclude:

a.Se&*r$%$es $n&"*ded *nder %he !e"d 3'r Trad$n( 5!FT6 &a%e('r+

1.Se&*r$%$es $n&"*ded *nder %he Aa$"a1"e 3'r Sa"e 5AFS6 &a%e('r+

&.O#en ('"d #'s$%$'n "$)$%s

d.O#en 3're$(n e&han(e #'s$%$'n "$)$%s

e.Trad$n( #'s$%$'ns $n der$a%$es, and

3.Der$a%$es en%ered $n%' 3'r hed($n( %rad$n( 1''k e#'s*res.

Banks are re2*$red %' )ana(e %he )arke% r$sks $n %he$r 1''ks 'n an'n('$n( 1as$s and ens*re %ha% %he &a#$%a" re2*$re)en%s 3'r )arke%

r$sks are 1e$n( )a$n%a$ned 'n a &'n%$n*'*s 1as$s, $.e. a% %he &"'se '3ea&h 1*s$ness da+. Banks are a"s' re2*$red %' )a$n%a$n s%r$&% r$sk)ana(e)en% s+s%e)s %' )'n$%'r and &'n%r'" $n%ra0da+ e#'s*res %')arke% r$sks.

Ca#$%a" 3'r )arke% r$sk 4'*"d n'% 1e re"ean% 3'r se&*r$%$es 4h$&hhae a"read+ )a%*red and re)a$n *n#a$d. These se&*r$%$es 4$""a%%ra&% &a#$%a" 'n"+ 3'r &red$% r$sk. On &')#"e%$'n '3 9 da+sde"$n2*en&+, %hese 4$"" 1e %rea%ed 'n #ar 4$%h NPAs 3'r de&$d$n( %hea##r'#r$a%e r$sk 4e$(h%s 3'r &red$% r$sk.

Meas*re)en% '3 &a#$%a" &har(e 3'r In%eres% Ra%e R$sk

The &a#$%a" &har(e 3'r $n%eres% ra%e re"a%ed $ns%r*)en%s 4'*"d a##"+%' &*rren% )arke% a"*e '3 %he $ns%r*)en%s $n 1ankGs %rad$n( 1''kand 1anks are re2*$red %' )a$n%a$n &a#$%a" 3'r )arke% r$sks 'n an'n('$n( 1as$s 1+ )ark %' )arke% %he$r %rad$n( #'s$%$'ns 'n a da$"+1as$s.

The )$n$)*) &a#$%a" re2*$re)en% $s )eas*red e#ressed $n %4'

4a+s $. 5$6 S#e&$>& R$sk &har(e and 5$$6 enera" Marke% R$sk 5dea"%se#ara%e"+ here*nder6.

In $e4 '3 #'ss$1"e "'n(er h'"d$n( #er$'d and h$(her r$sk %here%' $nres#e&% '3 de1% se&*r$%$es he"d *nder AFS &a%e('r+, 1anks arere2*$red %' h'"d &a#$%a" &har(e 3'r )arke% r$sk e2*a" %' 'r (rea%er '3%he S#e&$>& R$sk Ca#$%a" &har(e 'r A"%erna%$e T'%a" Ca#$%a" Char(e.

5$6S#e&$>& Marke% R$sk

The &a#$%a" &har(e 3'r s#e&$>& r$sk $s des$(ned %' #r'%e&%

a(a$ns% an aderse )'e)en% $n %he #r$&e '3 an $nd$$d*a"se&*r$%+ '4$n( %' 3a&%'rs re"a%ed %' %he $nd$$d*a" $ss*er 1'%hsh'r% 5sh'r% #'s$%$'n $s n'% a""'4ed $n Ind$a e&e#% $n

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der$a%$es6 and "'n( #'s$%$'ns. F'r s#e&$>& r$sk &har(es andA"%erna%$e T'%a" Ca#$%a" Char(e 3'r ar$'*s k$nds '3 e#'s*resRBI C$r&*"ar )a+ 1e re3erred.

5$$6enera" Marke% R$sk

I% re"a%es %' &har(e %'4ards $n%eres% ra%e r$sk $n %he #'r%3'"$',4here "'n( and sh'r% #'s$%$'n 54h$&h $s n'% a""'4ed $n Ind$ae&e#% $n der$a%$es6 $n d$eren% se&*r$%$es 'r $ns%r*)en%s &an1e 'se%. The &a#$%a" re2*$re)en%s 3'r (enera" )arke% r$sk aredes$(ned %' &a#%*re %he r$sk '3 "'ss ar$s$n( 3r') &han(es $n)arke% $n%eres% ra%es.

enera" Marke% R$sk $s %he s*) '3 %he 3'""'4$n( 3'*r &')#'nen%s=0

a.The ne% sh'r% 5sh'r% #'s$%$'n $s n'% a""'4ed $n Ind$a e&e#% $nder$a%$es6 'r "'n( #'s$%$'n $n %he 4h'"e %rad$n( 1''k@

1.a s)a"" #r'#'r%$'n '3 %he )a%&hed #'s$%$'ns $n ea&h %$)e01and5%he er%$&a" d$sa""'4an&e6@

&.a "ar(er #r'#'r%$'n '3 %he )a%&hed #'s$%$'ns a&r'ss d$eren% %$)e01ands 5%he h'r$'n%a" d$sa""'4an&e6, and

d.a ne% &har(e 3'r #'s$%$'ns $n '#%$'ns, 4here a##r'#r$a%e.

T4' 1r'ad )e%h'd'"'($es 3'r &')#*%a%$'n '3 &a#$%a" &har(e 3'r)arke% r$sks are s*((es%ed 1+ %he Bas"e C'))$%%ee $.

S%andard$sed Me%h'd and In%erna" R$sk Mana(e)en% )'de"s )e%h'd'3 4h$&h 1anks hae 1een ad$sed %' ad'#% S%andard$sed Me%h'd %'s%ar% 4$%h as 1anks hae n'% +e% dee"'#ed %he$r In%erna" M'de"s.

Under %he s%andard$sed )e%h'd %here are %4' #r$n&$#a" )e%h'ds '3)eas*r$n( )arke% r$sk $. a )a%*r$%+ )e%h'd and a d*ra%$'n)e%h'd. I% has 1een de&$ded %' ad'#% s%andard$sed d*ra%$'n)e%h'd as %he sa)e $s )'re a&&*ra%e )e%h'd %' arr$e a% %he&a#$%a" &har(e.

The )e&han$&s *nder %he )e%h'd, T$)e 1ands and Ass*)ed&han(es $n Y$e"d are de%a$"ed $n %he Mas%er C$r&*"ar 'n NACF 4h$&h)a+ 1e re3erred %'.

Meas*re)en% 3'r &a#$%a" &har(e 3'r E2*$%+ R$sk

The &a#$%a" &har(e 3'r e2*$%$es 4'*"d a##"+ 'n %he$r &*rren%)arke% a"*e $n 1ankGs %rad$n( 1''k. The M$n$)*) &a#$%a"re2*$re)en%, %' &'er %he r$sk '3 h'"d$n( 'r %ak$n( #'s$%$'ns $ne2*$%$es $n %he %rad$n( 1''k $s de%a$"ed $n %he RBI C$r&*"ar. The

$ns%r*)en%s &'ered $n&"*de e2*$%+ shares, 4he%her '%$n( 'rn'n0'%$n(, &'ner%$1"e se&*r$%$es %ha% 1ehae "$ke e2*$%$es, 3'rea)#"e= *n$%s '3 )*%*a" 3*nds, and &'))$%)en%s %' 1*+ 'r


10/20

se"" e2*$%+ 1*% d'es n'% $n&"*de n'n &'ner%$1"e Pre3eren&eShares 54h$&h are &'ered 1+ In%eres% ra%e r$sk re2*$re)en%s6.

The &a#$%a" &har(e 3'r enera" Marke% R$sk, &a"&*"a%ed 'n1ankGs (r'ss e2*$%+ #'s$%$'n, 4'*"d 1e and %he sa)e 4$""1e --.8; 3'r s#e&$>& r$sk e2*$a"en% %' %he R$sk We$(h% '3-8;. The S#e&$>& R$sk &a#$%a" &har(e 'n %he 1anks$nes%)en% $n Se&*r$%+ Re&e$#%s 4'*"d 1e -.; 5e2*$a"en% %'-;9 r$sk 4e$(h%6.

Meas*re)en% '3 &a#$%a" &har(e 3'r F're$(n E&han(e R$skThe 1ankGs ne% '#en #'s$%$'n $n ea&h &*rren&+ sha"" 1e &a"&*"a%ed 1+

s*))$n(=

a6The ne% s#'% #'s$%$'n 5$.e. a"" asse% $%e)s "ess a"" "$a1$"$%+ $%e)s,$n&"*d$n( a&&r*ed $n%eres%, den')$na%ed $n %he &*rren&+ $n

2*es%$'n6@

16The ne% 3'r4ard #'s$%$'n 5$.e. a"" a)'*n%s %' 1e re&e$ed "ess a""a)'*n%s %' 1e #a$d *nder 3'r4ard 3're$(n e&han(e %ransa&%$'ns,$n&"*d$n( &*rren&+ 3*%*res and %he #r$n&$#a" 'n &*rren&+ s4a#s n'%$n&"*ded $n %he s#'% #'s$%$'n6@

&6*aran%ees 5and s$)$"ar $ns%r*)en%s6 %ha% are &er%a$n %' 1e &a""edand are "$ke"+ %' 1e $rre&'era1"e@

d6Ne% 3*%*re $n&')ee#enses n'% +e% a&&r*ed 1*% a"read+ 3*""+hed(ed 5a% %he d$s&re%$'n '3 %he re#'r%$n( 1ank6@

e6De#end$n( 'n #ar%$&*"ar a&&'*n%$n( &'nen%$'ns $n d$eren%&'*n%r$es, an+ '%her $%e) re#resen%$n( a #r'>% 'r "'ss $n 3're$(n&*rren&$es@

36The ne% de"%a01ased e2*$a"en% '3 %he %'%a" 1''k '3 3're$(n&*rren&+ '#%$'ns.

The '#en #'s$%$'ns 1'%h F're$(n e&han(e and ('"d are a% #resen%r$sk04e$(h%ed a% -99 and %he &a#$%a" &har(e 3'r )arke% r$sks $n3're$(n e&han(e and ('"d '#en #'s$%$'n $s . These '#en#'s$%$'ns, "$)$%s 'r a&%*a" 4h$&heer $s h$(her, 4'*"d &'n%$n*e %'a%%ra&% &a#$%a" &har(e a% . Th$s &a#$%a" &har(e $s $n add$%$'n %' %he&a#$%a" &har(e 3'r &red$% r$sk 'n %he 'n01a"an&e shee% and '01a"an&e shee% $%e)s #er%a$n$n( %' 3're$(n e&han(e and ('"d%ransa&%$'ns.

F'r &a"&*"a%$'n '3 e"$($1"e &a#$%a" 3'r )arke% r$sk, $% 4$"" 1e ne&essar+%' as&er%a$n %he 1ankGs )$n$)*) &a#$%a" re2*$re)en% 3'r &red$% and

'#era%$'na" r$sks s' as %' arr$e a% %he aa$"a1"e T$er I and T$er II&a#$%a" %' s*##'r% %he )arke% r$sk 5I""*s%ra%ed $n %he RBI C$r&*"ar6.

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11/20

Ca#$%a" &har(e 3'r O#era%$'na" R$sk

O#era%$'na" r$sk $s %er)ed as %he r$sk '3 "'ss res*"%$n( 3r')$nade2*a%e 'r 3a$"ed $n%erna" #r'&esses, #e'#"e and s+s%e)s 'r 3r')e%erna" een%s. Th$s $n&"*des "e(a" r$sk, 1*% e&"*des s%ra%e($& andre#*%a%$'na" r$sk. Le(a" r$sk $n&"*des, 1*% $s n'% "$)$%ed %', e#'s*re%' >nes, #ena"%$es, 'r #*n$%$e da)a(es res*"%$n( 3r') s*#er$s'r+a&%$'ns, as 4e"" as #r$a%e se%%"e)en%s.

Meas*re)en% Me%h'd'"'($esThree )e%h'ds 3'r &a"&*"a%$n( '#era%$'na" r$sk &a#$%a" &har(es $n&'n%$n**) '3 $n&reas$n( s'#h$s%$&a%$'n and r$sk sens$%$$%+ are#r'$ded *nder NCAF $.

$6The Bas$& Ind$&a%'r A##r'a&h 5BIA6

$$6 The S%andard$sed A##r'a&h 5TSA6, and

$$$6Adan&ed Meas*re)en% A##r'a&h 5AMA6.

Banks are ad'#%$n( %he Bas$& Ind$&a%'r A##r'a&h 5BIA6 and RBI4'*"d re$e4 %he &a#$%a" re2*$re)en% *nder BIA 3'r (enera"&red$1$"$%+ and $n &ase $% $s 3'*nd %ha% &red$1$"$%+ $s "a&k$n(a##r'#r$a%e S*#er$s'r+ a&%$'n *nder P$""ar 8 4$"" 1e &'ns$dered.Under BIA, 1anks are re2*$red %' h'"d &a#$%a" 3'r '#era%$'na" r$ske2*a" %' %he aera(e 'er %he #re$'*s %hree +ears '3 a >ed#er&en%a(e 5den'%ed as a"#ha6 '3 #'s$%$e ann*a" (r'ss $n&')e. In&ase %he (r'ss $n&')e 3'r an+ +ear $s ne(a%$e 'r er', %he sa)esh'*"d 1e e&"*ded 4h$"e &a"&*"a%$n( %he aera(e 1'%h 3r')

n*)era%'r as 4e"" as den')$na%'r. RBI 4$"" $n$%$a%e ne&essar+s*#er$s'r+ a&%$'n *nder P$""ar 8 $n &ase %he ne(a%$e (r'ss $n&')ed$s%'r%s 1anks P$""ar I &a#$%a" &har(e.

ii)S*#er$s'r+ Re$e4 and Ea"*a%$'n Pr'&ess 5SREP6 2Pillar 3)

The '1e&%$e '3 S*#er$s'r+ Re$e4 Pr'&ess 5SRP6 $s %'=0

a.Ens*re %ha% 1anks hae ade2*a%e &a#$%a" %' s*##'r% a"" %he r$sks $n

%he$r 1*s$ness@ and

1.En&'*ra(e %he) %' dee"'# and *se 1e%%er r$sk )ana(e)en%%e&hn$2*es 3'r )'n$%'r$n( and )ana($n( %he$r r$sks.

4 5ey rinciles envisa"ed under t#e *RP are:6

a6Banks are re2*$red %' hae a #r'&ess 3'r assess$n( %he$r 'era""&a#$%a" ade2*a&+ $n re"a%$'n %' %he$r r$sk #r'>"e and a s%ra%e(+ 3'r

)a$n%a$n$n( %he$r &a#$%a" "ee"s.

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16Ea"*a%$'n '3 1anksG $n%erna" &a#$%a" ade2*a&+ assess)en%s ands%ra%e($es as 4e"" as %he$r a1$"$%+ %' )'n$%'r and ens*re %he$r&')#"$an&e 4$%h %he re(*"a%'r+ &a#$%a" ra%$'s 1+ S*#er$s'rs.

&6S*#er$s'rs sh'*"d e#e&% 1anks %' '#era%e a1'e %he )$n$)*)re(*"a%'r+ &a#$%a" ra%$'s and sh'*"d hae %he a1$"$%+ %' re2*$re 1anks%' h'"d &a#$%a" $n e&ess '3 %he )$n$)*).

d6S*#er$s'rs sh'*"d $n%erene a% an ear"+ s%a(e %' #reen% &a#$%a"3r') 3a""$n( 1e"'4 %he )$n$)*) "ee"s re2*$red %' s*##'r% %he r$sk&hara&%er$s%$&s '3 a #ar%$&*"ar 1ank and sh'*"d re2*$re ra#$dre)ed$a" a&%$'n $3 &a#$%a" $s n'% )a$n%a$ned 'r res%'red.

Pr$n&$#"es a H & re"a%es %' %he s*#er$s'r+ e#e&%a%$'ns 4h$"e '%hers$.e. 1 H d dea"s 4$%h %he r'"e '3 %he s*#er$s'rs *nder P$""ar 8. Th$sne&ess$%a%es e'"e)en% '3 an ee&%$e Internal Caital7de0uacy 7ssess8ent Process 2IC77P) 3'r assess$n( %he$r&a#$%a" ade2*a&+ 1ased 'n %he r$sk #r'>"es as 4e"" as s%ra%e($es 3'r

)a$n%a$n$n( %he$r &a#$%a" "ee"s.

P$""ar 8 a"s' re2*$res %he S*#er$s'r+ a*%h'r$%$es %' #*% $n #"a&e anea"*a%$'n #r'&ess kn'4n as *uervisory Review and-valuation Process 2*R-P) and %' $n$%$a%e s*#er$s'r+ )eas*resas )a+ 1e ne&essar+. Th$s 4'*"d a"s' 3a&$"$%a%e RBI %' %ake s*$%a1"es%e#s e$%her %' red*&e e#'s*re '3 %he 1ank 'r a*()en%res%'re $%s&a#$%a". ICAAP $s an $)#'r%an% &')#'nen% '3 %he SRP.

ank9s and *uervisor9s resonsi/ilities under Pillar63:

Based 'n %he #r$n&$#"es, res#'ns$1$"$%$es hae 1een &as%ed 'n Banksand S*#er$s'rs *nder SREP 1ased 'n 4h$&h 1anks are e#e&%ed %''#era%e a1'e %he )$n$)*) re(*"a%'r+ &a#$%a" ra%$'s &'))ens*ra%e4$%h %he$r $nd$$d*a" r$sk #r'>"es, e%&. Under SREP, %he RBI 4$""assess %he 'era"" &a#$%a" ade2*a&+ %hr'*(h &')#rehens$eea"*a%$'n a"'n( 4$%h Ann*a" F$nan&$a" Ins#e&%$'n 5AFI6 1asedre"ean% da%a and ICAAP d'&*)en% 1e$n( re&e$ed 3r') 1anks and

aa$"a1"e $n3'r)a%$'n. ICAAP and SREP are %4' $)#'r%an%&')#'nen%s '3 P$""ar 8.

Eer+ 1ank 5e&e#% LABs 5L'&a" Area BankGs6 H RRBs 5Re($'na" R*ra"Bank6 sh'*"d hae an ICAAP 1'%h a% s'"' 5"'1a" #'s$%$'n6 and&'ns'"$da%ed "ee"s and %he res#'ns$1$"$%+ '3 des$(n$n( and$)#"e)en%a%$'n '3 %he ICAAP res%s 4$%h %he B'ard. Be3're e)1ark$n('n ne4 a&%$$%$es 'r $n%r'd*&$n( ne4 #r'd*&%s %he sen$'r)ana(e)en% sh'*"d $den%$3+ and re$e4 %he re"a%ed r$sks ar$s$n(3r') %hese #'%en%$a" ne4 #r'd*&%s 'r a&%$$%$es and ens*re %ha% %he

$n3ras%r*&%*re and $n%erna" &'n%r'"s ne&essar+ %' )ana(e %he re"a%edr$sks are $n #"a&e.

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13/20

Banks are re2*$red %' #*% $n #"a&e an ee&%$e MIS 4h$&h sh'*"d#r'$de %he 1'ard and sen$'r )ana(e)en% $n a &"ear and &'n&$se)anner 4$%h %$)e"+ and re"ean% $n3'r)a%$'n &'n&ern$n( %he$r$ns%$%*%$'nsG r$sk #r'>"e $n&"*d$n( r$sk e#'s*re. MIS sh'*"d 1e&a#a1"e '3 &a#%*r$n( "$)$% 1rea&hes 5&'n&en%ra%$'ns6 and sa)esh'*"d 1e #r')#%"+ re#'r%ed %' sen$'r )ana(e)en%, s' as %' ens*re%ha% a##r'#r$a%e 3'""'40*# a&%$'ns are %aken.

R$sk )ana(e)en% #r'&ess sh'*"d 1e 3re2*en%"+ )'n$%'red and%es%ed 1+ $nde#enden% &'n%r'" areas and $n%erna" and e%erna"a*d$%'rs.

The ICAAP sh'*"d 3'r) an $n%e(ra" #ar% '3 %he )ana(e)en% andde&$s$'n0)ak$n( &*"%*re '3 a 1ank. The $)#"e)en%a%$'n '3 ICAAPsh'*"d 1e (*$ded 1+ %he #r$n&$#"e '3 #r'#'r%$'na"$%+ and RBI e#e&%sde(ree '3 s'#h$s%$&a%$'n $n %he ICAAP $n re(ard %' r$sk )eas*re)en%4h$&h sh'*"d &'))ens*ra%e 4$%h %he na%*re, s&'#e, s&a"e and %he

de(ree '3 &')#"e$%+ $n %he 1ankGs 1*s$ness '#era%$'ns.

Se"e&% O#era%$'na" as#e&%s '3 ICAAP

The ICAAP '3 1anks $s e#e&%ed n'r)a""+ %' &a#%*re %he r$sk*n$erse, $ .Cred$% R$sk, Marke% R$sk, O#era%$'na" R$sk, $n%eres% ra%er$sk $n %he 1ank$n( 1''k, &red$% &'n&en%ra%$'n r$sk and "$2*$d$%+ r$sk.O%her r$sks $n&"*de re#*%a%$'na" r$sk and 'r 1*s$ness 'r s%ra%e($&r$sk, O01a"an&e shee% E#'s*re and Se&*r$%$sa%$'n R$sk e%&. 5ar$'*sr$sks are 1r$e+ '*%"$ned $n %he RBI C$r&*"ar6.

BankGs r$sk )ana(e)en% #r'&ess $n&"*d$n( %he ICAAP sh'*"d 1e&'ns$s%en% 4$%h %he e$s%$n( RBI (*$de"$nes 'n %hese r$sks. I3 1anksad'#% r$sk )$%$(a%$'n %e&hn$2*es, %he+ sh'*"d *nders%and %he r$sk %'1e )$%$(a%ed and re&k'n$n( $%s en3'r&ea1$"$%+ and ee&%$eness 'n%he r$sk #r'>"e '3 %he 1ank.

S'*nd S%ress Tes%$n( Pra&%$&es

S%ress %es%$n( $s *sed as an $)#'r%an% %''" 1+ 1anks %ha% a"er%s1ank )ana(e)en% %' aderse *ne#e&%ed '*%&')es re"a%ed%' a 1r'ad ar$e%+ '3 r$sks and #r'$des an $nd$&a%$'n %' 1anks'3 h'4 )*&h &a#$%a" )$(h% 1e needed %' a1s'r1 "'sses sh'*"d"ar(e sh'&ks '&&*r. I% $s *sed 1+ 1anks as #ar% '3 %he$r $n%erna"r$sk )ana(e)en%. M're'er, s%ress %es%$n( s*##"e)en%s '%herr$sk )ana(e)en% a##r'a&hes and )eas*res.

iii)Marke% D$s&$#"$ne0 5Pillar 6

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14/20

Marke% D$s&$#"$ne $s %er)ed as dee"'#)en% '3 a se% '3 d$s&"'s*rere2*$re)en%s s' %ha% %he )arke% #ar%$&$#an%s 4'*"d 1e a1"e %'a&&ess ke+ #$e&es '3 $n3'r)a%$'n 'n %he s&'#e '3 a##"$&a%$'n,&a#$%a", r$sk e#'s*res, r$sk assess)en% #r'&esses, and $n %*rn%he &a#$%a" ade2*a&+ '3 %he $ns%$%*%$'n. I% $s &'ns$dered as anee&%$e )eans '3 $n3'r)$n( %he )arke% a1'*% a 1ankGs e#'s*re%' %h'se r$sks and #r'$des &')#ara1$"$%+. N'n0&')#"$an&e '3 %he#res&r$1ed d$s&"'s*re re2*$re)en% a%%ra&%s #ena"%+ $n&"*d$n(>nan&$a" #ena"%+.

Banks are re2*$red %' #r'$de as a% %he end '3 Mar&h ea&h +eara"" P$""ar d$s&"'s*res 1'%h 2*an%$%a%$e and 2*a"$%a%$e a"'n( 4$%hann*a" >nan&$a" s%a%e)en%s. Banks 4$%h &a#$%a" 3*nds '3 Rs. -99&r're 'r )'re are 3*r%her re2*$red %' )ake $n%er$) d$s&"'s*res 'n%he 2*an%$%a%$e as#e&%s 'n a s%anda"'ne 1as$s 'n %he$r 4e1s$%esas a% end '3 Se#%e)1er ea&h +ear.

A"" 1anks 4$%h &a#$%a" 3*nds '3 Rs. ;99 &r're 'r )'re are re2*$red%' d$s&"'se %he$r T$er I &a#$%a", %'%a" &a#$%a", %'%a" re2*$red &a#$%a"and T$er I ra%$' and %'%a" &a#$%a" ade2*a&+ ra%$', 'n a 2*ar%er"+1as$s 'n %he$r res#e&%$e 4e1s$%es.

The d$s&"'s*re 'n %he 4e1s$%es sh'*"d 1e )ade $n a 4e1 #a(e%$%"ed Base" II D$s&"'s*res and %he "$nk %' %h$s #a(e sh'*"d 1e#r')$nen%"+ #r'$ded 'n %he h')e #a(e '3 %he 1ankGs 4e1s$%e.

Ea&h '3 %hese d$s&"'s*res #er%a$n$n( %' a >nan&$a" +ear sh'*"d 1eaa$"a1"e 'n %he 4e1s$%es *n%$" d$s&"'s*re '3 %he %h$rd s*1se2*en%ann*a" 5Mar&h end6 d$s&"'s*re $s )ade.

Banks sh'*"d e'"e a 3'r)a" d$s&"'s*re #'"$&+ d*"+ a##r'ed 1+%he$r res#e&%$e B'ards %ha% addresses %he 1ankGs a##r'a&h 3'rde%er)$n$n( 4ha% d$s&"'s*res $% 4$"" )ake and %he $n%erna"&'n%r'"s 'er %he d$s&"'s*re #r'&ess.

Banks '#era%$n( $n Ind$a are re2*$red %' )ake add$%$'na" d$s&"'s*res$n res#e&% '3=0

a.Se&*r$%$sa%$'n e#'s*res $n %he %rad$n( 1''k@

1.S#'ns'rsh$# '3 '01a"an&e shee% eh$&"es@

&.a"*a%$'n 4$%h re(ard %' se&*r$%$sa%$'n e#'s*res@ and

d. P$#e"$ne and 4areh'*s$n( r$sks 4$%h re(ard %' se&*r$%$sa%$'ne#'s*res

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15/20

The d$s&"'s*re re2*$re)en%s *nder P$""ar se&%$'n 4$se a"'n( 4$%hnarra%$'ns are '*%"$ned $n Ta1*"ar F'r) $n %he RBI Mas%er C$r&*"ar 'nNCAF, 4h$&h )a+ 1e re3erred %'.

7*-L6IIIBase" III re3'r)s are %he res#'nse '3 Base" C'))$%%ee 'n Bank$n(S*#er$s$'n 5BCBS6 %' $)#r'e %he 1ank$n( se&%'rGs a1$"$%+ %' a1s'r1sh'&ks ar$s$n( 3r') >nan&$a" and e&'n')$& s%ress, 4ha%eer %hes'*r&e, %h*s red*&$n( %he r$sk '3 s#$"" 'er 3r') %he >nan&$a" se&%'r%' %he rea" e&'n')+. D*r$n( P$%%s1*r(h s*))$% $n Se#%e)1er 899,%he 89 "eaders &'))$%%ed %' s%ren(%hen %he re(*"a%'r+ s+s%e) 3'r1anks and '%her >nan&$a" >r)s and a"s' a&% %'(e%her %' ra$se &a#$%a"s%andards, %' $)#"e)en% s%r'n( $n%erna%$'na" &')#ensa%$'ns%andards a$)ed a% end$n( #ra&%$&es %ha% "ead %' e&ess$e r$sk0%ak$n(, %' $)#r'e %he 'er0%he0&'*n%er der$a%$es )arke% and %'&rea%e )'re #'4er3*" %''"s %' h'"d "ar(e ("'1a" >r)s %' a&&'*n% 3'r%he r$sks %he+ %ake.

F'r a"" %hese re3'r)s, %he "eaders se% 3'r %he)se"es s%r$&% and#re&$se %$)e%a1"es. C'nse2*en%"+, %he Base" C'))$%%ee 'n Bank$n(S*#er$s$'n 5BCBS6 re"eased &')#rehens$e re3'r) #a&ka(e en%$%"edBasel III: A global regulatory framework for more resilient banksand banking systems 5kn'4n as Base" III &a#$%a" re(*"a%$'ns6 $nDe&e)1er 89-9.

Base" III re3'r)s s%ren(%hen %he 1ank0"ee" $.e. )$&r' #r*den%$a"

re(*"a%$'n, 4$%h %he $n%en%$'n %' ra$se %he res$"$en&e '3 $nd$$d*a"1ank$n( $ns%$%*%$'ns $n #er$'ds '3 s%ress. Bes$des, %he re3'r)s hae a)a&r' #r*den%$a" 3'&*s a"s', address$n( s+s%e) 4$de r$sks, 4h$&h&an 1*$"d *# a&r'ss %he 1ank$n( se&%'r, as 4e"" as %he #r'&+&"$&a"a)#"$>&a%$'n '3 %hese r$sks 'er %$)e. These ne4 ("'1a" re(*"a%'r+and s*#er$s'r+ s%andards )a$n"+ seek %' ra$se %he 2*a"$%+ and "ee"'3 &a#$%a" %' ens*re 1anks are 1e%%er a1"e %' a1s'r1 "'sses 'n 1'%h a('$n( &'n&ern and a ('ne &'n&ern 1as$s, $n&rease %he r$sk &'era(e'3 %he &a#$%a" 3ra)e4'rk, $n%r'd*&e "eera(e ra%$' %' sere as a1a&ks%'# %' %he r$sk01ased &a#$%a" )eas*re, ra$se %he s%andards 3'r

%he s*#er$s'r+ re$e4 #r'&ess 5P$""ar 86 and #*1"$& d$s&"'s*res 5P$""ar6 e%&. The )a&r' #r*den%$a" as#e&%s '3 Base" III are "ar(e"+enshr$ned $n %he &a#$%a" 1*ers. ot# t#e /u;ers i.e. t#e caitalconservation /u;er and t#e countercyclical /u;er areintended to rotect t#e /ankin" sector fro8 eriods ofexcess credit "rowt#.

Resere Bank $ss*ed *$de"$nes 1ased 'n %he Base" III re3'r)s 'n&a#$%a" re(*"a%$'n 'n Ma+ 8, 89-8, %' %he e%en% a##"$&a1"e %' 1anks'#era%$n( $n Ind$a. The Base" III &a#$%a" re(*"a%$'n has 1een

$)#"e)en%ed 3r') A#r$" -, 89- $n Ind$a $n #hases and $% 4$"" 1e 3*""+$)#"e)en%ed as 'n Mar&h -, 89-.

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The Base" III &a#$%a" re(*"a%$'ns &'n%$n*e %' 1e 1ased 'n %hree0)*%*a""+ re$n3'r&$n( P$""ars, $. )$n$)*) &a#$%a" re2*$re)en%s,s*#er$s'r+ re$e4 '3 &a#$%a" ade2*a&+, and )arke% d$s&$#"$ne '3 %heBase" II &a#$%a" ade2*a&+ 3ra)e4'rk. Under P$""ar -, %he Base" III3ra)e4'rk 4$"" &'n%$n*e %' 'er %he %hree d$s%$n&% '#%$'ns 3'r&')#*%$n( &a#$%a" re2*$re)en% 3'r &red$% r$sk and %hree '%her'#%$'ns 3'r &')#*%$n( &a#$%a" re2*$re)en% 3'r '#era%$'na" r$sk, albeit4$%h &er%a$n )'d$>&a%$'ns enhan&e)en%s. These '#%$'ns 3'r &red$%and '#era%$'na" r$sks are 1ased 'n $n&reas$n( r$sk sens$%$$%+ anda""'4 1anks %' se"e&% an a##r'a&h %ha% $s )'s% a##r'#r$a%e %' %hes%a(e '3 dee"'#)en% '3 1ank?s '#era%$'ns. The '#%$'ns aa$"a1"e 3'r&')#*%$n( &a#$%a" 3'r &red$% r$sk are S%andard$sed A##r'a&h,F'*nda%$'n In%erna" Ra%$n( Based A##r'a&h and Adan&ed In%erna"Ra%$n( Based A##r'a&h. The '#%$'ns aa$"a1"e 3'r &')#*%$n( &a#$%a"3'r '#era%$'na" r$sk are Bas$& Ind$&a%'r A##r'a&h 5BIA6, TheS%andard$sed A##r'a&h 5TSA6 and Adan&ed Meas*re)en% A##r'a&h5AMA6.As '3 n'4 a"" &'))er&$a" 1anks $n Ind$a 5e&"*d$n( L'&a" AreaBanks and Re($'na" R*ra" Banks6 ad'#% S%andard$sed A##r'a&h 3'r

&red$% r$sk, Bas$& Ind$&a%'r A##r'a&h 3'r '#era%$'na" r$sk and %heS%andard$sed D*ra%$'n A##r'a&h 5SDA6 3'r &')#*%$n( &a#$%a"re2*$re)en% 3'r )arke% r$sks.

T'%a" re(*"a%'r+ &a#$%a" 4$"" &'ns$s% '3 %he s*) '3 %he 3'""'4$n( &a%e('r$es=5$6 T$er - Ca#$%a" 5('$n(0&'n&ern &a#$%a"6

5a6 C'))'n E2*$%+ T$er -

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516 Add$%$'na" T$er -

5$$6 T$er 8 Ca#$%a" 5('ne0&'n&ern &a#$%a"6

The ar$'*s &')#'nen%s '3 CET0-, AT0- and T$er0 8 &a#$%a" are de%a$"edhere$n.

Elements of Common Equity Tier 1 Capital (Indian Banks)E"e)en%s '3 C'))'n E2*$%+ &')#'nen% '3 T$er - &a#$%a" 4$"" &')#r$se %he3'""'4$n(=

5$6 C'))'n shares 5#a$d0*# e2*$%+ &a#$%a"6 $ss*ed 1+ %he 1ank

5$$6 S%'&k s*r#"*s 5share #re)$*)6 res*"%$n( 3r') %he $ss*e '3 &'))'nshares@

5$$$6 S%a%*%'r+ reseres@

5$6 Ca#$%a" reseres re#resen%$n( s*r#"*s ar$s$n( '*% '3 sa"e #r'&eeds '3asse%s@

56 O%her d$s&"'sed 3ree reseres, $3 an+@

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5$6 Ba"an&e $n Pr'>% H L'ss A&&'*n% a% %he end '3 %he #re$'*s >nan&$a"+ear@

-le8ents of 7dditional ier 1 CaitalAdd$%$'na" T$er - &a#$%a" 4$"" &'ns$s% '3 %he s*) '3 %he 3'""'4$n( e"e)en%s=5$6 Per#e%*a" N'n0C*)*"a%$e Pre3eren&e Shares 5PNCPS6,

5$$6 S%'&k s*r#"*s 5share #re)$*)6 res*"%$n( 3r') %he $ss*e '3 $ns%r*)en%s$n&"*ded $n Add$%$'na" T$er - &a#$%a"@

De1% &a#$%a" $ns%r*)en%s e"$($1"e 3'r $n&"*s$'n $n Add$%$'na" T$er - &a#$%a"

5$6 An+ '%her %+#e '3 $ns%r*)en% (enera""+ n'%$>ed 1+ %he Resere Bank3r') %$)e %' %$)e 3'r $n&"*s$'n $n Add$%$'na" T$er - &a#$%a"@

-le8ents of ier 3 Caital 2Indian anks)(i) General Provisions and Loss Reserves5$$6 De1% Ca#$%a" Ins%r*)en%s $ss*ed 1+ %he 1anks@

5$$$6 Pre3eren&e Share Ca#$%a" Ins%r*)en%s VPer#e%*a" C*)*"a%$ePre3eren&e Shares 5PCPS6 Redee)a1"e N'n0C*)*"a%$ePre3eren&e Shares 5RNCPS6 Redee)a1"e C*)*"a%$e Pre3eren&eShares 5RCPS6 $ss*ed 1+ %he 1anks@

5$6 S%'&k s*r#"*s 5share #re)$*)6 res*"%$n( 3r') %he $ss*e '3$ns%r*)en%s $n&"*ded $n T$er 8 &a#$%a"@

56 Wh$"e &a"&*"a%$n( &a#$%a" ade2*a&+ a% %he &'ns'"$da%ed "ee", T$er8 &a#$%a" $ns%r*)en%s $ss*ed 1+ &'ns'"$da%ed s*1s$d$ar$es '3 %he1ank and he"d 1+ %h$rd #ar%$es 4h$&h )ee% %he &r$%er$a 3'r$n&"*s$'n $n T$er 8 &a#$%a" 5RBI &$r&*"ar 'n Base"0III &a#$%a"

re(*"a%$'n d%.-..89-; #ara(ra#h :..: )a+ 1e re3erred6@5$6 Rea"*a%$'n reseres a% a d$s&'*n% '3 ;;5$$6 An+ '%her %+#e '3 $ns%r*)en% (enera""+ n'%$>ed 1+ %he ResereBank 3r') %$)e %' %$)e 3'r $n&"*s$'n $n T$er 8 &a#$%a"@5$$$6 Less= Re(*"a%'r+ ad*s%)en%s ded*&%$'ns a##"$ed $n %he&a"&*"a%$'n '3 T$er 8 &a#$%a"

Caital allocation for non6funded facilities:

The r$sk 4e$(h%s 4'*"d 1e s$)$"ar as $n %he &ase '3 3*nd01ased "$)$%s and%er) "'ans. !'4eer, 1e3're a##"+$n( %he r$sk 4e$(h%s, %hese 3a&$"$%$es4'*"d 1e &'ner%ed $n%' %he e2*$a"en% &red$% e#'s*re 1+ a##"+$n( a&red$% &'ners$'n 3a&%'r. Then, %he re"ean% r$sk 4e$(h% 53'r %he ra%$n(&a%e('r+ &'n&erned6 4'*"d 1e a##"$ed and %he &a#$%a" a""'&a%eda&&'rd$n("+.

Caital allocation for lar"e ro


19/20

s*1se2*en% s%a(es a3%er &')#"e%$'n '3 &er%a$n 3'r)a"$%$es, %he 1ank needn'% a""'&a%e &a#$%a" 3'r "'ans %ha% )a+ 1e san&%$'ned 3'r %he "a%er s%a(es.In s*&h a &ase %here3're, %he 1ank 4'*"d hae %' a""'&a%e &a#$%a" 'n"+ 3'r%he "'ans 5dra4n and *ndra4n6 #er%a$n$n( %' %he s%a(e *nder$)#"e)en%a%$'n.

!ere $s a Case S%*d+ %' $""*s%ra%e %he #'$n%=A %er) "'an '3 Rs. 99 &r're $s san&%$'ned 3'r a "ar(e #r'e&%. The "'an &an1e dra4n d'4n $n s%a(es 'er a %hree0+ear #er$'d. The %er)s '3 san&%$'na""'4 dra40d'4n $n %hree s%a(es= Rs. -;9 &r're $n S%a(e I, Rs. 899 &r're $nS%a(e II, and Rs. ;9 &r're $n S%a(e III. The %er)s a"s' s%$#*"a%e %ha% %he1'rr'4er 4'*"d need %he 1ank?s e#"$&$% a##r'a" 3'r dra40d'4n *nderS%a(es II and III, a3%er &')#"e%$'n '3 &er%a$n 3'r)a"$%$es.

I3 %he 1'rr'4er has dra4n Rs. ;9 &r're *nder S%a(e I, %he *ndra4n #'r%$'n4'*"d 1e &')#*%ed 4$%h re3eren&e %' S%a(e I a"'ne, $.e., Rs. -;9 &r're)$n*s Rs. ;9 &r're Rs. -99 &r're. F*r%her, %he a##r'#r$a%e &red$%&'ners$'n 3a&%'r 5CCF6 4'*"d 1e a##"$ed %' &')#*%e %he &red$% e2*$a"en%

'3 %he *ndra4n #'r%$'n. I3 S%a(e I $s s&hed*"ed %' 1e &')#"e%ed 4$%h$n 'ne+ear, %he CCF 4$"" 1e 89@ $3 %he #er$'d $s )'re %han 'ne +ear, %hea##"$&a1"e CCF 4$"" 1e ;9. The 3'""'4$n( %a1"e 1r$n(s '*% %he&')#*%a%$'ns=

Retail -xosures:5Re$%era%ed6

I% needs %' 1e re)e)1ered %ha% re%a$" e#'s*re *nder NCAF has a

d$eren% &'nn'%a%$'n %han 4ha% $s &'))'n"+ *nders%''d.

E#'s*res "ess %han Rs. ; &r're 5#er en%$%+6 4'*"d 2*a"$3+ as re%a$"e#'s*res, and a r$sk 4e$(h% '3 ; 4'*"d 1e a##"$ed %' %he) #r'$ded%he 3'""'4$n( &r$%er$a are )e%=XThe ann*a" %*rn'er '3 %he $nd$$d*a"5s6s)a"" 1*s$ness d'es n'% e&eedRs. ;9 &r're@XThe "'an $s n'% $n %he na%*re '3 a h')e "'an, &'ns*)er "'an 'r s%a "'an,$s n'% *sed %' %ransa&% $n se&*r$%$es 51'nds H e2*$%+6 'r &'))er&$a" rea"es%a%e and $s n'% *sed %' #r'$de en%*re &a#$%a"@ and

X The 1ank?s re%a$" #'r%3'"$' has s*&$en% d$ers$>&a%$'n, 4$%h )a$)*)s$e '3 $nd$$d*a" e#'s*re res%r$&%ed %' 9.8 '3 %'%a" re%a$" "'an #'r%3'"$''r Rs. ; &r're, 4h$&heer $s "'4er.

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