Tier II - Revaluation reserves, General provisions and loss
reserves,
Tier 2 capital shall not exceed 100 % of Tier 1 capital
Deduction from Tier I - Intangible assets and losses in the
current period and those brought forward from previous periods
6. RISK ADJUSTED CAPITAL REQUIREMENTS
Adoption of Capital Adequacy norms, Prudential norms for income
recognition and provision for bad debts
Risk Weighted Assets Ratio approach to Capital considered more
equitable
Integration of on-balance sheet and off-balance sheet exposure
in to capital ratio provide risk sensitivity and skills to manage
risks in prudent manner
Intangible assets and losses in the current period and those
brought forward from previous periods should be deducted from Tier
1 capital
Loans and advances to banks own staff which are fully covered
by superannuation benefits and/or mortgage of flat/ house - 20 %
risk weight.
Capital Charge for Credit Risk - rating assigned by eligible
external credit rating agencies
7. FUNDED RISK ASSETS
Cash balances with RBI, other banks, money at call or short
notice
Claims on other banks (Certificate of Deposit)
Other investments
Loans and Advances
Loans guaranteed by CG/SG
Loans granted to PSU
Premises, Furniture and other fixtures
Bills Purchased and discounted and other credit facilities
Off-balance Sheet Items- Conversion factor is used to calculate
Risk Exposure
8. INCOME STATEMENT
Interest Income
Other Income
Operating Income (OI)
Interest Expenses
Employee Expenses
OPBDT/OPBT
Extraordinary / Prior period
Tax
PAT
Dividend
9. INCOME RECOGNITION POLICY
Policyof income recognition- objective and based on the record
of recovery
Income from NPA- receipt basis
Interest on advances against term deposits, NSCs, IVPs, KVPsand
Life policies - taken to income account on the due date, provided
adequate margin isavailable
Finance income on leased asset- accrual basis
Categories of NPAs i. Substandard Assets ii. Doubtful Assets
iii. Loss Assets
Provisioning Norms- Primaryresponsibilityof isthat of the
auditors
10. LOANS AND ADVANCES REGULATORY PROVISIONS
Loans and advancesshall not include
loans or advances against Govt securities, LIC policies; FD;
facilities like bills purchased/discounted; purchase of cheques,
other non-fund based facilities like acceptance/co-acceptance of
bills, opening of L/Cs and issue of guarantees, purchase of
debentures, credit/overdraft facility extended by settlement
bankers to NSCCL/ CCIL; loans or advances to the Agricultural
Finance Corporation Ltd;
Specifically exempted by RBI
11. RESTRICTIONS
STATUTORY RESTRICTIONS - Advances against bank's own shares,
bank's Directors holding substantial interest
loans against partly paid shares, FDRs other banks
Certain activities undertaken by NBFCs
Bank Finance to Equipment Leasing Companies
Bullion/Primary gold, & Ornaments
12. CAMEL RATINGS
Performance Evaluation Techniqueused by most banks across the
world
undertakes all the important criteria, i.e. (CAMEL)
Capital
Assets
Management
Earnings; and
Liquidity
Internal supervisory tool for evaluating- soundness of banks
and for identifying those banks which require special supervisory
attention or concern
13. CAMEL Ratings (Contd.)
Recommended by Padmanabhan Committee (1995) - rated on
afivepoint scale (A to E)
Evaluation Parameters (Ratios)
a) Capital Adequacy:Capital to Risk-Weighted Assets(CRAR). A
sound capital base strengthens confidence of depositors
Asset Quality:Non-Performing Loans to Total loans(GNPA).
Indicative of quality of Bankers` credit decisions. Higher GNPA is
indicative of poor credit decision-making
Management :Non-interest expenditures to total assets(MGNT) .
Measures working of the management. Expenses, such as payroll,
workers compensation and training investment, reflects the
management policy stance .
14.
( d) Earnings :Return on Asset ratio
(e) Liquidity:Cash maintainedby banks and balances with RBI,to
Total Asset ratio(LQD)
It is an indicator of bank's liquidity. Banks with a larger
volume of liquid assets are perceived safe, allow banks to meet
unexpected withdrawals.
(f) Systems and Control
RATING SYMBOLS
A -Bank is sound in every respect
B - Bank is fundamentally sound but with moderate
weaknesses
C - financial, operational or compliance weaknesses that give
cause for supervisory concern
D - Serious or immoderate finance, operational and managerial
weaknesses that could impair future viability
E - critical financial weaknesses and there is high possibility
of failure in the near future.