Riskpro Basel III Offering

Overview of Basel III: Issues and Challenges RBI’s latest guidelines on Capital Adequacy issued on May 2, 2012 require Banks to comprehensively address various elements relating to capital, liquidity, models, capital adequacy and overall risk management framework. The regulatory framework requires compliance with Basel III guidelines in a phased manner beginning from January 1, 2013. Clearly Basel III is creating more issues and challenges than opportunities, or atleast in the short term. Profitability, business strategies, competition, liquidity, capital raising efforts are all dependent upon a number of variables. Banks want to ensure that Basel III compliance not only achieves regulatory requirements, but also helps in meeting business challenges such as competition, improved profit margins, both of which are likely to be impacted due to additional capital requirements. Riskpro India has put together a long term and comprehensive offering that can support Banks in their quest for Basel III compliance. Our end to end services for Basel III begin with impact assessment and also include helping identify right technology and tools to implement for necessary measurement and analytics.

Riskpro’s Basel III Advisory Services Basel III services are categorised in the following areas

Building robust Risk Management Frameworks compliant with Basel II and Basel III

Capital Management

Liquidity Risk Management

Credit and Market Risk

Models and technology for Basel III

Training and Awareness

More details on each of the above major areas of service are given on the next page.

Our approach to Basel III Compliance

1. Riskpro’s Basel III projects start with a detailed gap assessment with respect to risk policy framework, data quality and availability, use of models and technology and level of skill set within the Bank

2. We map Bank’s compliance against each point of the Basel III requirements and issue a Diagnostic Gap report

3. Impact study for major areas such as Capital Adequacy, capital requirements, liquidity risk ratios etc is carried out. Results are presented to the Bank’s Board for necessary action. Board members can then take action in the form of establishing business strategies.

4. Roadmap for Basel III compliance is then defined based on overall timelines outlined by RBI.

5. Project execution and implementation is aligned to these timelines to ensure timely compliance as well as ensure that the Bank is not unnecessary implementing components required for compliance much later in the program

6. Monthly status report is presented to Senior Management.

7. All regulatory changes, circulars and action plans are communicated to the Bank and incorporated during the course of the project.

RISK MANAGEMENT

FRAMEWORKS

Risk Management Policies,

procedures and frameworks that

are compliant with Basel III

Basel III Impact Assessment &

Diagnostic Review

Aligning business strategies with

Basel III regulatory requirements

Developing risk based pricing

frameworks

Comprehensive stress testing and

back testing frameworks

Basel III impact on new products

and initiatives

Pillar II and ICAAP enhancement

CAPITAL CALCULATIONS &

MGMT

Diagnostic study of impact of

Basel III on capital requirements

Advisory on effective capital

planning strategies over next 2-6

years

Capital & Risk Weight

Computation

Capital Calculation and related

templates and checklists

Develop a framework for Capital

Conservation Buffer

IFRS Impact study

Maximising ROE

LIQUIDITY RISK MANAGEMENT

Develop or enhance existing

liquidity risk framework and

policies to meet Basel III

requirements

Developing and Measuring the

Liquidity Coverage Ratio and

Net Stable Funding Ratio

Eligibility conditions for

liquidity ratios

Stress Testing Liquidity Risk

Liquidity Calculations,

templates and related

reporting formats

Regulatory reporting and

liquidity disclosures

CREDIT AND MARKET RISK

Impact study of Counterparty

Credit Risk (CCR)

Develop Counterparty Credit

Risk Policy as required by

Pillar II of Basel III framework

CCR for Derivative Exposures

Collateral management

framework

Portfolio & Business Analytics

Stressed VaR for Market Risk

approach

BASEL III Training

Training on Basel III

Guidelines by RBI

Basel III Training and

workshops

Risk Management

Recruitment and Talent

management

MODELS and

TECHNOLOGY

Market risk model validation

as per Basel III requirements

Credit value adjustment

models for credit risk

IRB Impact

Model validation

BASEL III ADVISORY

Team and Resources

Riskpro has developed a strong team of Basel and Risk Professionals. Our team resources include market risk, credit risk experts, Banking professionals, model development and validation teams, quantitative specialist and generalists Bankers who can help to handle even the most challenging implementations.

Checklist and Templates used in our engagement

Next Steps

Riskpro is very keen to partner with your organisation to ensure smooth implementation and compliance with RBI’s timelines for Basel III implementation. Please contact us for more details.

Worksteps Remarks

Impact of Basel III on capital adequacy ration ('CAR')Mapping against client requirements: Data requirements, Risk

measurements & calculations

Data identification for impact assessmentExcel template for sourcing all required data points specific to

conducting the impact analysis

Determining impact of Basel III on CARExcel model for calculating incremental capital requirements

under Basel III

Capital management plan incorporating Basel III aspectsRequirement under ICAAP, based on business strategy and

forecasted balance sheet and P&L

Presentation on Basel III, its evolution and impact

assessment

Ready presentation - shortcomings of Basel II, Basel III

components and impact of Basel III

Checklists to evaluate Basel III readiness focusing on

six key areas

Mapping against client requirements: Check lists for

assessments

High quality capital baseAssessment of the regulatory capital computation process and

capital management plan, if any

Enhanced risk coverageRisk metrics and processes governing counterparty credit risk

and securitization framework

Pro-cyclicalityMeasures adopted by bank to minimize impact of pro-cyclicality

on capital adequacy

Systemic importance of the institutionPre-emptive measures to minimize impact of additional capital

requirement for systemically important institutions

Global liquidity standardsComprehensive review of LCR, NSFR and the monitoring &

reporting framework governing the same

Leverage Ratio Calculation of leverage ratio and associated processes

Disclosure requirements

MS Word template for Basel III disclosures Template with specific disclosure requirements under Basel III

Checklist to assess coverage of disclosuresChecklist to assess disclosure policies and governance

framework around the same

Annexure: Basel III Training

Session Topic Key Learning Duration

Recap of Basel II and evolution of Basel III

A quick recap of Basel II Evolution to Basel III and key enhancements

2 Hours

Capital and Leverage Ratio Raising quality of the capital base Complete understanding of eligible capital under Basel III Exposure measurement and computation process Calibration of the leverage ratio

2 Hours

Harmonizing liquidity standards

Understanding of LCR, NSFR and liq. management framework

Net stable funding ratio (NSFR): measurement methodology

Impact of harmonizing liquidity standards

2 Hours

Countering pro-cyclicality Mitigating pro-cyclicality & the need for counter-cyclical buffer

1 Hour

Enhancing risk coverage Understanding enhanced securitization & CCR framework Forward looking provisioning Building capital buffers through capital conservation

2 Hours

Total Training 9 Hours