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Basel

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Transcript

  • 1. Rutvij Kritika Jyoti Himani Eisha
  • 2. Overview of BASEL Committee founded in 1974. By Central Bank Governors of G10. Focus – Banking Supervision. Objective - Adequate supervision. Meet 4 Times in a year. Around 30 working groups/Task Force. Location at Secretariat : Basel, Switzerland.
  • 3. Conti…. 4 Sub-committees Standard Implementation Group Policy Development Group Accounting Task Force Basel Committee Group
  • 4. What is Tier 1 Capital ? • Core capital • Includes (Equity, Perpetual Non-Convertible Preference Shares, Disclosed Reserves) • Maximum 15% usage • Tier 1 Capital Ratio = Equity capital/RWA What is Tier 2 Capital? • Supplementary Capital • Includes (Undisclosed Reserves, Revaluation Reserves, GP,Hybrid instruments, unsecured debt.) • 100% Usage
  • 5. Basel Accord 1  Introduced in 1988 by BCBS. Objectives of Basel Accord 1 are as follows: • To ensure an adequate level of capital in the international banking system. • To strengthen the competitive markets, under which banks could no longer build in adequate business volumes without adequate capital backing.  According to Basel 1, banks are required to hold capital equal to 8% of the risk-weighted assets.
  • 6. Basel Accord 1 Capital = 8% of Risk – Weighted Asset •Tier 1: Shareholders Equity and Reserves and Surplus •Tier 2: Undisclosed Reserves, Hybrid Instruments and Revaluation Assets •Risk Weighted Assets=Assets classified in the baskets of 10%, 20%, 50%, 100% (on the basis of quality of assets)
  • 7. Basel Accord 1  Drawbacks of Basel Accord 1: •The measures were seen to be in conflict with sophisticated internal measures of economic capital •The bucket approach with a flat 8% charge for claims on private sector , has led the banks to move high quality assets off their balance sheet, thus reducing the average asset quality •Unable to recognize credit risk mitigation tech
  • 8. BASEL ACCORD II
  • 9. PILLAR I- Minimum Capital Requirement Capital for Credit Risk • Standardized approach Risk weights assigned by borrower’s credit rating agencies. • Internal Ratings based approach –Foundation and Advanced Internal ratings by banks are used.
  • 10. Capital for Operational Risk • Basic Indicator Approach Fixed percentage of the average of gross income for 3 years • Standardized Approach Risk measured based on division of Bank’s business into 8 lines and respective exposure • Advanced Measurement Approach Risk measure generated by internal operational risk measurement system
  • 11. Capital for Market Risk VaR measure Value At Risk measure is calculated on the bank’s current portfolio to measure the impact of the current market factors on the portfolio. Based on historical data for past 12 months
  • 12. Capital to Risk Weighted Asset Ratio CRAR = (TIER 1 Capital + TIER 2 Capital) / (Credit RWA + Market RWA + Operational RWA) *RWA- Risk Weighted Assets As per RBI, banks in India must maintain a CRAR of 9%
  • 13. Pillar 2 SUPERVISORY REVIEW PROCESS • It is a regulatory response to the first pillar. • Ensures maintenance of minimum capital by banks. • Monitors and guides banks on risk management of its assets.
  • 14. Functions of supervisor Ensuring banks have a process to assess minimum capital requirements. Reviewing these assessments. Ensure banks maintain capital above the minimum requirement. Prevent capital from falling below the minimum levels.
  • 15. Capital adequacy ratios Mar 2012 SBI: 13.86% HDFC: 16.52% ICICI: 18.52% PNB: 12.63%
  • 16. Pillar 3 : Market Discipline Transparency Monitor risk-taking behavior of banks Institutional framework Information Incentives Control
  • 17. MD Framework
  • 18. BASEL III
  • 19. Thank you..