Post on 16-Nov-2014
description
Basel III impact on Indian BanksFebruary 2011
Private and Confidential
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a. Where we are?
b. Basel III : Transitional Arrangements
c. Basel III : Key Components
d. Basel III : Critical Components impact on Indian Banks
e. Basel III impact on Public Sector Banks
f. Basel III impact on Private Banks
g. Basel III impact on Foreign Banks
Index
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2010 2011 2012 2013 2014 2015 2016
Internal Models Approach for Market Risk•Final Guidelines for IMA issued in April 2010.•The earliest date of making application by banks to RBI is 1st April 2010.
Internal Rating Based Approach for Credit Risk (Foundation as well as Advanced)•The earliest date for making application by banks 1st April 2012•Guidelines note under process
Advanced Measurement Approach for Operational Risk•Draft Guidelines note on 6th January 2011.•The earliest date for making application by banks 1st April 2012
Basel III: Regulatory Framework (contd. Next slide)•Guidelines issued in December 2010.•Common equity requirement at 4.5% by 1st January 2015•Tier 1 capital requirement at 6% by 1st January 2015.
Where we are?
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Basel III : Transitional Arrangements
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2
3
5
Basel III : Key Components
Capital Ratios/targets 1 Capital definition
2 Countercyclical buffers
3 Minimum capital standards
4 Leverage ratio
5 Systemic risk
RWA Requirements 6 Counterparty risk
7 Trading book and securitization (also known as Basel II.5)
Liquidity Standards 8 Liquidity coverage ratio
9 Net stable funding ratio
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Basel III is BOTH a firm-specific, risk based framework and a system-wide, systemic risk-based framework
Basel III : Key Components
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Basel III : Impact on Indian Banks
Public sector banks (PSBs) –
Marginal reduction in Tier 1 Capital. - Use of preference share capital and perpetual debt instruments.
To support rapid loan-book expansion in the coming years, government supports may be required to enhance core tier 1 capital, assuming that government continue to hold 51% stake. Currently, there are only seven PSBs in which government equity is more than 65%
Definition of Capital
Banks with Core Tier I less than 7% would be negatively impacted.
It will have a impact on profitability and Return on equity (ROE) Countercyclical buffers
Deductions should be from core capital may lead to reduction of amount in core capital for Indian Banks
Deductions
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Basel III : Impact on Indian Banks
Banks having a huge trading book and off balance sheet derivative exposures will be impacted due to increased risk coverage (capital) on account of counterparty credit risk.
RWA Requirements
The implementation of liquidity ratio (LCR/NSFR) is from 2015 can lead Indian Banks to maintain additional liquidityLiquidity Ratio
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Basel III impact on Public Sector Banks
13.62%
13.93%
14.36%
13.00%
12.78%
13.43%
12.23%
15.37%
12.77%
11.48%
12.71%
14.78%
12.54%
14.16%
13.10%
13.49%
12.70%
13.21%
12.51%
12.80%
12.50%
8.12%
8.18%
9.20%
8.57%
6.41%
8.54%
6.83%
9.25%
8.16%
6.35%
11.13%
8.67%
9.28%
9.11%
7.68%
9.28%
8.24%
7.06%
7.91%
8.16%
7.69%
7.72%
7.81%
8.43%
7.51%
5.61%
7.99%
4.71%
8.19%
7.33%
4.37%
10.50%
7.68%
8.63%
8.04%
7.14%
8.60%
7.17%
4.90%
7.06%
6.85%
6.40%
0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India (Consolidated)
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank
Dena Bank
IDBI Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab National bank
Punjab & Sind Bank
State Bank of India - Group
Syndicate Bank
UCO Bank
Union Bank
United Bank
Vijaya Bank Common Equity Tier 1
Tier-1 (Net of Deduction) %
CRAR
4.5% 7% 10.5%
As per the March 2010 dataset
The Average Common Equity Tier 1 capital of Public Sector Banks is 7.27% and average CRAR is 13.21%.
The Maximum and minimum of the core capital (common equity tier 1) are 10.50% and 4.37%.
Core Capital - One Bank is below Basel III prescribed CET
Tier 1 - Three Banks are falling short of Basel III prescribed Tier I capital (net of deductions).
The CRAR of all the public sector banks is above 10.5%.
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19.28%
19.15%
18.36%
17.44%
15.89%
15.80%
15.39%
15.33%
14.91%
12.85%
17.31%
12.92%
16.92%
13.26%
12.79%
11.18%
12.42%
9.65%
10.11%
11.84%
17.31%
12.12%
16.92%
13.13%
12.79%
10.89%
12.42%
9.65%
9.62%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Yes Bank
Kotak Group
ICICI Group
Federal Bank
HDFC Bank
Jammu & Kashmir Bank
Axis Bank
South Indian Bank
Indusind
ING Vysya Bank Common Equity Tier 1
Tier-1 (Net of Deduction) %
CRAR
Basel III impact on Private Banks
4.5% 7% 10.5%
As per the March 2010 dataset
The Average Common Equity Tier 1 capital of Private Banks is 12.67% and average CRAR is 14.91%.
The Private Banks are well cushioned above the Basel III defined Core (Common Equity Tier 1) capital
The Maximum and minimum of the core capital (common equity tier 1) are 17.31% and 9.62%.
The CRAR of all the private banks is above 10.5%.
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17.07%
17.86%
17.21%
18.03%
12.41%
15.77%
17.29%
16.63%
16.62%
16.50%
8.94%
7.94%
17.29%
16.63%
16.62%
16.50%
8.94%
6.72%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
17.5%
20.0%
Citibank -Group
HSBC Bank
Barclays Bank
Deutsche Bank
Standard Chartered Bank
RBS Common Equity Tier 1
Tier-1 (Net of Deduction) %
CRAR
Basel III impact on Foreign Banks
4.5% 7% 10.5%
As per the March 2010 dataset
The Average Common Equity Tier 1 capital of Foreign Banks is 13.78% and average CRAR is 16.39%.
The Foreign Banks are well cushioned above the Basel III defined Core (Common Equity Tier 1) capital
The Maximum and minimum of the core capital (common equity tier 1) are 17.29% and 6.72%.
The CRAR of all the foreign banks is above 10.5%.
However, these are as per the March 2010 dataset and the implementation of definition of capital as per Basel III are not taken into consideration.
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Liquidity Coverage Ratio (LCR)
The ratio is intended to ensure that a bank maintains adequate levels of unencumbered high quality assets to meet its liquidity needs.
Measured as the ratio of the bank’s high quality liquid assets (numerator), divided by its net cash outflows over a 30-day period (denominator)
The high quality assets included in the numerator include onlyCash, central bank reserves that can be accessed during times of stress, marketable securities meeting certain criteria, and government or central bank debt
The denominator will be calculated by taking into account certain “run-off factors”
LCR will be introduced as an observation exercise in 2011, and will be imposed as a rule as from 2015.
A global minimum liquidity standard
LCR =High-quality liquid assets
Net Cash Outflow (30 days)