bank for implementation base 2

8/7/2019 bank for implementation base 2

http://slidepdf.com/reader/full/bank-for-implementation-base-2 1/39

ACKNOWLEDGEMENT

The experience of working in the apex bank of the country has been a great learning

curve for me. I am very thankful for the opportunity to work on such an important project

of ‘Implementation Issues of Banks regarding Basel-II in India’.

I have gained an in-depth knowledge on the topic. Apart from this I have had a wonderful

feel of the corporate environment and how organisations functions and at the same time

the project and the interaction with other banks has boosted my confidence in my

decision for specialization.

I would like to thank my Project Guide, Dr. A.S.Ramasastri, without whose guidance this

project would not have been possible. He has leaded me through the entire tenure of the

project and provided help as and when required. I would also like to extend my thanks to

Dr. G.P. Samantha for being of immense help in guiding me through the entire tenure of

the project.

I would also like to thank all the officials in the organisation, who had taken time to

answer my queries and without whose contribution, the project would have been

incomplete.I would also like to thank all the officials in the banks I surveyed for their time and

recommendations for my report.

And I would also like to thank Miss Neha Malhotra, a fellow summer trainee in RBI,

without whose help and support it would have been impossible to complete the project.

ASHUTOSH KUMAR

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EXECUTIVE SUMMARY

This project undertakes to gauge the preparedness of the banks for implementing Basel II

and at the same time understand the Implementation issues of the banks. The study

required a brief survey of some selected banks to understand the current position of the

banks, the way they envisage their transition to Basel II and implementation issues

regarding Basel II. The following report follows this framework:

• Introduction.

• Basel-II Accord.

• Basel II in India.

• RBI approach to Basel-II.

• Methodology of the project.

• Analysing the preparedness of the banks.

• Feedback from the banks.

The finding from the survey point towards the fact that, all the banks surveyed are on an

equal footing and are satisfactorily placed as far as Pillar 1 (Capital Adequacy) is

concerned.

But for Pillar 2 (Supervisory Review or ICAAP) most of the banks have been found

lacking. All the banks are on different level of implementation. Also the banks are

satisfactorily placed for Pillar 3 (Market Discipline).

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APPENDIX

Serial No .

Topic Page No.

1. Introduction 5-6

2. Basel-II Accord 7-14

3. Basel-II in India 15-22

4. RBI approach to Basel-II 23-27

5. Methodology of the Project 28-29

6. Analysing the Preparedness of theBanks

30-33

7. Feedback from the Banks 34

8. Bibliography 35

9. Annexure 36-39

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CHAPTER 1: INTRODUCTION

1.1 Background

With the gradual liberalization of the Indian financial system and growing integration of the domestic markets with the external markets, the risks associated with the bank operations have become complex and large requiring strategic management. Thus, the

bank supervisory authorities felt a need for certain stringent and uniform capitalregulations worldwide. Also varying approaches for capital measurement across countriesmade international comparisons difficult and there was a need to evolve aninternationally consistent approach to capital measurement and reduce the internationalcompetitive inequalities amongst the banks. Thus, with solutions to all these problemscame up the Basel Committee on Banking Supervision (BCBS).Basel Committee on Banking Supervision (BCBS) was established by central banks of G-10 countries in 1974. The committee today consists of central bankers and supervisoryregulators from 13 countries namely, Belgium, Canada, France, Germany, Italy, Japan,Luxemburg, Netherlands, Spain, Sweden, Switzerland, United Kingdom and the UnitedStates of America. A set of agreements was set up by the Basel Committee on BankingSupervision (BCBS) to provide recommendations on international banking regulations.The first Basel accord, Basel I was set up in 1988. In India, it was implemented in 1999.The second Basel accord, known as Basel II came up in June 2004. The purpose of theseaccords is to ensure that the financial institutions have enough capital on account to meetobligations and absorb unexpected losses.

1.2 Basel IThe first Basel accord, known as the Basel I was set up in 1988. Since 1988, thisframework has been progressively introduced not only in member countries but also invirtually all other countries with active international banks. It was implemented in Indiain 1999. Basel I mainly focused on credit risk and market risk. Under this, banksoperating internationally were required to maintain a capital of at least 8% of the risk-weighted assets.

1.3 Comparison between Basel I and Basel IIBasel I with its “one size fits all” approach was less risk sensitive. It focused only oncredit risk and market risk and allotted a risk weight of 100% to all corporate exposuresirrespective of their rating. Basel II, on the other hand is more risk sensitive. It takesoperational risk also into account along with credit and market risk and includes twoadditional areas of Supervisory Review Process and Market Discipline .

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Comparison between BASEL-I and BASEL-II

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CHAPTER 2: BASEL-II ACCORD

“Undoubtedly the discipline of risk management has significantly altered the ethos of thebanking as an economic activity. But one point I would like to stress in conclusion is that banks should view the opportunities opened up by these complex financial instruments inthe perspective of larger systemic interest. Today internationally, when market disciplineis being considered an integral part of the regulatory framework, it is imperative for banks to realize that they are equal partners in ensuring financial stability; and thisinvolves helping build up a risk management culture across all stakeholders. Anydistortions brought about by misalignment of risk needs and the product being offered toaddress the risk can only harm and arrest the development of a healthy market.”

-by Dr. Shyamala Gopinath, DG, RBI, in her speech “Approach to Basel-II”

2.1 Overview

Basel II aims to encourage the use of modern risk management techniques; and toencourage banks to ensure that their risk management capabilities are commensurate withthe risks of their business. Previously, regulators' main focus was on credit risk andmarket risk. Basel II takes a more sophisticated approach to credit risk, in that it allows

banks to make use of internal ratings based Approach - or "IRB Approach" as they have become known - to calculate their capital requirement for credit risk. It also introduces, inaddition to the market risk capital charge, an explicit capital charge for operational risk.Together, these three risks - credit, market, and operational risk - are the so-called "Pillar 1" risks. Banks' risk management functions need to look at a much wider range of risksthan this - interest rate risk in the banking book, foreign exchange risk, liquidity risk,

business cycle risk, reputation risk, strategic risk. The risk management role of helpingidentify, evaluate, monitor, manage and control or mitigate these risks has become acrucial role in modern-day banking. Indeed, it is probably not exaggerating theimportance of this to say that the quality of a bank's risk management has become one of the key determinants of a success of a bank.

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This Basel II report presents the outcome of the Basel Committee on BankingSupervision’s (“The Committee”) work over recent years to secure internationalconvergence, on revisions, to supervisory regulations, governing the capitaladequacy of internationally active banks. The Committee expects its members tomove forward with the appropriate adoption procedures in their respective countries.

In a number of instances, these procedures will include additional impactassessments of the Committee’s Framework as well as further opportunities for comments by interested parties to be provided to national authorities. Thefundamental objective of the Committee’s work to revise the 1988 Accord has beento develop a framework that would further strengthen the soundness and stability of the international banking system while maintaining sufficient consistency that capitaladequacy regulation will not be a significant source of competitive inequality amonginternationally active banks. The Committee believes that the revised Framework will promote the adoption of stronger risk management practices by the bankingindustry, and views this as one of its major benefits. . In developing the revisedFramework, the Committee has sought to arrive at significantly more risk-sensitive

capital requirements that are conceptually sound and at the same time pay due regardto particular features of the present supervisory and accounting systems in individualmember countries. It believes that this objective has been achieved. . The revisedFramework provides a range of options for determining the capital requirements for credit risk and operational risk to allow banks and supervisors to select approachesthat are most appropriate for their operations and their financial marketinfrastructure. In addition, the Framework also allows for a limited degree of national discretion in the way in which each of these options may be applied, toadapt the standards to different conditions of national markets.

2.2 Key Elements of the New Accord1. The New Accord consists of three pillars: (1) minimum capital requirements, (2)supervisory review of capital adequacy, and (3) public disclosure. The proposalscomprising each of the three pillars are summarized below.

Pillar 1: Minimum capital requirements2. While the proposed New Accord differs from the current Accord along a number of dimensions, it is important to begin with a description of elements that have not changed.The current Accord is based on the concept of a capital ratio where the numerator represents the amount of capital a bank has available and the denominator is a measure of the risks faced by the bank and is referred to as risk-weighted assets. The resulting capitalratio may be no less than 8%.

3. The current Accord explicitly covers only two types of risks in the definition of risk weighted assets: (1) credit risk and (2) market risk. Other risks are presumed to becovered implicitly through the treatments of these two major risks. The treatment of market risk arising from trading activities was the subject of the Basel Committee’s 1996

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Amendment to the Capital Accord. The proposed New Accord envisions this treatmentremaining unchanged.

4. In both cases, a major innovation of the proposed New Accord is the introduction of three distinct options for the calculation of credit risk and three others for operational

risk. The Committee believes that it is not feasible or desirable to insist upon a one-size-fits-all approach to the measurement of either risk. Instead, for both credit andoperational risk, there are three approaches of increasing risk sensitivity to allow banksand supervisors to select the approach or approaches that they believe are mostappropriate to the stage of development of banks’ operations and of the financial marketinfrastructure. The following table identifies the three primary approaches available byrisk type.

CREDIT RISK OPERATIONAL RISK Standardized Approach Basic Indicator ApproachFoundation IRB Approach Standardized Approach

Advanced IRB Approach Advanced Measurement Approaches(AMA)

Standardized approach to credit risk 5. The standardized approach is similar to the current Accord in that banks are required toslot their credit exposures into supervisory categories based on observable characteristicsof the exposures (e.g. whether the exposure is a corporate loan or a residential mortgageloan). The standardized approach establishes fixed risk weights corresponding to eachsupervisory category and makes use of external credit assessments to enhance risk sensitivity compared to the current Accord. The risk weights for sovereign, interbank,and corporate exposures are differentiated based on external credit assessments. For

sovereign exposures, these credit assessments may include those developed by OECDexport credit agencies, as well as those published by private rating agencies.

6. The standardized approach also includes a specific treatment for retail exposures. Therisk weights for residential mortgage exposures are being reduced relative to the currentAccord, as are those for other retail exposures, which will now receive a lower risk weight than that for unrated corporate exposures. In addition, some loans to small- andmedium sized enterprises (SMEs) may be included within the retail treatment, subject tomeeting various criteria.

Internal ratings-based (IRB) approaches7. One of the most innovative aspects of the New Accord is the IRB approach to creditrisk, which includes two variants: a foundation version and an advanced version. TheIRB approach differs substantially from the standardized approach in that banks’ internalassessments of key risk drivers serve as primary inputs to the capital calculation. Becausethe approach is based on banks’ internal assessments, the potential for more risk sensitivecapital requirements is substantial. However, the IRB approach does not allow banksthemselves to determine all of the elements needed to calculate their own capitalrequirements. Instead, the risk weights and thus capital charges are determined through

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the combination of quantitative inputs provided by banks and formulas specified by theCommittee.

8. The IRB approaches cover a wide range of portfolios with the mechanics of the capitalcalculation varying somewhat across exposure types. The remainder of this section

highlights the differences between the foundation and advanced IRB approaches by portfolio, where applicable.

9. The foundation and advanced IRB approaches differ primarily in terms of the inputsthat are provided by the bank based on its own estimates and those that have beenspecified by the supervisor. The following table summarizes these differences.

Data Input Foundation IRB Advanced IRB

Probability of default (PD) Provided by bank based on

own estimates

Provided by bank based on

own estimates

Loss given default (LGD) Supervisory values set bythe Committee

Provided by bank based onown estimates

Exposure at default (EAD) Supervisory values set bythe Committee

Provided by bank based onown estimates

Maturity (M) Supervisory values set bythe CommitteeOR

At national discretion, provided by bank based onown estimates (with anallowance to excludecertain exposures)

Provided by bank based onown estimates (with anallowance to exclude certain

exposures)

Implementation of IRB10. By relying on internally generated inputs to the Basel II risk weight functions, there is

bound to be some variation in the way in which the IRB approach is carried out. To

ensure significant comparability across banks, the Committee has established minimumqualifying criteria for use of the IRB approaches that cover the comprehensiveness andintegrity of banks’ internal credit risk assessment capabilities. While banks using theadvanced IRB approach will have greater flexibility relative to those relying on thefoundation IRB approach, at the same time they must also satisfy a more stringent set of minimum standards.

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11. Clearly, an internal rating system is only as good as its inputs. Accordingly, banksusing the IRB approach will need to be able to measure the key statistical drivers of creditrisk. The minimum Basel II standards provide banks with the flexibility to rely on dataderived from their own experience, or from external sources as long as the bank candemonstrate the relevance of such data to its own exposures. In practical terms, banks

will be expected to have in place a process that enables them to collect, to store and toutilize loss statistics over time in a reliable manner.

Operational risk 12. The Committee believes that operational risk is an important risk facing banks andthose banks need to hold capital to protect against losses from it. Within the Basel IIframework, operational risk is defined as the risk of losses resulting from inadequate or failed internal processes, people and systems, or external events. This is another areawhere the Committee has developed a new regulatory capital approach. As with creditrisk, the Committee builds on banks’ rapidly developing internal assessment techniquesand seeks to provide incentives for banks to improve upon those techniques, and more

broadly, their management of operational risk over time. This is particularly true of theAdvanced Measurement Approaches (AMA) to operational risk described below.

13. Approaches to operational risk are continuing to evolve rapidly, but are not likely inthe near term to attain the precision with which market and credit risk can be quantified.This situation has posed obvious challenges to the incorporation of a measure of operational risk within pillar one of the New Accord. Nevertheless, the Committee

believes that such inclusion is essential to ensure that there are strong incentives for banks to continue to develop approaches to operational risk measurement and to ensurethat banks are holding sufficient capital buffers for this risk. It is clear that a failure toestablish a minimum capital requirement for operational risk within the New Accordwould reduce these incentives and result in a reduction of industry resources devoted tooperational risk.

14. Internationally active banks and banks with significant operational risk exposure (for example, specialized processing banks) are expected to adopt over time the more risk sensitive AMA. Basel II contains two simpler approaches to operational risk: the basicindicator and the standardized approach, which are targeted to banks with less significantoperational risk exposures. In general terms, the basic indicator and standardizedapproaches require banks to hold capital for operational risk equal to a fixed percentageof a specified risk measure.

Pillar 2: Supervisory review15. The second pillar of the New Accord is based on a series of guiding principles, all of which point to the need for banks to assess their capital adequacy positions relative totheir overall risks, and for supervisors to review and take appropriate actions in responseto those assessments. These elements are increasingly seen as necessary for effectivemanagement of banking organizations and for effective banking supervision,respectively.

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16. The Committee has been working to update the pillar two guidance as it finalizesother aspects of the new capital adequacy framework. One update is in relation to stresstesting. The Committee believes it is important for banks adopting the IRB approach tocredit risk to hold adequate capital to protect against adverse or uncertain economicconditions. Such banks will be required to perform a meaningfully conservative stress

test of their own design with the aim of estimating the extent to which their IRB capitalrequirements could increase during a stress scenario. Banks and supervisors are to use theresults of such tests as a means of ensuring that banks hold a sufficient capital buffer. Tothe extent there is a capital shortfall, supervisors may, for example, require a bank toreduce its risks so that existing capital resources are available to cover its minimumcapital requirements plus the results of a recalculated stress test.

17. Other refinements focus on banks’ review of concentration risks, and on the treatmentof residual risks that arise from the use of collateral, guarantees and credit derivatives.Further to the pillar one treatment of securitisation, a supervisory review component has

been developed, which is intended to provide banks with some insight into supervisory

expectations for specific securitisation exposures. Some of the concepts addressedinclude significant risk transfer and considerations related to the use of call provisionsand early amortization features. Further, possible supervisory responses are outlined toaddress instances when it is determined that a bank has provided implicit(noncontractual) support to a securitisation structure.

Pillar 3: Market discipline18. The purpose of pillar three is to complement the minimum capital requirements of

pillar one and the supervisory review process addressed in pillar two. The Committee hassought to encourage market discipline by developing a set of disclosure requirements thatallow market participants to assess key information about a bank’s risk profile and levelof capitalisation. The Committee believes that public disclosure is particularly importantwith respect to the New Accord where reliance on internal methodologies will provide

banks with greater discretion in determining their capital needs. By bringing greater market discipline to bear through enhanced disclosures, pillar three of the new capitalframework can produce significant benefits in helping banks and supervisors to managerisk and improve stability.

19. Over the past year, the Committee has engaged various market participants andsupervisors in a dialogue regarding the extent and type of bank disclosures that would bemost useful. The aim has been to avoid potentially flooding the market with informationthat would be hard to interpret or to use in understanding a bank’s actual risk profile.After taking a hard look at the disclosures proposed in its second consultative package onthe New Accord, the Committee has since scaled back considerably the requirements,

particularly those relating to the IRB approaches and securitisation.

20. The Committee is aware that supervisors may have different legal avenues availablein having banks satisfy the disclosure requirements. The various means may include

public disclosures deemed necessary on safety and supervision grounds or informationthat must be disclosed in regulatory reports. The Committee recognizes that the means by

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which banks will be expected to share information publicly will depend on the legalauthority of supervisors.

2.3 Structure of BASEL-II

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Basel II increases risk sensitivity by defining three types of risk and improving the capitaland internal efficiencies of financial institutions by defining supervisory review processesand public disclosure norms.

There is an inverse relationship between the complexity of the approach used and capitalcharge for it. As the approach becomes complex, the capital charge tends to decrease for

both credit and operational risk.

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CHAPTER 3: BASEL-II IN INDIA

3.1 Features of Indian Financial System

A feature, somewhat unique to the Indian financial system is the diversity of itscomposition. We have the dominance of Government ownership coupled with significant

private shareholding in the public sector banks that in turn continue to have a dominantshare in the total banking system. These public sector banks are listed on the stock

exchange and their performance is reflected in their P/E ratios. The private sector banksespecially the new ones are world class. We also have cooperative banks, whose numbersare large and pose a challenge because of the multiplicity of regulatory and supervisoryauthorities. There are also Regional Rural Banks with links to their parent commercial

banks. Foreign bank branches operate profitably in India and by and large the regulatorystandards for all these banks are uniform. The process of providing financial services ischanging rapidly from traditional banking to a one stop shop of varied financial servicesand the old institutional demarcations are getting increasingly blurred.

3.2 Approach to Prudential Norms: A Review

The Reserve Banks approach to the institution of prudential norms has been one of gradual convergence with international standards and best practices with suitable countryspecific adaptations. Our aim has been to reach global best standards in a deliberately

phased manner through a consultative process evolved within the country. This has also been the guiding principle in the approach to the New Basel Accord e.g. while theminimum capital adequacy requirement under the Basel standard is 8% in India, we havestipulated and achieved a minimum capital of 9%. On the other hand, banks in India arestill in the process of implementing capital charge for market risk prescribed in the Basel

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document although since 1998 we have in place several surrogates such as an InvestmentFluctuation Reserve of 5% of the investment portfolio, plus a 2.5% risk weight on theentire investment portfolio whereas Basel norms take into account only the trading

portfolio.

3.3 RBI’s involvement in Basel II

RBI’s association with the Basel Committee on Banking Supervision dates back to 1997as India was among the 16 non-member countries that were consulted in the drafting of the Basel Core Principles. Reserve Bank of India became a member of the CorePrinciples Liaison Group in 1998, and subsequently, became a member of the CorePrinciples Working Group on Capital. Within the CPWG, RBI has been actively

participating in the deliberations on the Accord and had the privilege to lead a group of 6major non G -10 supervisors which presented a proposal on a simplified approach for Basel II to the Committee.

3.4 Policy Approach

In general, keeping in view the RBI’s goal to have consistency and harmony withinternational standards and our approach to adopt the pace as may be appropriate in thecontext of our country specific needs, the RBI had in April 2003 itself accepted in

principle to adopt the new capital accord Basel II. The RBI has announced, in its AnnualPolicy statement in May 2004 that banks in India should examine in depth the optionsavailable under Basel II and draw a road-map by end December 2004 for migration toBasel II and review the progress made thereof at quarterly intervals. The Reserve Bank will be closely monitoring the progress made by banks in this direction. Hence, at aminimum all banks in India, to begin with, will adopt Standardized Approach for credit risk and Basic Indicator Approach for operational risk . After adequate skills aredeveloped, both in banks and at supervisory levels, some banks may be allowed tomigrate to IRB Approach.

3.5 Regulatory Initiatives The regulatory initiatives taken by the Reserve Bank of India include:

1. Ensuring that the banks have suitable risk management framework orientedtowards their requirements dictated by the size and complexity of business, risk

philosophy, market perceptions and the expected level of capital. The framework adopted by banks would need to be adaptable to changes in business size, marketdynamics and introduction of innovative products by banks in future.

2. Introduction of Risk Based Supervision (RBS) in 23 banks on a pilot basis.3. Encouraging banks to formalize their Capital Adequacy Assessment Programme

(CAAP) in alignment with business plan and performance budgeting system.This, together with adoption of Risk Based Supervision would aid in factoring thePillar II requirements under Basel II.

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4. Enhancing the area of disclosures (Pillar III), so as to have greater transparency of the financial position and risk profile of banks.

5. Improving the level of corporate governance standards in banks.6. Building capacity for ensuring the regulators ability for identifying and permitting

eligible banks to adopt IRB / Advanced Measurement approaches.

3.6 Structure of Basel II

Basel II is mainly divided into three interrelated parts:• Pillar 1: - Minimum Capital Requirement .

Banks should have capital appropriate for their risk taking activities .

• Pillar 2: - Supervisory Review .

Banks should be able to properly assess the risk they are taking, and supervisors

should be able to evaluate the soundness of these assessments.• Pillar 3: - Market Discipline .

Banks should be disclosing pertinent information necessary to enable market

mechanism to complement the supervisory oversight function.

3.6.1 Pillar 1

The Basel Committee prescribes Capital Charge for the following risks:

• Credit Risk: Risk of default by borrowers

• Market Risk: Risk due to volatility in the markets invested.

• Operational Risk: Risk out of the following operations,

o Personnel.

o Process.

o System

External Factors (e.g. Natural disasters).

1. Calculating Credit Risk

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1. Standardized approach

- Risk weights depend on external credit ratings

2. Foundation IRB

- Banks to use internal credit ratings and supply PD

3. Advanced IRB

- Banks to use internal credit ratings and supply PD, LGD, EAD, M

Where,

PD - Probability of Default

M - Effective Maturity of exposure

LGD - Loss Given Default

EAD - Exposure at Default

But in India RBI has issued guidelines to the banks to follow the Standardised approachinitially, so as to get the banks on an equal footing. The RBI has suggested some changesin the actual guidelines to suit the Indian scenario better.

2. Calculating Operational risk

17

CreditRisk

StandardizedApproach

Internal RatingsBased

Approach

Securitization

Framework

FoundationApproach

AdvancedApproach

Operationalrisk



1. Basic Indicator Approach

Under the Basic Indicator Approach, banks have to hold capital for operational risk equalto a fixed percentage (alpha) of a single indicator, which has currently been proposed to

be “gross income”.

2. Standardised Approach

The total capital charge is calculated as the simple summation of the regulatory capitalcharges across each of the business lines.

3. Advanced Measurement Approach

Under the AMA, the regulatory capital requirement will equal the risk measure generated by the bank’s internal operational risk measurement system using the quantitative and

qualitative criteria.The RBI has given guidelines, proposing that banks undertake the Basic indicator Approach, and the fixed percentage is set at 15%.

3.6.2 Pillar 2

The Basel Committee has prescribed supervisory review to monitor other possible risksthat may be very bank specific, due to factors like location etc.E.g. liquidity risk, interest rate risk etcThe second pillar is based on the following for principles:1. Banks should have a process for assessing their overall capital adequacy in relation totheir risk profile and a strategy for maintaining their capital levels.2. Supervisors should review and evaluate banks’ internal capital adequacy assessmentsand strategies, as well as their ability to monitor and ensure their compliance withregulatory capital ratios. Supervisors should take appropriate supervisory action if theyare not satisfied with the result of this process.3. Supervisors should expect banks to operate above the minimum regulatory capitalratios and should have the ability to require banks to hold capital in excess of theminimum.

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BasicIndicator Approach

StandardizedApproach

AdvancedMeasurementApproach



4. Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored.

Implementation of Basel II in India

RBI, the Central Bank of India has adopted a three-track approach to capital adequacyregulations in India. In India, we have 85 commercial banks, which account for about78% (total assets) of the financial sector; over 3000 cooperative banks, which account for 9%; and 196 Regional Rural Banks, which account for 3%. Taking into account the size,complexity of operations, and relevance to the financial sector, need to ensure greater financial inclusion and the need for having an efficient delivery mechanism, the capitaladequacy norms applicable to these entities have been maintained at varying levels of stringency. RBI has adopted a three- track approach to capital adequacy regulations inIndia. On the first track, the commercial banks are required to be on Basel II standards.On the second track, the cooperative banks to be on Basel I and on the third track, the

Regional Rural Banks will be on non-Basel standards.Different countries are at different stages of implementation. In India, what has beenadopted is a calibrated approach for a phased implementation of Basel II to secure a non-disruptive migration to the new framework. With a view to ensure migration to Basel IIin a non-disruptive manner, RBI has constructed a steering committee comprising of senior officials from 14 banks where Indian Banks Association is also represented. AlsoRBI had advised banks to do a self-assessment check of their risk management systems.RBI had earlier asked the banks to migrate to the Basel II framework by March 31, 2007.Later, RBI extended this deadline. The RBI's decision to extend the deadline for theimplementation of Basel II demonstrates its commitment to enable Indian banks toimplement prudential measures that are in keeping with global best practices. Given the

diversity of banks in India, by providing additional time, it appears that the RBI isdetermined that Basel II penetrates the entire banking industry rather than being confinedto a select few. This will create a more level playing field.RBI issued draft guidelines on February 15, 2005 on the implementation of Pillar 1 andPillar 3 of Basel II. Then the draft guidelines were revised and placed in public domainon March 20, 2007. With additional feedback, the guidelines were finalized and issued onApril 27, 2007. The pillar 2 guidelines were issued on March 26, 2008.

3.7 Benefits of Basel II

Basel II tends to provide the minimum capital requirements to serve as a cushion in timesof financial instability thereby absorbing unexpected losses. Thus, Basel II ensures tomaintain stability and soundness in the financial system by better risk management.

Developing a better understanding of the risk/reward trade-off for capital supportingspecific businesses, customers, products, and processes is one of the most important

potential business benefits banks may derive from compliance, as envisioned by theBasel Committee.

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Basel II includes operational risk along with the earlier credit and market risks andincludes two additional areas of Supervisory review process and market discipline .

Basel I provided a risk weight to 100% to all corporate exposures irrespective of their rating. Since they required the same regulatory capital charge, it engendered a rather

perverse incentive for the banks to acquire higher-risk customers in pursuit of higher

returns, without necessitating a higher capital charge. Basel II provides a risk weightdepending upon the rating of the corporate i.e. a low risk weight for a better ratedcorporate and thus overcomes the limitation of Basel I.

Basel II ties regulatory capital with economic capital. Once banks can attribute risk to a potential transaction, product, or process, they can ascribe a portion of economic capitalto it (based on the risk it poses), define an expected return on it, consider how best to

price it, consider risk mitigating techniques, and thereby decide, for example, whether toenter a transaction, engage in a business, or pursue an activity or process.

To benefit from Basel II, it’s necessary to view it much more than just a regulatory

compliance.

3.9 Challenges in achieving Basel II compliance

There are certain challenges that could emanate from the adoption of Basel II framework, particularly, in the Indian context.

Firstly, it is understood that the Basel II framework provides for as many as about 130areas of national discretion to be exercised by the country supervisors, as per local

conditions. Thus, it has been argued that potentially, there could be 130 variations of thenew framework under different jurisdictions. If that be the case, the internationalcomparability of the bank-capital standards would be difficult to achieve across thecountries and perhaps, the original objective of reducing the international competitiveinequality amongst the banks could get compromised.

Secondly, in the Indian context, the rating penetration is very low and is generallyconfined to the larger corporates while the smaller entities are generally unrated. With theadoption of the Standardised Approach in India, which places heavy reliance on theexternal rating of the bank clients, a view has been expressed that the small and mediumenterprises, which are below the rating threshold, may get somewhat handicapped in

availing bank credit in the absence of credit rating. This may perhaps call for specialefforts to maintain the credit flow to this segment of the borrowers.

Thirdly, the risk sensitive approach of the Basel II Framework is likely to give rise to pro-cyclicality in the capital requirements of the banks since in an economic downturn,the capital requirements would rise but will decline during an economic boom. It isargued that such an impact on the banks could accentuate the effects of the cycle andcould increase the volatility in the banking system.

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Fourthly, Basel provides incentives for banks to transfer credit risks through instrumentssuch as asset-backed securities or credit derivatives, while retaining the customer relationship. Although banks reduce their credit risk in these transactions, their operational risk may rise. For example, a bank may choose to sell a securities portfolio to

a special purpose vehicle (SPV) or transfer credit risk via a derivatives transaction. Whenit does so, the bank needs to designate separate people, processes, and IT systems to thatSPV and ensure proper management of related legal issues to mitigate risks. Moreover,increased overall operational risk may require higher regulatory capital, which partly mayoffset savings on the credit side. Banks may also discover that their best and/or largestcustomers no longer need their services. Such companies can access the capital marketsdirectly—by issuing bonds, equity, or asset–backed securities—and are as likely to do soas a bank. Retaining such customers could become a challenge.

A likely scenario, which might arise post-Basel II implementation, is the asymmetry inregulatory regime amongst the competing broad segments of the financial sector viz.,

banking, securities and insurance sectors. While the commercial banking sector isexpected to migrate to the Basel II regimen soon, the other segments are not likely to besubjected to the same or similar discipline unless they are a part of a banking group,where Basel II regimen would apply indirectly through the parent bank. Hence, we arelikely to see some scope for regulatory arbitrage amongst the three broad segments unlessthe regulators of these segments also recognise the need and relevance of a comparable

prescription for those segments. The Joint Forum has taken some initiatives in thisdirection, which may have to be pursued further to achieve parity in the level of regulatory burden across the three sectors, which compete amongst themselves for the

business of financial intermediation.

With Basel II implementation, banks average capital requirements should not changesignificantly on an industry level, but an individual bank may experience a significantchange. For example, capital requirements should drop substantially at a bank with a

prime business portfolio that is well collateralized. On the other hand, a bank with a highrisk portfolio will likely face higher capital requirements and, consequently, limits on its

business potential. Those deemed “high risk” could include banks that are pure risk takerswith a buy-and-hold credit management approach, no clear customer segmentation, a lack of collateral management as well as inadequate processes, unstable IT systems, and a

poor overall risk management function. Indeed, such entities may not be able to make thenecessary investment in compliance.

Basel II is all about risk management. To quantify risk, a portion of economic capital is to be kept aside. This requires high quality and high frequency data. This is also one of the biggest challenges.

Lastly, there are other challenges in achieving Basel II standards in a timely manner.These challenges include project management and system issues, data availability,technical interpretation, institutional awareness and training.

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CHAPTER 4: RBI APPROACH TO BASEL-II

4.1 Approaches to Implementation

With a view to keep consistency and harmony with the international standards it has beendecided by RBI that all the commercial banks in India (excluding Local Area Banks andRegional Rural Banks) shall adopt Standardized Approach (SA) for credit risk and Basic

Indicator Approach (BIA) for operational risks. Also banks shall continue to apply theStandardized Duration Approach (SDA) for computing capital requirement for marketrisk.

4.2 Effective Date

Foreign banks operating in India and Indian banks having operational presence outsideIndia are required to migrate to the above selected approaches under the RevisedFramework with effect from March 31, 2008. All other Commercial banks (except LocalArea Banks and Regional Rural Banks) are encouraged to migrate to these approachesunder the Revised Framework in alignment with them but in any case not later thanMarch 31, 2009.

4.3 Parallel Run

With a view to ensuring smooth transition to the Revised Framework and with a view to providing opportunity to banks to streamline their systems and strategies, banks wereadvised by RBI to have a parallel run of the revised Framework. Banks need to apply the

22



prudential guidelines on capital adequacy both current guidelines and the new guidelineson the Revised Framework – on an on-going basis and compute their Capital to Risk Weighted Assets Ratio (CRAR) under both the guidelines and report to the board of the

banks at quarterly intervals. Banks also need to furnish a comprehensive assessment of their compliance with the other requirements relevant under the Revised Framework,

which will include the following, at the minimum:a) Board approved policy on utilization of the credit risk mitigation techniques, andcollateral management,b) Board approved policy on disclosures,c) Board approved policy on Internal Capital Adequacy Assessment Process (ICAAP)along with the capital requirement as per ICAAP, Basel II Final Guidelines.d) Adequacy of bank's MIS to meet the requirements under the New Capital AdequacyFramework, the initiatives taken for bridging gaps, if any and the progress made in thisregard,e) Impact of the various elements / portfolios on the bank's CRAR under the revisedframework.

f) Mechanism in place for validating the CRAR position computed as per the NewCapital Adequacy Framework and the assessments / findings/ recommendations of thesevalidation exercises,g) Action taken with respect to any advice / guidance / direction given by the Board inthe past on the above aspects.

4.4 Migration to other approaches

Banks are required to obtain the prior approval of the Reserve Bank to migrate to theInternal Rating Based Approach (IRBA) for credit risk and the Standardized Approach(TSA) or the Advanced Measurement Approach (AMA) for operational risk.

4.5 Scope of application

The revised capital adequacy norms shall be applicable uniformly to all CommercialBanks (except Local Area Banks and Regional Rural Banks), both at the solo level(global position) as well as at the consolidated level. A consolidated bank shouldmaintain a minimum Capital to Risk-weighted Assets Ratio (CRAR) as applicable to a

bank on an ongoing basis.

4.6 Capital funds

Banks are required to maintain a minimum Capital to Risk-weighted Assets Ratio(CRAR) of 9 percent on an ongoing basis. In terms of the Pillar 2 requirements of the

New Capital Adequacy Framework, banks are expected to operate at a level well abovethe minimum requirement.

The minimum capital maintained by banks on implementation of the Revised Framework shall be subjected to a prudential floor , which shall be the higher of the followingamount:

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a) Minimum capital required to be maintained as per the Revised Framework. b) A specified percent of the minimum capital required to be maintained as per the BaselI framework for credit and market risks.Banks are encouraged to maintain, at both solo and consolidated level, a Tier 1 CRAR of at least 6%. Banks that are below this level are required to achieve this ratio on or before

March 31, 2010.

A bank is to compute its Tier 1 CRAR and Total CRAR in the following manner:Eligible Tier 1 capital funds

Tier 1 CRAR = ----------------------------------------------------------------------------------Credit Risk RWA+ Market Risk RWA + Operational Risk RWA

Eligible total capital fundsTotal CRAR =

---------------------------------------------------------------------------------Credit Risk RWA + Market Risk RWA + Operational Risk RWA

Among the public sector majors, capital adequacy ratio of Bank of Baroda reached 13.51 per cent at the end of third quarter in the FY 2007-08 as compared to 12.24 per cent in thecorresponding period of the previous year.

Punjab National Bank turned the corners by marking an increase in its CAR against adecline in the previous financial year. Its capital adequacy ratio dropped to 12.9 per cent

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The following table shows the CRAR of various countries in the same era when Basel-II

was not implemented.

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CHAPTER 5: METHODOLOGY OF THE PROJECT

The study is a survey report of banks regarding their level of preparedness and tries togauge the implementation issues faced by them; it also recommends some plausible

solutions to the implementation issues sighted by the banks.

The following are the details regarding the methodology:

Approach for the survey:

The data collected for this survey is qualitative as well as quantitative. The questionnaireconcentrated mainly on the preparedness and the implementation issues. 20 questionswere used to achieve the objective and are analyzed below (Detail questionnaire is

presented in Annexure).

Sources of Data:

The data collected is completely from the primary sources from the bank officials fromthe banks that were included in the survey.

Method of data collection:

The data has been collected through the following methods:• Personal interview with the bank officials• Electronic medium (e-mail)

Sample Size:

All the banks with their branches were eligible for this survey. However, out of 48 banksapproached, only 10 responded. The banks were categorized into private and publicsector. 5 private and 5 public banks responded. Since the Basel-II team and Risk Management team works in head office, hence only head offices were approached.

The survey was conducted at individual level. The banks surveyed were:Public sector:

• Dena Bank • Union Bank of India• State Bank of India• Bank of Baroda• IDBI

Private sector:• HDFC Bank • Citi Bank • ICICI Bank

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• Yes Bank • Axis Bank

Questionnaire Design:

The questionnaire was designed in such a way that it was applicable for the banks inwhich Basel-II has already been implemented and also in which it will be implemented by March 2009. As per the RBI guidelines, the banks which are operational in India onlyshould be Basel-II compliant by March 2009 and the banks which are also operationaloutside India should be Basel-II compliant by end-March 2008. The analysis on the basisof the responses of the bank representatives is done in the next chapter.

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CHAPTER 6: ANALYSING THE PREPAREDNESS OF BANKS

1. All but 2 banks have a team solely dedicated to implement Basel II. One bank is aPublic Sector bank in which the Risk Management Dept is handling theimplementation process internally. And the other is a foreign bank that does notenvisage any difficulty as they are sufficiently progressed in their implementation

process.

2. Half of the banks surveyed are facing trouble in identifying operational risks.Among the banks facing trouble, 3 are public sector banks and 2 are private sector

banks.

3. All the banks are maintaining the required minimum CRAR of 9% and also

criterion of minimum CRAR for Tier-1 of 6% is being fulfilled, however, 3 banksdidn’t responded to their Tier-1 CRAR. Even most of the banks have the capitaladequacy more than 12 %.

4. As per the 8 banks out of 10, the shift from Basel-I to Basel-II was expensive dueto expenditure on softwares.

5. Out of 10 banks, 3 banks feel that RBI is not providing them with enough supportand 1 bank gave no reply to this question.

6. On response to the major gains banks are expecting from Basel II, all the banks

expressed that implementation of Basel-II will mainly prevent them from Creditrisk and even one bank supported that it will also prevent them from market risk as well as credit risk.

7. All the banks are providing training to their employees for Basel-II and thetraining is generally provided at all levels. One bank out of 9 respondents, extendstraining facilities only to the middle management level.

8. Banks compliance to various pillars and risks can be shown as per the followinggraph, where, 5 is the highest meaning the bank is 81-100% compliant and 1 isthe lowest meaning the bank is up to 20% compliant.

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9. Presently, all the banks are following or planning to implement the basic

approaches as stated by RBI. However, 8 out of 10 banks are planning to move onto advanced approaches as suitable to their portfolio, though currently they arefacing few problems with respect to database as well as expertise. Specifically, for credit all of the 10 banks are suffering from data limitation and in case of operational risk 8 are lacking database. Also, one bank reported to having lack of expertise in dealing with the operational risk. However, for market risk, 6 banksare lacking in expertise and 2 are lacking in data and 2 did not respond.

10. Interestingly, almost all respondent banks report that required data for market andcredit risks (but not for operational risk) are actually available at their end inledger or other hard-copy medium. The difficulty they are facing is that these data

are not available in usable format.

11. Basel-II was supposed to be implemented by March 2007; however it was postponed by 2 years and though 6 banks feel that it doesn’t affect them but theremaining 4 were happy with the decision as it helped them gain some time andhence collect and arrange their data in proper format.

12. There are 8 banks (out of 10 respondents) who are facing difficulties in theimplementation of Pillar 2 as the guidelines were issued on 31 march, 2008 byRBI and hence still working on their implementation.

13. All the surveyed banks are expecting that the implementation of Basel-II willimprove their risk management and 5 banks even feel that it will provide themwith better competitive position. Even 5 banks feel that it will provide better credit ratings and 4 banks feel it will make them better regulatory compliant and 3

banks feel it will improve their efficiency and also provide greater transparencyand 2 banks support that it will lower their capital levels and also be helpful in

pricing of their products and 1 bank state that it will improve their corporategovernance.

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14. However, there are few drawbacks or obstacles for implementation of Basel-IIlike 5 banks feel the lack of consistent data and of right models. 4 banks find theimplementation of Basel-II expensive and few banks (3) are lacking in expertiseand 2 banks are lacking in IT system, cultural resistance and resulting higher

capital levels and even 1 bank feel Basel-II includes unclear processes and alsosome other issues.

15. Out of the 8 banks those responded to this question are using SAS software for calculating credit risk and 2 banks are using REVELEUS and 1 bank is usingD2K software to calculate credit risk. There is one bank which is even using thesoftware named “ORBIT” for operational risk.

16. Out of the 9 respondent banks, 7 banks feel that they are not facing any difficultydue to credit rating agencies; however, 2 banks are facing the issues like:• Data not available•

Insufficient coverage• Dependent on solicitation by the client• Inadequate information provided by rating agencies

17. There are 6 major policies that are required to be framed as per regulatoryguidelines and the response of banks regarding them is as follows:• Board approved policy on utilization of the credit risk mitigation

techniques and collateral management: All the 7 banks that responded are prepared for the policy for this task.

• Board approved policy on disclosures: All the 6 banks that responded areready for this task.

• Board approved policy on ICAAP: Out of the 6 respondents, 5 banks areready with this task and 1 bank is still working on this policy.

• Adequacy of Bank's MIS to meet the requirements under this newframework: Only 6 banks replied in affirmative and 1 bank is still not readywith the policy and others didn’t responded.

• Impact of the various elements/portfolios on the banks CRAR under therevised framework: All the 6 banks those responded believed it will impacttheir portfolios as in a bank it increased their RWA and in a bank it loweredtheir CRAR by 80 basis points from 12.5 to 11.7.

• Mechanism in place for CRAR validation: All the 6 banks that replied areready with the mechanism for CRAR validation like audit validation.

CONCLUSION:

This survey was conducted in 48 banks, however, only 10 of them responded. From theabove data, it can be seen that Basel-II is a very supportive step taken by RBI to help the

banks in reducing/managing their risks. All banks are compliant with the regulatoryrequirements with respect to Pillar-1, though most of them are facing difficulty inidentifying operational risk. Also banks require little more time to comply with Pillar-2

31



guidelines, which have been released by the RBI on March 31, 2008. As regards to Pillar-3, scenario is quite encouraging as all of the respondent banks appear complying with theguidelines associated with this pillar.

As per the RBI guidelines, banks operating within India are required to implement the

Basel-II by March 2009, and those banks that has operation outside India also, wererequired to be Basel II compliant by end-March 2008. Thus, some of the banks still havetime to get fully prepared for the Basel II requirements.

The survey also reveals some unresolved issues still faced by some of the banks. Thoseissues are as follows:

Since the guidelines for Pillar-2 were revised on March 31, 2008, henceforth the banks which were supposed to be Basel-II compliant by end-march 2008 arefacing certain problems and need some time to be compliant to Basel-II.Also many banks feel that understanding the Pillar-II guidelines is a tedious task.Also banks are looking forward to move on to advanced approaches which will

suit their portfolio, however, RBI is not providing permission to move on toadvanced approaches.

However, many banks are in the support of Basel-II and are satisfied with the support provided by RBI as Basel-II guidelines enhances the risk management of the banks whichis necessary keeping in mind the recently sub-prime crisis.

Also, few feedbacks were provided by these banks which are listed in the next chapter.

CHAPTER 7: FEEDBACK FROM THE BANKS

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These are the recommendations or the areas in which the banks surveyed want the RBI toact or give further guidelines.

1.) Clear guidelines on ICAAP: All the banks feel that the understanding of Pillar-2

guidelines is a tedious task and since, they have been recently revised on March

31, 2008, so they need the clear and fixed guidelines for ICAAP which they can

understand and hence, follow easily.

2.) Research on calculation of EAD and PD: Few banks feel that to increase

accuracy, research is required to calculate Exposure At Default (EAD) and

Probability of Default (PD).

3.) Guidance on Advance approaches: As per RBI guidelines, it wants all the banks

to be Basel-II compliant and use basic approaches at present and the banks canswitch to advanced approaches once all the banks in India are Basel-II compliant.

Hence, affecting the performance of banks as per their portfolios.

4.) Provide a platform to facilitate enhancement in skill sets required for Basel II:

The banks expect some training or a platform which should be there by RBI to

enhance the various skill sets required for Basel-II like personnel skills, etc.

5.) Rationalisation of risk weights (particularly sensitive sectors & volatile sectors):

As few of the Banks stated that there should be rationalisation of risk weights,

especially for sensitive and volatile sectors. Sensitive sectors include agriculture

and SMEs, which need to be encouraged and hence, there should be

rationalisation of risk weights for such sectors.

BIBLIOGRAPHY1. www.rbi.org.in

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2. www.bis.org.in3. A speech by Dr. Shyamala Gopinath, DG, RBI on “Approach to Basel-II” at the

IBA briefing session at Bangalore on May 12,2006.4. A speech by Dr. Y.V.Reddy, Governor, RBI at the Seminar on “Challenges and

implications of Basel II for Asia” as a part of the Asian Development Bank's 39th

Annual Meeting of the Board of Governors in Hyderabad on May 3, 2006.5. A speech by Smt. Kishori J. Udeshi, DG, RBI at the World Bank/IMF/US FederalReserve Board International Seminar on “Policy Challenges for the FinancialSector: Basel II” at Washington D.C. on June 2, 2004.

6. A speech by Shri V. Leeladhar, DG, RBI at the Bankers’ Club, Mangalore onMarch 11, 2005.

7. A research paper on “Capital adequacy regime in India: An overview” byMandira Sarma and Yuko Nikaido in July, 2007 for Indian Council for Researchon International Economic Relations.

8. Personal Data from Banks.

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ANNEXURE : Q UESTIONNAIRE

Name of the bank:Type of bank: Public Sector/Private Sector andtheir existence outside India:Name of the interviewee:

Designation of the interviewee:

Contact Information

As you are aware, according to RBI guidelines on the New Capital AdequacyFramework, your bank needs to implement new Basel II Framework latest by March 31,2009 or has already implemented by March 31, 2008.This questionnaire is intended toseek information on your state of preparedness for this migration, the benefits expectedand the challenges being faced during this migration phase. None of the informationprovided by the banks will be disclosed and this information is only meant forresearch purposes.

1. Is there any difficulty in defining/identifying credit/market/operational risk?

• Yes

• No

If yes, what?

_________________________________________________________________ _

2. What is your present capital adequacy?

_________________________________________________________________ _

3. What is your current tier-1and tier-2 CRAR?

_________________________________________________________________

_ 4. How compliant is your bank currently with Basel-II for following (1=up to 20%,

2=21-40%, 3=41-60%, 4=61-80%, 5=81-100%):

1 2 3 4 5Credit risk Market risk

35



Operationalrisk Pillar 2Pillar 35. What benefits do you expect or would you expect to achieve by adoptingBasel II?Select up to three benefits.[A] Better Risk Management[B] Better competitive position[C] Less volatile earnings[D] Higher Profits[E] Better credit ratings[F] Higher Share price[G] Pricing of products[H] Lower capital levels[I] Greater transparency[J] Regulatory compliance[K] Improved Efficiency[L] Others

6. What were the biggest obstacles to implementing Basel II at your institution?Select up to three obstacles.[A] High Cost[B] Lack of consistent data[C] Lack of skilled people[D] Unclear Processes[E] Lack of IT system[F] Cultural Resistance[G] Lack of top level support[H] Resulting higher capital levels[I] Lack of Right models[J] Others[K] Not Applicable

7. Is/Was shifting from Basel-I to Basel-II too expensive for your bank and how?

• Yes

• No

_________________________________________________________________ _

8. Do you have a separate team working for Basel-II?

• Yes

• No

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9. “Basel-II was supposed to be implemented by March 2007”. Do you think thatdelay of Basel-II was a blessing in disguise for your bank and why?

• Yes

•

No

(State thereason)_________________________________________________

10. Which approaches are you planning to follow to suit your bank’s portfolio?

Credit risk Standardizedapproach

IRB foundationapproach

IRB advancedapproach

Market risk Standardized-maturityapproach

Standardized-durationapproach

Internal modelapproach

Operational risk Basic indicator approach

Standardizedapproach

Advancedmeasurementapproach

11. What are the difficulties for your bank to move on to more advanced techniques?

Type of Risks 1 2 3Credit risk Permission

denied byregulator

Lack of database

Lack of expertise

Market risk Permissiondenied byregulator

Lack of database

Lack of expertise

Operational risk Permissiondenied byregulator

Lack of database

Lack of expertise

12. Has your bank framed a policy/mechanism for the following regulatoryguidelines?

Requirements Yes/No/Still in process

Policy/Mechanism

Board approved policy onutilization of the credit risk mitigation techniques andcollateral managementBoard approved policy ondisclosuresBoard approved policy on

37



ICAAPAdequacy of Bank's MIS tomeet the requirements under this new framework Impact of the various

elements/portfolios on the banks CRAR under therevised framework Mechanism in place for CRAR validation

13. Are you satisfied with the support given by RBI in respect to Basel-II?

• Yes

•

No14. Which is the major risk that Basel-II covers you from as per your bank’s

portfolio?

• Credit risk

• Market risk

• Operational risk

15. Do you agree that Internal Rating Based (IRB) approaches could result inreduction of regulatory capital depending on asset quality and portfoliocomposition of the bank and how?

• Agree

• Disagree

• Can’t say

16. In which pillar(s) is/are your bank facing difficulties right now to fulfill Basel-IIrequirements?

• Pillar 1

• Pillar 2

• Pillar 3

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Reasons, ____________________________________________________________

17. Are you providing training to the employees?

•

Yes• No

18. If yes, then at what level?

a. Top level management

b. Middle level management

c. Bottom level management

d. Workers

19. What is the software/technology your bank currently using or contemplating touse for the purpose of risk management and Basel-II compliance?

_________________________________________________________________ _

20. Any difficulty on being dependent up on outside credit rating agencies?•

Yes• No

(State the problem)____________________________________________

bank for implementation base 2

Documents

Transcript of bank for implementation base 2