8/12/2019 Basel 3 & Private Indian Banks
1/30
BASEL III Implementation InIndian Private Banks
March 05, 2014
Presented by:
Nitin Khattri
Amar Deep
Anadi Kaistha
Manish Pandey
8/12/2019 Basel 3 & Private Indian Banks
2/30
2
Agenda
CAR of Major Private Sector Banks
BASEL-III and Private Banks
Benefits of BASEL-III Compliant Banks
BASEL-III Transitional Phase
Private Sector Banks (Old and New)
Impact of BASEL-III implementation
8/12/2019 Basel 3 & Private Indian Banks
3/30
Indian Private Sector Banking
Industry
ate Sector Banking Industry
3
Initially, during 1921, the private banks like bank of
Bengal, bank of Bombay and bank of Madras were in
service, which all together formed Imperial Bank of
India.
At present total 20 private sector bank are active in
India (source : RBI)
In FY 2011-12 Cumulative private sector banks
Gross NPA was ` 183145.5 mio and total advances `
8804452.7 mio.
8/12/2019 Basel 3 & Private Indian Banks
4/30
4
(Rs in mio) Gross NPAs Gross Advances
Gross NPAs to
GrossAdvances Ratio
(%)
Public Sector Banks 1124890 35503890 3.17
Private Sector Banks 183146 8804453 2.08
Foreign Banks 62922 2347096 2.68
Total 1370956.90 46655438.40 7.93
In 2012 Gross Advances and NPA details of INDIAN BANKING
SECTOR (source RBI data base)
Gross NPAs to Gross Advances Ratio - 2.08%
8/12/2019 Basel 3 & Private Indian Banks
5/30
Private Sector Vs Public Sector
5
8/12/2019 Basel 3 & Private Indian Banks
6/30
Where does Private sector banks stand
6
Capital adequacy ratio of selected private sector
banks in India
8/12/2019 Basel 3 & Private Indian Banks
7/30
7
The private sector banks have recorded a positive
growth with regard to their CRAR position, the rate
of growth differs between the select banks.
The lowest average of 12.42 per cent was recordedin case of Axis Bank.
Kotak Mahindra maintained a the highest average
of 16.12%.
8/12/2019 Basel 3 & Private Indian Banks
8/30
To strengthen their capital positions :
Banks have sought to reduce risk weightedassets
Increase focus on secured lending
Improve loan to deposit ratio
8
8/12/2019 Basel 3 & Private Indian Banks
9/30
Comparative Study:
8/12/2019 Basel 3 & Private Indian Banks
10/30
10
ICICIs loan book grew by 17.27 %, driven by a
healthy growth in SME, agriculture and overseas
loans .
The gross advances of HDFC Bank grew by 22.15
% to INR1,954 billion, driven by an increase of
33.70 % in retail advances and an increase of
10.50 % in wholesale advances. The total advances of Axis Bank increased by 19.21
% to INR1,698 billion.
KMB witnessed loan growth of 33.24 % with
increased focus on collateralized lending and high-
end quality corporate clients.
For IIB, overall advances grew by 34.01 %
8/12/2019 Basel 3 & Private Indian Banks
11/30
Why We Need Basel 3:
Some of the major causes of the global financial
crisis were:
too much leverage,
too little capital,
and inadequate liquidity buffers.Other factors also responsible for this crisis were:
shortcomings in risk management, corporate
governance, market transparency and quality of
supervision.
These have pinpointed the systemic loopholes in the
Basel II framework.
11
8/12/2019 Basel 3 & Private Indian Banks
12/30
BASEL 3:
Basel III was designed to address the weaknesses of
the past crisis and to make the banking sector much
stronger and efficient enough to face any crisis. The
major thrust area of Basel III is improvement ofquantity and quality of capital of banks, with stronger
supervision, risk management.
12
8/12/2019 Basel 3 & Private Indian Banks
13/30
8/12/2019 Basel 3 & Private Indian Banks
14/30
Basel III and Private Banks Position
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
8/12/2019 Basel 3 & Private Indian Banks
15/30
15
As per the available dataset
The Average Common Equity Tier 1 capital ofPrivate 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%.
8/12/2019 Basel 3 & Private Indian Banks
16/30
16
Under Basel III ,Aim to put restriction on banksability to distribute
earnings .
Indian banks are subjected to more stringent capitaladequacy requirements than their international
counterparts .
The expected growth in the risk weighted assets
along with the requirement of more stringent capitaladequacy norms would also require banks to
mobilize additional capital
Movement of capital requirement and
triggers under various scenarios
8/12/2019 Basel 3 & Private Indian Banks
17/30
17
In case of 20% annualized growth in risk-weighted
assets Rs 600000 crore additional capital would be
required by the banking sector (excluding foreignbanks) as a whole over the next nine years ending
March 31, 2019
Of this, the public sector banks would require 75-
80% and private banks 20-25%.
Various scenarios and CAR movement ---- Pictorial
representation
8/12/2019 Basel 3 & Private Indian Banks
18/30
18
8/12/2019 Basel 3 & Private Indian Banks
19/30
19
8/12/2019 Basel 3 & Private Indian Banks
20/30
20
8/12/2019 Basel 3 & Private Indian Banks
21/30
8/12/2019 Basel 3 & Private Indian Banks
22/30
22
8/12/2019 Basel 3 & Private Indian Banks
23/30
23
Benefits to private sector banks from
BASEL III Norms
Private banks are moving towards Advanced
Approaches, especially as they expanded their
overseas presence, which banks to manage their
capital more efficiently and improve their profitability.
Effective implementation of Basel III by private
banks would demonstrate confidence amongst
regulators, customers, and shareholders that the
private banking system is recovering well from theglobal financial crisis of 2008 and has been
developing resilience to future shocks.
8/12/2019 Basel 3 & Private Indian Banks
24/30
24
Helps in delivering a much safer financial system in
private banks with reduced probability of failure at
affordable costs in longer terms.
For private banks restructuring of balance sheet and
business model could mitigate 40% of Basel IIIs
impact on equity.
Less impact on landing rates in comparison of public
sector banks, provide potential to increase business.
Would help in reducing the cost Shadow Bankingarrangements, which was high in private banks.
8/12/2019 Basel 3 & Private Indian Banks
25/30
25
Impact on Private Sector Banks
Higher Capital Requirement
Pressure on Return on Equity
Pressure on Yield on Assets
Strategies needed to be adopted
Change in Business Mix
Change in Customer Mix
Low-Cost Funding
Improvement in systems and procedures
Impact on Banks & Strategies needed
to be followed
8/12/2019 Basel 3 & Private Indian Banks
26/30
26
Time Line for Implementation of BASEL III
8/12/2019 Basel 3 & Private Indian Banks
27/30
27
RegulatoryCapital may not be effective if Banks
do not assess their risk periodically and take timelycorrective action when the risk exceeds the
threshold limit.
Dynamic Risk Management Strategy Proper Risk
culture-Every employee acts as risk manager intheir own area.
The link between nonperforming assets (NPA)
capital adequacy and provisioning is well known tobe highlighted here. The challenge is to provide
incentives for banks /financial institutions to
recognize losses on account of NPAs as per Basel
norms.
Conclusion
8/12/2019 Basel 3 & Private Indian Banks
28/30
28
Risk Capital may be the necessary safety cushion for
Banks.
The lack of transparency, credibility in banksbalance
sheet fuels a vicious circle. When investors cannot
trust the books, lenders cant raise capital and may
have to fall back on their home countriesgovernmentsfor help.
Finally, it is significant to note that new and private
sector banks, with their high capital adequacy ratios,
enhanced proportion of common equity and better IT
and other modern financial skills of the personnel, are
well placed to comply with Basel III norms in general.
8/12/2019 Basel 3 & Private Indian Banks
29/30
29
It is interesting to note that though risk capital may be
the necessary safety cushion for banks, capital alone
may not be sufficient to protect them from anyextreme unexpected loss events. In reality, risk
capital will remain only a number and may not be
effective if banks do not assess their risk periodically
and take timely corrective action when the riskexceeds the threshold limit.
Thus, whether it is Basel II or Basel III, it is crucial
that a bank does not depend solely on
"regulatory capital". What is needed is a dynamic
risk mitigation strategy.
8/12/2019 Basel 3 & Private Indian Banks
30/30