Ppt basel iii indian impact

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

1

2

3

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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)