XBRL Implementation at Reserve Bank of India Dr.A.S. Ramasastri, Adviser & P.R. Ravi Mohan, General Manager.

XBRL Implementationat

Reserve Bank of India

Dr.A.S. Ramasastri, Adviser

&

P.R. Ravi Mohan, General Manager

Agenda

Reporting System at RBI - ORFSBasel II Implementation by RBIXBRL Implementation at RBI

Issues Approach Basel II Return Process Flow Potential Benefits Status

XBRL in IndiaWhat RBI Looks Forward . . .

Reporting System at RBI

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Reporting System

Multiple Banks Multiple Banks

Multiple Departments of RBI Multiple Departments of RBI

Multiple Formats (CSV, Excel Based, XML Multiple Formats (CSV, Excel Based, XML etc)etc)

Multiple Modes (Paper based, E-mail, Multiple Modes (Paper based, E-mail, Online)Online)

Multiple Backend SystemsMultiple Backend Systems

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Obvious Problems

Data Entry at Multiple Levels – Quality Data Entry at Multiple Levels – Quality Suffers & Delays IncreaseSuffers & Delays IncreaseChanging Formats DifficultChanging Formats DifficultCross-Departmental View of Data Not Cross-Departmental View of Data Not EasyEasyLack of Standard Definitions of Data Lack of Standard Definitions of Data ElementsElementsBoth Banks and RBI Maintain Multiple Both Banks and RBI Maintain Multiple SystemsSystems

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Solution – First Step

RBI introduces on-line returns filing system RBI introduces on-line returns filing system (ORFS) for important statutory returns(ORFS) for important statutory returns

Banks file returns through secured channelsBanks file returns through secured channels

All concerned departments receive dataAll concerned departments receive data

Straight-through Processing implementedStraight-through Processing implemented

Banks developed XML-based reporting systems Banks developed XML-based reporting systems from their core banking solutions from their core banking solutions

RBI interacts with other stakeholders on XBRLRBI interacts with other stakeholders on XBRL

Attempt for rationalisation of returnsAttempt for rationalisation of returns

Basel II Implementation by RBI

INDIAN BANKING SYSTEM• Public sector banks - 27

• Private sector banks –22

• Foreign banks -30

• Local area banks –4

• Regional rural banks -91

• Urban co-operative banks – 1770

• Co-operative credit institutions –over 100 thousand

Basel 1 ImplementationBasel 1 ImplementationCapital charge for credit risk introduced since 1992-93 on the lines of Basel 1Surrogates for market risk introduced since 1998

2.5% RW on entire investment portfolio 100% RW for gold and forex open positions

Capital charge for market risks on par with Basel 1 introduced from the 2004-05

Interest rate risk Equity risk Foreign exchange risk

Basel I Implementation. (contd.)Basel I Implementation. (contd.) Capital charge for market risks extended to AFS portfolio from 2005-06

Indian banking system can be considered to be more than

fully compliant with Basel 1 as on March 31, 2006

Banking regulation & supervision in India assessed as

largely compliant with the Basel Core Principles for

Effective Banking Supervision in 1999 – since then the

level of compliance has improved significantly

Indian Scenario

• In tune with RBI’s objective to have consistency and harmony with

international standards, Standardised Approach for Credit Risk and

Basic Indicator Approach for Operational Risk has been prescribed

• Minimum CRAR would be 9% -

• but banks expected to operate above the minimum level

• higher level of CRAR possible under Pillar II

• on the basis of risk profile and risk management systems

• Tier 1 CRAR to be at least 6% - before March 31, 2010

• All Scheduled commercial banks to comply

• at solo level on their global position

• as well as at the consolidated level

Pillar 1Pillar 1 Minimum Capital Minimum Capital

RequirementRequirement

Capital for Capital for Credit RiskCredit Risk((SASA; FIRB; ; FIRB;

AIRB)AIRB)

BaselBasel IIII

Capital for Capital for Market RiskMarket Risk(SMA; (SMA; SDASDA; ;

IMA)IMA)

Pillar 2Pillar 2Supervisory Supervisory

ReviewReview

Pillar 3Pillar 3Market DisciplineMarket Discipline

Capital for Capital for Operational Operational

Risk (Risk (BIABIA; SA; ; SA; AMA)AMA)

Why Minimum ApproachesWhy Minimum Approaches ?? Indian banking system not ready for adoption of

Advanced approaches which rely largely on internal methodologies and therefore on

corporate governance in banks

are highly data intensive – lack of appropriate data

are likely to increase the cost of compliance

place significant demands on skills in both banks and

the RBI

Hence, decision to migrate to minimum

approaches available in Basel II

Three-trackThree-track Approach Approach

Basel 2 applicable to all commercial

banks (except Regional Rural Banks and

Local Area Banks)

Urban Cooperative Banks and Local Area

Banks on Basel I Regional Rural Banks on minimum capital basis

Implementation ScheduleForeign banks operating in India and Indian banks having presence outside India by March 31, 2008

All other Scheduled Commercial Banks to migrate to Basel II in alignment with them but not later than March 31, 2009.

RBI Initiatives Required for RBI Initiatives Required for ImplementationImplementation

Strengthen banks’ risk management systems

Capacity building at RBI and Banks

Ensure data submission by banks are reliable, accurate

and timely

XBRL reporting becomes significant in this context

Especially since submission of information by banks to

regulator is very important in view of special status

enjoyed by banks

XBRL Implementation at RBI

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Issues

Varying technology maturity levels across Varying technology maturity levels across banksbanks

Lack of Awareness Lack of Awareness

Skill Set RequirementSkill Set Requirement

Local XBRL jurisdiction yet to be formedLocal XBRL jurisdiction yet to be formed Creation or Extension of TaxonomiesCreation or Extension of Taxonomies

Protection of existing technology Protection of existing technology investmentsinvestments

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Approach - Commitment

Top Level CommitmentTop Level Commitment

The Governor set up a High-level XBRL steering The Governor set up a High-level XBRL steering committee headed by the Deputy Governor in-committee headed by the Deputy Governor in-charge of Regulation, Supervision and charge of Regulation, Supervision and TechnologyTechnologyMembers from RBI, Commercial Banks, Members from RBI, Commercial Banks, Technology Firms, Institute of Chartered Technology Firms, Institute of Chartered Accountants of India (ICAI) Accountants of India (ICAI) A core group comprising relevant technical and A core group comprising relevant technical and functional expertise representing different functional expertise representing different departments within RBIdepartments within RBI

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Approach – Phased

Pilot project for studying a few banks’ and RBI’s Pilot project for studying a few banks’ and RBI’s existing systems and demonstration of the new existing systems and demonstration of the new technology and tools for a few returns. technology and tools for a few returns. Based on this pilot project, preparation of Based on this pilot project, preparation of approach paper and a roadmap for bank approach paper and a roadmap for bank reporting using XBRLreporting using XBRLA calibrated and phased approach to full XBRL A calibrated and phased approach to full XBRL implementation for reporting purposesimplementation for reporting purposesThe first report is the Basel II reporting return, The first report is the Basel II reporting return, which is being newly introducedwhich is being newly introduced

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Approach - CooperationWork with vendors having XBRL skillsWork with vendors having XBRL skillsDiscuss with XII and European Central BanksDiscuss with XII and European Central BanksSpecialist training to core group on XBRLSpecialist training to core group on XBRLStudy the process at Bank of Belgium and Study the process at Bank of Belgium and Bank of SpainBank of SpainCoordinate with other Indian stake holders Coordinate with other Indian stake holders like ICAIlike ICAIWork towards formation of Indian jurisdictionWork towards formation of Indian jurisdiction

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Approach – Extension of ORFSORFS, which has been developed on XML, is ORFS, which has been developed on XML, is being extended to adopt XBRL standardsbeing extended to adopt XBRL standardsInvestment at RBI and banks is reasonably Investment at RBI and banks is reasonably protectedprotectedBoth RBI and banks are familiar with the systemBoth RBI and banks are familiar with the systemTraining through workshops, seminars and Training through workshops, seminars and demonstrationsdemonstrationsConversion software made available to banks – Conversion software made available to banks – with an option for banks work on their own with an option for banks work on their own solutionssolutions

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Approach - DevelopmentDevelopment of taxonomies – a project within Development of taxonomies – a project within projectprojectBoth development of taxonomies and system Both development of taxonomies and system outsourced – the vendor works closely with the outsourced – the vendor works closely with the core group of RBIcore group of RBITaxonomies vetted by experts in RBI, experts in Taxonomies vetted by experts in RBI, experts in India and also experts from other countriesIndia and also experts from other countriesUser Acceptance Tests to involve the concerned User Acceptance Tests to involve the concerned departments of RBI and also a few banksdepartments of RBI and also a few banksTraining to banks and departmentsTraining to banks and departments

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Approach - Constraints Formula linkbase, which would have Formula linkbase, which would have

provided extensive validation capabilities, provided extensive validation capabilities, is not yet releasedis not yet released

Decided to use the calculation linkbase for basic data Decided to use the calculation linkbase for basic data validation. However, extensive validations will be taken validation. However, extensive validations will be taken care of through the application presentlycare of through the application presently

Versioning of taxonomy is a work in Versioning of taxonomy is a work in progress and not finalised progress and not finalised

Alternative methodology for ensuring versioning of Alternative methodology for ensuring versioning of taxonomy and compatibility of unchanged elements with taxonomy and compatibility of unchanged elements with older versions of taxonomy.older versions of taxonomy.Automated as well as manual version checking of Automated as well as manual version checking of taxonomy to ensure correct version is usedtaxonomy to ensure correct version is used

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Basel II Return - BasisBased on Guidelines on the revised capital adequacy Based on Guidelines on the revised capital adequacy framework issued by RBI in April, 2007 and a few framework issued by RBI in April, 2007 and a few amendments in March, 2008amendments in March, 2008

Nature and components of capital and deductions to capital Nature and components of capital and deductions to capital specified specified

Approaches currently prescribed by RBI:Approaches currently prescribed by RBI:

Standardized Duration Approach for market riskStandardized Duration Approach for market risk

Standardized Approach for credit riskStandardized Approach for credit risk

Basic Indicator Approach for operational riskBasic Indicator Approach for operational risk

A single spreadsheet based return file consisting of A single spreadsheet based return file consisting of several templates for various individual risks and several templates for various individual risks and componentscomponents

Various individual risk weighted assets feed into the Various individual risk weighted assets feed into the Capital calculation templateCapital calculation template

Return frequency - QuarterlyReturn frequency - Quarterly

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Basel II Return – Elements & Dimensions

Detailed templates for Detailed templates for Credit Risk– on and off BS items, securitization, Market and Credit Risk– on and off BS items, securitization, Market and

non-market related off BS, failed transactions, counterparty non-market related off BS, failed transactions, counterparty credit riskcredit risk

Market Risk – AFS, HFT, aggregateMarket Risk – AFS, HFT, aggregate Operational Risk – BIA templateOperational Risk – BIA template

Data Model – Primary items and dimensional informationData Model – Primary items and dimensional information

Examples of Dimensional items include counterparty groups, Examples of Dimensional items include counterparty groups, risk weights, ratings etc.risk weights, ratings etc.

Around 400 unique elements including about 25 dimensionsAround 400 unique elements including about 25 dimensions

Granular details elicited when required. However, no attempt to Granular details elicited when required. However, no attempt to reproduce detailed calculations carried out at bank’s end. reproduce detailed calculations carried out at bank’s end.

References to RBI capital adequacy guidelines/other relevant RBI References to RBI capital adequacy guidelines/other relevant RBI circulars for each data element incorporated in the return circulars for each data element incorporated in the return through reference linkbasethrough reference linkbase

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Basel II Return- Process flow

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Basel II Return- Architecture

Implementation Status

Taxonomies for Basel II developedSystem developed and being used by selected banksTo be formally launched on October 6, 2008An international seminar organized to coincide with the launchSeveral other returns to be taken up over next 3 to 6 months

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Potential Benefits to Banks (1)

Efficiency gains in external reporting processesEfficiency gains in external reporting processes

Savings in cost/resources for redundant data related work - XBRL Savings in cost/resources for redundant data related work - XBRL ensures data re-usabilityensures data re-usability

When providing XBRL data for capital markets, potential for When providing XBRL data for capital markets, potential for decrease in capital costs for relevant firms since better assimilation decrease in capital costs for relevant firms since better assimilation of data by investors/marketof data by investors/market

Sharing/Using XBRL data with / of other banks/borrowers can help Sharing/Using XBRL data with / of other banks/borrowers can help quicker and better assessment/monitoring of credit risk / quicker and better assessment/monitoring of credit risk / counterparty credit risk and also management of moral hazard issuecounterparty credit risk and also management of moral hazard issue

Can enable more frequent review/updation of internal credit rating Can enable more frequent review/updation of internal credit rating systemsystem

Due to better credit risk assessment, can enable enhancement and Due to better credit risk assessment, can enable enhancement and diversification of credit to sections like SMEs, microfinance diversification of credit to sections like SMEs, microfinance institutions etc. institutions etc.

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Potential Benefits to Banks (2)

In the event of pulling/pushing data across disparate systems, In the event of pulling/pushing data across disparate systems, say for risk management information systems, XBRL can help say for risk management information systems, XBRL can help in technology independent seamless movement of informationin technology independent seamless movement of information

Exchange of fraud details / caution advices with Frauds Exchange of fraud details / caution advices with Frauds Monitoring Cell of RBI can enable banks further implement Monitoring Cell of RBI can enable banks further implement fraud control measures expeditiouslyfraud control measures expeditiously

Reporting/exchanging XBRL enabled information to/with Credit Reporting/exchanging XBRL enabled information to/with Credit information Bureau/s can lead to better credit assessment information Bureau/s can lead to better credit assessment process and better management of adverse selection problemprocess and better management of adverse selection problem

In the event of mergers / acquisitions or for consolidation of In the event of mergers / acquisitions or for consolidation of MIS/accounts, XBRL can be of help in integrating different MIS/accounts, XBRL can be of help in integrating different systems and provide for easier generation of complete, systems and provide for easier generation of complete, consolidated and centralized informationconsolidated and centralized information

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Potential Benefits to Banks (3)Enhanced internal controls/audit processes if XBRL is Enhanced internal controls/audit processes if XBRL is extensively leveragedextensively leveraged

Can facilitate rural initiatives since can XBRL can link Can facilitate rural initiatives since can XBRL can link disparate applications/systemsdisparate applications/systems

Since both quantitative and qualitative information can be Since both quantitative and qualitative information can be represented in XBRL, over a period of time potential for represented in XBRL, over a period of time potential for enhancing “market discipline” through use of automated tools enhancing “market discipline” through use of automated tools for crunching XBRL datafor crunching XBRL data

A taxonomy for incorporating market discipline Pillar 3 A taxonomy for incorporating market discipline Pillar 3 requirements would prove very beneficialrequirements would prove very beneficial

Incorporating XBRL capability in core banking and other Incorporating XBRL capability in core banking and other important systems – can enable direct mapping of taxonomy important systems – can enable direct mapping of taxonomy elements to elements in the specific system and generation of elements to elements in the specific system and generation of required XBRL instance document as outputrequired XBRL instance document as output

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Potential Benefits to RBI

Generating standard and ad-hoc reports as requiredGenerating standard and ad-hoc reports as required Maximum possible automation of processesMaximum possible automation of processes More analysis facilitated since less of data related issues More analysis facilitated since less of data related issues

expectedexpected Ease of incorporating data for various analytical studies and Ease of incorporating data for various analytical studies and

periodic reportsperiodic reports Quicker access to bank analysts and inspection officialsQuicker access to bank analysts and inspection officials Provision for automated signalling of “red flags” in Provision for automated signalling of “red flags” in

submitted data which would need further analysissubmitted data which would need further analysis Access of the centralized data repository by other Access of the centralized data repository by other

departments like banking policy department, monetary policy departments like banking policy department, monetary policy department, financial markets department etc. as required department, financial markets department etc. as required

Use of business intelligence tool for advanced analytics and Use of business intelligence tool for advanced analytics and drill-down/roll up facilitydrill-down/roll up facility

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XBRL in IndiaThe XBRL implementation catching up in IndiaThe XBRL implementation catching up in India

In addition to RBI, initiatives by other bodies like ICAIIn addition to RBI, initiatives by other bodies like ICAI

XBRL-India jurisdiction is being formed; a steering committee XBRL-India jurisdiction is being formed; a steering committee formedformed

For more widespread use, taxonomies usable for specific For more widespread use, taxonomies usable for specific purposes need to be developed: requires cooperation and purposes need to be developed: requires cooperation and collaboration between relevant stakeholders – Interoperability is collaboration between relevant stakeholders – Interoperability is key for success of XBRLkey for success of XBRL

More training/awareness of benefits of XBRL need to percolate More training/awareness of benefits of XBRL need to percolate across to all entities – seminars of this nature would be neededacross to all entities – seminars of this nature would be needed

Scope for more products around XBRL by Indian software Scope for more products around XBRL by Indian software industryindustry

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What RBI Looks Forward . . .

RBI can be involved in sharing of best practices RBI can be involved in sharing of best practices and collaboration in international projects and collaboration in international projects

RBI can share its experience and practices RBI can share its experience and practices regarding XBRL implementation for the benefit regarding XBRL implementation for the benefit of other countries, particularly developing of other countries, particularly developing countries countries

India’s software proficiency can turbo-charge India’s software proficiency can turbo-charge XBRL by participating in various XBRL by participating in various committees/forums for advancing XBRL committees/forums for advancing XBRL specifications, taxonomies etc. for enabling specifications, taxonomies etc. for enabling innovative use of XBRLinnovative use of XBRL

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[email protected]

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