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Capital Management & Profit Planning. Basel II. Tier I-Core Capital Paid up capital ,Free Reserves and unallocated surpluses Tier II-Supplementary Capital

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Capital management profit planning
Capital Management &Profit Planning


Basel ii
Basel II

Tier I-Core Capital

Paid up capital ,Free Reserves and unallocated surpluses

Tier II-Supplementary Capital

Subordinated debt of more than 5 years maturity ,loan loss reserve, revaluation reserve,investment fluctuation reserve,limited life preference share-restricted to 100% of tier I capital

Tier III Capital

subordinated debt with shot term maturity [min 2 years] for market risk


Total risk weighted assets
Total Risk weighted Assets

  • Risk weighted assets of credit risk

    plus

  • 12.5* Capital requirement for market risk

    plus

  • 12.5* capital requirement for for operational risk


Three pillars
Three pillars

  • First Pillar-minimum capital requirements

  • Second pillar-supervisory process

  • Third pillar-market discipline


Capital charge for credit risk

Standardized Approach

Internal rating based approach

[1]Foundation Approach

[2]Advanced IRB Approach

Capital Charge for Credit Risk


Capital charge for operational risk
Capital Charge for Operational Risk

  • The Basic Indicator Approach

  • The Standardized Approach

  • Advanced Management Approach


Standardized approach for operational risk
Standardized Approach for Operational Risk

  • Beta factor- a fixed percentage set by Basel committee

  • Maximum 18%

  • Minimum 12%

  • Banks activities are divided into 8 business lines-corporate finance,trading,retail banking, commercial banking, payment &settlement, agency services, asset management, retail brokering


Asset classification
Asset Classification

  • Standard Assets

  • Sub Standard Assets

  • Doubtful Assts

  • Loss Assets


Provisioning
Provisioning

  • Standard Assts 0.40%

  • Substandard-

  • Secured -provision 10%

  • Unsecured[realisable value is not more than 10% of o/s] –provision 20%


Provision
Provision

Doubtful I- first 12 months

Provision 20% realizable value of security plus 100% shortfall of security

Doubtful II-further 24 months

Provision 30% realizable value of security plus 100% shortfall of security

Doubtful III-for over 36 months

100% provision

Loss Assets 100%


Thank you
Thank you

ravindran@iibf.org.in