What next after CAIIB

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Very important

What next after CAIIB?

15 Certificate Exams in Finance and Banking useful for Bankers::

Introduction
As per IBA settlement, bankers who have passed JAIIB and CAIIB exams are entitled to salary increments. The Banks which are following IBA Salary structure is giving this benefit to their employees. After passing JAIIB, Clerks are eligible to receive one increment and Officers are also eligible for one increment. Passing the CAIIB examination gives two increments to clerks while officers get one increment. Apart from these associate exams, there are  Certificate Exams in Finance and Banking which are very helpful for development of bankers knowledge.

Whats next after CAIIB?
I know and felt your struggles and endeavours to pass the CAIIB for getting those increments. But now you have completed; Your sala1ry has increased and you have rejoiced for your success. There is no ending for knowledge gathering in our Industry. Our banking industry is vast and it is very dynamic. We need to update ourself regularly. Also we have to expand our knowledge to other related areas; So that we have our chances in Banking Industry. Institutions such as IIBF, NISM and NCFM are providing many useful Certificate Exams in Finance and Banking for development of knowledge to the bankers. Among them 15 Certificate Exams in Finance and Banking are very useful for bankers and the persons who cleared CAIIB must try to clear these exams.



List of Certificate Exams Offered by IIBF in Banking :
Indian Institute of Banking & Finance is offering many Certificate courses for benefit of Bankers, IT Employees and BPO Companies. The following courses are important and useful certificate courses for bankers.

Important Specialized Courses by IIBF:
Based on the recommendation from RBI Capacity Building Committee, IBA has identified the following blended courses offered by Indian Institute of Banking & Finance. The specialized courses will be made mandatory for bankers working in those specalized areas from 01.04.2018

S.No
Areas where certification has been identified by RBI
Course offered by IIBF and identified by IBA
1 Risk management – credit risk, market risk, operational risk, enterprise-wide risk, information security, liquidity risk
Risk in Financial Services
2 Treasury operations- Dealers, Mid office operations
Certified Treasury Dealer
3 Credit management- credit appraisal, rating, monitoring, credit administration
Certified Credit Officer


I have written a seperate detailed article for above courses read  4 Important Capacity Building Courses must do for Bankers

Other Useful Certification Courses
MSME Finance For Bankers
Certificate Exam in AML/KYC
Certificate In International Trade Finance,
Certificate Exam in Customer Services and Banking Codes & Standards
Certificate Exam in Foreign Exchange
MSME

Certificate In International Trade Finance

Certificate Examination In Information System Banker

Certificate Examination in AML/KYC

Customer Service & Banking codes and standards

Certificate Examination In It Security

Certificate Examination In Rural Banking Operations

Certificate Examination In Prevention Of Cyber Crimes And Fraud Management

Certificate Examination In Foreign Exchange Facilities For Individuals

Certificate Examination In Microfinance

Card Operations (for Employees of I.T. and BPO Companies)

Functions of Banks (for Employees of I.T. and BPO Companies)

Basics of Banking (for Employees of I.T. and BPO Companies)

Certificate Examination For DRA

Certificate Examination For DRA Telecallers

Business Correspondents / Facilitators

Certificate Course In Foreign Exchange

Certificate Course In Digital Banking

Introduction to Banking(for sub-ordinate staff of banks)-IN ENGLISH AND HINDI MEDIUM

Certificate Course for Non Banking Financial Companies

Certificate Examination For Small Finance Banks

List of Certificate Exams offered by NISM:

National Institute of Securities Market (NISM) is conducting various certificate exams for persons engaging in various segments of Indian Security Market.  Almost all commercial Banks are providing DP services to their customers. So as a banker we need to know about Security markets. SEBI has mandated the NISM series exams.

Currency Derivatives
Equity Derivatives
Depository Operations
Merchant Banking
Mutual Fund Distributor Module.
Each module has series of examinations and passing them makes us specialized in Securities Market. For more details about examination fee and procedure visit  NISM Certifications

List of Certificate Exams offered by NCFM

NSE Acadamy Certification in Financial Market (NCFM) conducts exams to test the expertise in different fields of the Financial Market. The following are important areas of financial market.

Modules in Commodities Market
Modules in Capital Market Module
Modules in Securities Market Module
Modules in Derivative Market Module
Modules in FIMMDA – Debt Market Module
Each module has Foundation, Intermediate and Advanced Modules which makes us to get expertise in the particular segment of the Financial Market. For more details about the exam visit NCFM Modules

Uses of Certificate Exams:
These are professional certificate exams conducted by reputed professional agencies in our Industry. So it has been recognized all over India by all Banks and other financial institutions.
These certificate course are very helpful for our vertical career development.
Some of these courses makes us specialized in particular segment of finance and banking. Thus we will be qualified to work in specialized areas.
 During yearly appraisal and promotion appraisal marks are given to above courses under Special Qualifications.
Some Banks provides one time refund of examination fee after successful completion of the exams.
Conclusion:
Though there is no salary increment for the above examinations; They are helpful for bankers in many ways.  The above lists of exams are not exhaustive, I have mentioned only the few important exams.

RISK MANAGEMENT-INFORMATION SECURITY

RISK MANAGEMENT-INFORMATION SECURITY

1.     INTRODUCTION:

Banks deal with public money and therefore, trust is the most important pillar of the banking business. While trust may be considered synonymous with banking, security is also considered equally important. The concept and perception of security in banking has, over a period of time, changed drastically, in tandem with changes in the way banking business is conducted. Now a days, banks maintain their assets more in digitized rather than physical form, carry out their transactions over technology enabled platforms/applications and communicate through electronic modes.

RISK MANAGEMENT - ADDITIONAL READING MATERIAL LIQUIDITY RISK MANAGEMENT

RISK MANAGEMENT -  ADDITIONAL READING MATERIAL

LIQUIDITY RISK MANAGEMENT

1.     Introduction:

Liquidity is a bank’s capacity to fund increase in assets and meet both expected and unexpected cash and collateral obligations at reasonable cost and without incurring unacceptable losses. Liquidity risk is the inability of a bank to meet such obligations as they become due, without adversely affecting the bank’s financial condition. Effective liquidity risk management helps ensure a bank’s ability to meet its obligations as they fall due and reduces the probability of an adverse situation developing. This assumes significance on account of the fact that liquidity crisis, even at a single institution, can have systemic implications.

BANK FINANCIAL MANAGEMENT -UPDATES

BANK FINANCIAL MANAGEMENT

UPDATES

Page No.	Chapter No.	Contents	Update
6	1.2	Global Forex Business	The Global Forex markets turnover in April 2013 was USD 5.3 Trillion per day. Rupee trades account for about 1 per cent of the global market with a daily average turnover of about USD 53 billion.
16	1.6	RBI/FEDAI Guidelines – No of Dealers	At present, there are 100 category-I Authorised Dealers in India.
52	3.5.1	NRE A/cs Jointly with Resident Indians	Non-Resident Indians (NRI), are now permitted to open NRE / FCNR(B) accounts jointly with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) with operational instructions ‘former or survivor’, where NRI is ‘Former’.  The resident close relative shall be eligible to operate the account as a Power of Attorney holder.
53	3.5.1	Interest payable on NRE SB and Term Deposits	Banks are free to determine their interest rates on both savings deposits and term deposits under Non-Resident (External) Rupee (NRE) Deposit accounts and savings deposits under Ordinary Non-Resident (NRO) Accounts with effect from December 16, 2011. However, interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
53	3..5.1	Tenor of NRE Term Deposits	Similar to Resident Term Deposits, but with a minimum period of one year.
54	3.5.3	FCNR(B) Deposits - Currencies	FCNR(B) accounts are now permitted to be opened in any freely convertible currency. The commonly used currencies, however, are USD, GBP, Euro, JPY, AUD and CAD.

54	3.5.3	FCNR(B) Deposits – Joint accounts with resident Indians	Non-Resident Indians (NRI), are permitted to open NRE / FCNR(B) accounts jointly with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) with operational instructions ‘former or survivor’, where NRI is ‘Former’.  The resident close relative shall be eligible to operate the account as a Power of Attorney holder.
54	3.5.3	Tenor of FCNR(B) Deposits	FCNR (B) deposits can be accepted for a minimum period of 1 year and a maximum of 5 years.
55	3.5.3	Interest payable on FCNR(B) deposits	As directed by RBI from time to time. Present maximum rates effective from 01.03.2014 are: Period                                          Rate 1 year upto less than        3 years                               LIBOR + 200 bps 3years to 5 years               LIBOR + 300 bps
58	3.7	Loan/Advances against NRE/ FCNR(B) deposits	Effective from 12.10.2012, there is no ceiling on the quantum of finance against NRE /FCNR deposits.
93	3B	Realisation of Export Bills	The period of realization and repatriation of export proceeds shall be nine months from the date of export for all exporters including Units in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs until further notice.
98	5.4.1.A.10	Interest rates on Pre-Shipment Finance	The Base Rate System is applicable with effect from July 1, 2010. Accordingly, interest rates applicable for all tenors of rupee export credit advances are subject to, at or above Base Rate.
103	5.4.2	Period of Finance	Normal Transit Period (NTP) is as specified by FEDAI from time to time.

104	5.4.4.1	Rate of interest for Export Credit in Foreign Currency	Banks are free to determine the interest rates on export credit in foreign currency with effect from May 5, 2012
104	5.4.4.2	Rate of interest for raising Foreign Currency funds for financing Export	From November 15, 2011, Banks may arrange for borrowings from abroad for the purpose of grant of PCFC to exporters without the prior approval of the RBI, provided the rate of interest on the borrowing does not exceed 250 basis points over six months LIBOR/EURO LIBOR/EURIBOR
111	5.7(e)(i) &(ii)	Advance Remittance for Imports	ADs may allow remittance of advance payment against import of goods upto USD 200,000 or its equivalent, after duly satisfying about the transaction, nature of trade and standing of the supplier, etc. In case of an importer entity in the Public Sector or a Department / Undertaking of the Government of India / State Government/s the limit is USD100,000.
114	5.9.2	Interest rate ceiling on Buyers’ Credit	The present ceiling on all-in-cost is 350 bps over 6 months LIBOR for all maturities upto 1 year, over 1 year upto 3 years and over 3 years upto 5 years.

148	7.3.1.B.(iv)	Remittance for Consultancy Services	Remittances for consultancy services from outside India for infrastructure projects - USD 10,000,000 per project, for other consultancy services USD 1,000,000 per project.
149	7.3.1.c(v)	Eligible Investors abroad	Indian party has been permitted to make investment in overseas Joint Ventures (JV) / Wholly Owned Subsidiaries (WOS), as per the ceiling prescribed by the Reserve Bank from time to time. An Indian party means a company incorporated in India or a body created under an Act of Parliament or a partnership firm registered under the Indian Partnership Act, 1932 or a Limited Liability Partnership (LLP) incorporated under the Limited Liability Partnership Act, 2008 making investment in a Joint Venture or Wholly Owned Subsidiary abroad. With effect from July 03, 2014, the limit of Overseas Direct Investments (ODI)/ Financial Commitment (FC) to be undertaken by an Indian Party under the automatic route has been restored to the limit prevailing, as per the extant FEMA provisions, prior to August 14, 2013. However, any financial commitment exceeding USD 1 (one) billion (or its equivalent) in a financial year would require prior approval of the Reserve Bank even when the total FC of the Indian Party is within the eligible limit under the automatic route (i.e., within 400% of the net worth as per the last audited balance sheet)
153	7.4.A	About FEDAI	The total membership of FEDAI upto February 2015 is 106.
157	7.5.1(i)	Interest rate on ECB	For average Maturity Period of three years and up to five years all-in-cost Ceilings over 6 month LIBOR 350 basis points and for more than five years 500 basis points
407	22	Capital Adequacy – The Basel-II Overview	Basel III Capital Regulations are being implemented in India with effect from April 1, 2013 in a phased manner. Please refer to RBI Master circular on Basel III Capital Regulations, latest being  dated 01.07.2014 for detailed guidelines.

All the best for CAIIB BFM Exam

All the best for CAIIB BFM Exam.Be cool .get very good marks.Kindly share recollected questions
on facebook

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JAIIB - PPB

JAIIB - PPB

Unit – 1 : Indian Financial System

1. NBFC are allowed to raise money from the public and lend monies through various instruments for ex leasing, hire purchase and bill discounting.

2. Primary dealers deal in government securities, primary as well as secondary markets.

3. FI are financial institutions which provide long term funds for industry and agriculture.

4. Co-operative banks are allowed to raise deposits and give advances from/to public.

5. Urban co-operative banks are controlled by State government and RBI.

6. Other co-operative banks are controlled by State Government and NABARD.

7. CRR is a percentage of demand and time liabilities of a bank which is deposits held by the bank.

8. SLR is a percentage of demand and time liabilities of a bank which is held in prescribed government securities by the bank.

9. Bonds and debentures are examples of corporate securities and can be used to raise debts.

10. Debts, equities and derivatives are examples of securities.

11. SEBI is the capital market regulator.

12. Merchant bankers aka Investment bankers are licensed by SEBI and they issue stocks, raise fund and manage them.

13. FII are authorized by SEBI to invest in Indian equity and debt market through stock exchanges.

14. Depositories held securities in demat form (not physical).

15. Mutual fund pools money from investors and invests in stocks, debt and other securities.

16. The three regulatory authorities are:

RBI - for banks,

SEBI - for capital markets and

IRDA - for insurance sectors

RBI Master circular on Basel 3 PDF

Master Circular on Basel 3 pdf
Down load link here

https://drive.google.com/file/d/1VBim0Jxi_AT65V5zI-T25VgtBMBlWbn_/view?usp=drivesdk

Revaluation reserves in Tier 1 Capital as per RBI in India

Revaluation reserves::

RBI brings Capital Treatment of Banks' Balance Sheet Items in closer Alignment with Basel Framework
On a review of the existing capital adequacy guidelines, the Reserve Bank of India today made some amendments to the treatment of certain balance sheet items for the purposes of determining banks' regulatory capital. The review was carried out with a view to further aligning the definition of regulatory capital with the internationally adopted Basel III capital standards, issued by the Basel Committee on Banking Supervision (BCBS).

The salient features of the amendments are:

Revaluation reserves arising from change in the carrying amount of a bank’s property consequent upon its revaluation would be considered as common equity tier 1 capital (CET1) instead of Tier 2 capital as hitherto. These would continue to be reckoned at a discount of 55 per cent.

Foreign currency translation reserves arising due to translation of financial statements of a bank’s foreign operations to the reporting currency may be considered as CET1 capital. These will be reckoned at a discount of 25 per cent.

Deferred tax assets arising due to timing differences may be recognised as CET1 capital up to 10% of a bank’s CET1 capital.

Kyc aml case study

Kyc aml::

Online or Internet Banking  ( Special Case study how Money laundering  3 steps Happens):: Very important

Placement — Launderers want to get their proceeds
into legitimate repositories such as banks, securities
or real estate, with as little trace of the source and
beneficial ownership as possible. Often, cyberspace
banks do not accept conventional deposits. However,
cyberbanks could be organized to take custodial-like
forms — holding, reconciling and transferring rights to
assets held in different forms around the world. Money
launderers can create their own systems shadowing
traditional commercial banks in order to accept
deposits, perhaps as warehouses for cash or other
bulk commodities. Thus, cyberspace banks have the
potential to offer highly secure, uncommonly private
“placement” vehicles for money launderers

Layering — Electronic mail messages, aided by
encryption and cyberspace banking transfers, enable
launderers to transfer assets around the world many
times a day.

􀂄 Integration — Once layered, cyberspace banking
technologies may facilitate integration in two ways.
If cyberbanking permits person-to-person cash-like
transfers, with no actual cash involvement, existing
currency reporting regulations do not apply. Using
“super smart-card” technologies, money can be moved
around the world through ATM transactions. These
smart cards permit easy retrieval of the “account”
balance by the use of an ATM card

Three Stages in the Money Laundering Cycle::

Three Stages in the Money Laundering Cycle::

( Special Article  for Tomorrow  Exam...Kindly read everyone)

Money laundering often involves a complex series of transactions
that are usually difficult to separate. However, we generally
consider three phases of money laundering:
􀂄 Step One: Placement — The physical disposal of cash or
other assets derived from criminal activity.
During this initial phase, the money launderer introduces
the illegal proceeds into the financial system. Often, this is
accomplished by placing the funds into circulation through
financial institutions, casinos, shops and other businesses,
both domestic and international. This phase can involve
transactions such as:
􀂉 Breaking up large amounts of cash into smaller sums and
depositing them directly into a bank account.
􀂉 Transporting cash across borders to deposit in foreign
financial institutions, or to buy high-value goods — such as
artwork, antiques, and precious metals and stones — that
can then be resold for payment by check or bank transfer.

􀂄 Step Two: Layering — The separation of illicit proceeds from
their source by layers of financial transactions intended to
conceal the origin of the proceeds.
This second stage involves converting the proceeds of the
crime into another form and creating complex layers of
financial transactions to disguise the audit trail, source and
ownership of funds.
This phase can involve transactions such as:
􀂉 Sending wire transfers of funds from one account to
another, sometimes to or from other institutions or
jurisdictions.
􀂉 Converting deposited cash into monetary instruments (e.g.
traveler’s checks).
􀂉 Reselling high-value goods and prepaid access/stored
value products.
􀂉 Investing in real estate and legitimate businesses.
􀂉 Placing money in investments such as stocks, bonds or life
insurance

􀂉 Using shell companies or other structures whose primary
intended business purpose is to obscure the ownership of
assets.

􀂄 Step Three: Integration — Supplying apparent legitimacy to
illicit wealth through the re-entry of the funds into the
economy in what appears to be normal business or personal
transactions.
This stage entails using laundered proceeds in seemingly
normal transactions to create the perception of legitimacy. The
launderer, for instance, might choose to invest the funds in real
estate, financial ventures or luxury assets. By the integration
stage, it is exceedingly difficult to distinguish between legal and
illegal wealth. This stage provides a launderer the opportunity
to increase his wealth with the proceeds of crime. Integration
is generally difficult to spot unless there are great disparities
between a person’s or company’s legitimate employment,
business or investment ventures and a person’s wealth or a
company’s income or assets.

Money Laundering

Money laundering:::

The money laundering cycle can be broken down into three distinct stages; however, it is important to remember that money laundering is a single process. The stages of money laundering include the:

Placement Stage

Layering Stage

Integration Stage

The Placement Stage
The placement stage represents the initial entry of the "dirty" cash or proceeds of crime into the financial system. Generally, this stage serves two purposes: (a) it relieves the criminal of holding and guarding large amounts of bulky of cash; and (b) it places the money into the legitimate financial system. It is during the placement stage that money launderers are the most vulnerable to being caught. This is due to the fact that placing large amounts of money (cash) into the legitimate financial system may raise suspicions of officials.

The placement of the proceeds of crime can be done in a number of ways. For example, cash could be packed into a suitcase and smuggled to a country, or the launderer could use smurfs to defeat reporting threshold laws and avoid suspicion. Some other common methods include:

Loan Repayment

Repayment of loans or credit cards with illegal proceeds

Gambling

Purchase of gambling chips or placing bets on sporting events

Currency Smuggling



The physical movement of illegal currency or monetary instruments over the border

Currency Exchanges

Purchasing foreign money with illegal funds through foreign currency exchanges

Blending Funds



Using a legitimate cash focused business to co-mingle dirty funds with the day's legitimate sales receipts

This environment has resulted in a situation where officials in these jurisdictions are either unwilling due to regulations, or refuse to cooperate in requests for assistance during international money laundering investigations.

To combat this and other international impediments to effective money laundering investigations, many like-minded countries have met to develop, coordinate, and share model legislation, multilateral agreements, trends & intelligence, and other information.  For example, such international watchdogs as the Financial Action Task Force (FATF) evolved out of these discussions.

The Layering Stage
After placement comes the layering stage (sometimes referred to as structuring). The layering stage is the most complex and often entails the international movement of the funds. The primary purpose of this stage is to separate the illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.

During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police cooperation.

The Integration Stage
The final stage of the money laundering process is termed the integration stage. It is at the integration stage where the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose.

There are many different ways in which the laundered money can be integrated back with the criminal; however, the major objective at this stage is to reunite the money with the criminal in a manner that does not draw attention and appears to result from a legitimate source. For example, the purchases of property, art work, jewellery, or high-end automobiles are common ways for the launderer to enjoy their illegal profits without necessarily drawing attention to themselves

Smurfs - A popular method used to launder cash in the placement stage. This technique involves the use of many individuals (the"smurfs") who exchange illicit funds (in smaller, less conspicuous amounts) for highly liquid items such as traveller cheques, bank drafts, or deposited directly into savings accounts. These instruments are then given to the launderer who then begins the layering stage.

For example, ten smurfs could "place" $1 million into financial institutions using this technique in less than two weeks

Money Laundering process in very easy way

Money laundering process KYC AML

Housing loan LTV and RWA

Housing loan LTV and RWA

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About CGTMSE

About CGTMSE Scheme

A - Member Lending Institutions - Eligibility, responsibility etc.
   B. Eligible Borrowers
   C. Credit facilities
   D. Primary Security vis-a-vis Collateral security/personal vis-à-vis third party guarantee
   E. Guarantee fee / Service fee
   F. Credit guarantee - extent of cover, invocation, claim etc.
   G. Legal proceedings, OTS etc.
   H. General
   I. Frequently Asked IT related Questions (For MLI's only).

CGTMSE important

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)::: Recent changes: i) The guarantee fee up to Rs.50 lakhs also is to be borne by the borrower w.e.f 01.07.2017 ii) Already the guarantee fee above Rs.50 lakhs is to be borne by the borrower.

BASEL

The Basel Accords refer to the banking supervision Accords (recommendations on banking regulations)—Basel I, Basel II and Basel III—issued by the Basel Committee on Banking Supervision (BCBS). They are called the Basel Accords as the BCBS maintains its secretariat at the Bank for International Settlements in Basel, Switzerland and the committee normally meets there. The Basel Accords is a set of recommendations for regulations in the banking industry.

The Basel Committee on Banking Supervision

Basel Committee consisted of representatives from central banks and regulatory authorities of the Group of Ten countries plus Luxembourg and Spain. Since 2009, all of the other G-20 major economies are represented, as well as some other major banking locales such as Hong Kong and Singapore.

RBI Policy Review Highlights: Repo Rate Hiked By 25 Basis Points, First In Over 4 Years

KEY TAKEAWAYS FROM RBI MPC (Monetary Policy Committee)POLICY
— The Reserve Bank of India hikes key lending rate or repo rate by 25bps to 6.25%
— Reverse repo rate now stands at 6%; FY19 growth projection retained at 7.4 %
— The central bank projects retail inflation at 4.8-4.9% for April-September, 4.7% in H2 FY18

—

MSME PDF

MSME PDF

Download link here
https://drive.google.com/file/d/1nRBm8yjEqOByFt8YR6c1UH2QMNZ__4CE/view?usp=drivesdk">"Banking made Easy :MSME"

EXPOSURE NORMS:: Certified credit professionals

     Exposure Norms are applicable to all scheduled commercial banks, excluding Regional Rural
Banks. These have been prescribed as a prudential measure aimed at better risk management and avoidance of
concentration of credit risks. Exposure Norms have been provided as ceiling on exposure to individuals or Groups;
capital market exposures; unsecured exposure and other related items details of which are given below:

Risk Management::(Most Important)

01 RBI implemented the Basel-III recommendations in India, w.e.f:
a) 01.01.2013, b. 31.03.2013, c. 01.04.2013, d. 30.09.2013
02 Basel III recommendations shall be completely implemented in India by:
31.03.2020, b. 31.03.2019 c. 31.03.2618 d. 31.03.2017
03 Basel III capital regulations were released by Basel Committee on Banking Supervision (BCBS) during as a
Global Regulatory Framework for more resilient banks and banking systems:
December 2010, b. March 2011, c. December 2011, d. December 2012

Risk Management ::( Very important content read everyone)

The growing sophistication in banking operations, online electronic banking,
improvements in information technology etc, have led to increased diversity and
complexity of risks being encountered by banks. These risks can be broadly grouped
into Credit Risk, Market Risk and Operational Risk. These risks are
interdependent and events that affect one area of risk can have ramifications for a
range of other risk categories.
Basel-I Accord: It was introduced in the year 2002-03, which covered capital
requirements for Credit Risk. The Accord prescribed CRAR of 8%, however, RBI
stipulated 9% CRAR. Subsequently, Banks were advised to maintain capital charge
for Market Risk also.
Basel-II New Capital Accord: Under this, banks have to maintain capital for Credit
Risk, Market Risk and Operational Risk w.e.f 31.03.2007. The New Capital Accord
rests on three pillars viz., Minimum Capital Requirements, Supervisory Review
Process & Market Discipline. The implementation of the capital charge for various risk
categories are Credit Risk, Market Risk and Operational Risk. Analysis of the bank’s
CRAR under should be reported to the Board at quarterly intervals.
Internal Ratings Based (IRB) Approach: Under this approach, banks must
categorise the exposures into broad classes of assets as Corporate, Sovereign, Bank,
Retail and Equity. The risk components include the measures of the Probability of
Default (PD), Loss Given Default (LGD), Exposure at Default (EAD) and Effective
Maturity (M). There are two variants i.e Foundation IRB (FIRB) and Advanced IRB.
Under FIRB, banks have to provide their own estimates of PD and to rely on
supervisory estimates for other risk components (like LGD, EAD) while under
Advanced IRB; banks have to provide their own estimates of all the risk components.
It is based on the measures of Expected Losses (EL) and Unexpected Losses (UL).
Expected Losses are to be taken care of by way of pricing and provisioning while the
risk weight function produces the capital requirements for Unexpected Losses.
Market Risk: It is a risk pertaining to the interest rate related instruments and
equities in the Trading Book i.e AFS (Available For Sale) and HFT (Held for Trading)
positions and Foreign Exchange Risk throughout the bank (both banking & trading
books). There are two approaches for measuring market risk viz., Standardized
Duration Approach & Internal Models Approach.
Operational Risk: Banks have to maintain capital charge for operational risk under
the new framework and the approaches suggested for calculation of the same are –
Basic Indicator Approach and The Standardized Approach. Under the first approach,
banks must hold capital equal to 15% of the previous three years average positive
gross annual income as a point of entry for capital calculation. The second approach
suggests dividing the bank’s business into eight lines and separate weights are
assigned to each segment. The total capital charge is calculated as the three year
average of the simple summation of the regulatory capital charges across each of the
business lines in each year.
Advanced Measurement Approach (AMA): Under this, the regulatory capital
requirement will equal the risk measure generated by the bank’s internal operational
risk measurement system using certain quantitative and qualitative criteria. Tracking
of internal loss event data is essential for adopting this approach. When a bank first
moves to AMA, a three-year historical loss data window is acceptable.
Pillar 2 – Internal Capital Adequacy Assessment Process (ICAAP): Under this,
the regulator is cast with the responsibility of ensuring that banks maintain sufficient
capital to meet all the risks and operate above the minimum regulatory capital
ratios. RBI also has to ensure that the banks maintain adequate capital to withstandthe risks such as Interest Rate Risk in Banking Book, Business Cycles Risk, and
Credit Concentration Risk etc. For Interest Rate Risk in Banking Book, the regulator
may ensure that the banks are holding sufficient capital to withstand a standardized
Interest Rate shock of 2%. Banks whose capital funds would decline by 20% when
the shock is applied are treated as ‘Outlier Banks’. The assessment is reviewed at
quarterly intervals.
Pillar 3 – Disclosure Requirements: It is aimed to encourage market discipline by
developing a set of disclosure requirements which will allow market participants to
assess the key pieces of information on the capital, risk exposures, risk assessment
processes and hence the capital adequacy of the institution. Banks may make their
annual disclosures both in their Annual Reports as well as their respective websites.
Banks with capital funds of `500 crore or more, and their significant bank
subsidiaries, must disclose their Tier-I Capital, Total Capital, total required capital
and Tier-I ratio and total capital adequacy ratio, on a quarterly basis on their
respective websites. The disclosures are broadly classified into Quantitative and
Qualitative disclosures and classified into the following areas:
Area Coverage
Capital Capital structure & Capital adequacy
Risk Exposures &
Assessments
Qualitative disclosures for Credit, Market, Operational,
Banking Book interest rate risk, equity risk etc.
Credit Risk General disclosures for all banks.
Disclosures for Standardised & IRB approaches.
Credit Risk Mitigation Disclosures for Standardised and IRB approaches.
Securitisation Disclosures for Standardised and IRB approaches.
Market Risk Disclosures for the Standardised & Internal Models
Approaches.
Operational Risk The approach followed for capital assessment.
Equities Disclosures for banking book positions
Interest Rate Risk in
the Banking Book
(IRRBB)
Nature of IRRBB with key assumptions. The increase /
decrease in earnings / economic value for upward /
downward rate shocks.
The Basel-II norms are much better than Basel-I since it covers operational risk.
However, risks such as Reputation Risk, Systemic Risk and Strategic Risk (the risk of
losses or reduced earnings due to failures in implementing strategy) are not covered
and exposing the banks to financial shocks. As per Basel all corporate loans attracts
8 percent capital allocation where as it is in the range of 1 to 30 percent in case of
individuals depending on the estimated risk. Further, group loans attract very low
internal capital charge and the bank has a strong incentive to undertake regulatory
capital arbitrage to structure the risk position to lower regulatory risk category.
Regulatory capital arbitrage acts as a safety valve for attenuating the adverse effects
of those regulatory capital requirements that activity’s underlying economic risk.
Absence of such arbitrage, a regulatory capital requirement that is inappropriately
high for the economic risk of a particular activity could cause a bank to exit that
relatively low-risk business by preventing the bank from earning an acceptable rate
of return on its capital.
Nominally high regulatory capital ratios can be used to mask the true level of
insolvency probability. For example – Bank maintains 12% capital as per the norms
risk analysis calls for 15% capital. In a regulatory sense the bank is well capitalized
but it is to be treated as undercapitalized from risk perspective.
Basel-III is a comprehensive set of reform measures developed to strengthen the
regulation, supervision and risk management of the banking sector. The new
standards will considerably strengthen the reserve requirements, both by increasing
the reserve ratios and by tightening the definition of what constitutes capital. The

new norms will be made effective in a phased manner from 1st July 2013 and
implemented fully by 31st March 2019 and banks should maintain minimum 5.5% in
common equity (as against 3.6% now) by 31st March 2015 and create a Capital
Conservation Buffer (CCB) of 2.5% by 31st March 2019. Further, banks should
maintain a minimum overall capital adequacy of 11.5% by 31st March 2019 and
supplement risk based capital ratios by maintaining a leverage ratio of 4.5%. These
measures will ensure well capitalization of banks to manage all kinds of risks besides
to bring in more clarity by clearly defining different kinds of capital.
Counter Cyclical Capital Buffer (CCCB): The objective of CCCB is twofold viz., it
requires banks to build up a buffer of capital in good times which may be used to
maintain flow of credit to the real sector in difficult times and also to achieve the
broader macro-prudential goal of restricting the banking sector from indiscriminate
lending in the periods of excess credit growth that have often been associated with
the building up of system-wide risk. It may be maintained in the form of Common
Equity Tier-1 capital or other fully loss absorbing capital only and the amount of the
CCCB may vary from 0 to 2.5% of total risk weighted assets of the banks. RBI
intends banks to have a sustainable funding structure. This would reduce the
possibility of banks’ liquidity position eroding due to disruptions in their regular
sources of funding thus increasing the risk of failure leading to broader systemic
stress. The Basel committee on banking supervision framed two ratios viz., Liquidity
Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as part of global
regulatory standards on liquidity to be implemented from 1st January 2018.
i) Liquidity Coverage Ratio (LCR): In order to promote short-term resilience of
the liquidity risk profile of banks, RBI has introduced LCR in a phased manner,
starting with a minimum requirement of 60% from 1st January 2015, and reaching a
maximum of 100% by 1st January 2019. The LCR will ensure that banks have an
adequate stock of unencumbered high-quality liquid assets that can be converted
easily and immediately in private markets into cash to meet their liquidity needs for
a 30-calendar day liquidity stress scenario.
 ii) Net Stable Funding Ratio (NSFR): The ratio seeks to ensure that banks
maintain stable source of funding with respect to the profile of their assets (loans
and investments) and off-balance sheet activities such as extending asset
management and brokerage services to the clients. The NSFR should be 100% on an
ongoing basis. It limits over reliance on short-term wholesale funding, encourages
better assessment of funding risks across all assets and off-balance sheet items and
promotes funding stability.
Tier – I capital consists of Paid up Equity Capital + Free Reserves + Balance in
Share Premium Account + Capital Reserves (surplus) arising out of sale proceeds of
assets but not created by revaluation of assets MINUS Accumulated loss + Book
value of Intangible Assets + Equity Investment in Subsidiaries+ Innovative Perpetual
Debt instruments.
Tier – II consists of Cumulative perpetual preferential shares & other Hybrid debt
capital instruments + Revaluation reserves + General Provisions + Loss Reserves
(up to maximum 1.25% of weighted risk assets) + Undisclosed Reserves +
Subordinated Debt + Upper Tier-II instruments. Subordinated Debts are unsecured
and subordinated to the claims of all the creditors. To be eligible for Tier-II capital
the instruments should be fully paid, free from restrictive clauses and should not be
redeemable at the instance of holder or without the consent of the Bank supervisory
authorities. Subordinated debt usually carries a fixed maturity and they will have to
be limited to 50% of Tier-I capital.
However, due to the stress on account of rollover of demonetization and GST, the
implementation of Basel-III norms may slightly be delayed and the regulator likely to
inform the timeframe shortly.

Economic Capital (EC) is a measure of risk expressed in terms of capital. A bank
may, for instance, wonder what level of capital is needed in order to remain solvent
at a certain level of confidence and time horizon. In other words, EC may be
considered as the amount of risk capital from the banks’ perspective; therefore,
it differs from Regulatory Capital (RC) requirement measures. It primarily aims to
support business decisions, while RC aims to set minimum capital requirements
against all risks in a bank under a range of regulatory rules and guidance. So far, EC
is rather a bank-specific or internal measure of available capital and there is no
common domestic or global definition of EC. The estimates of EC can be covered by
elements of Tier-1, 2 & 3, or definitions used by rating agencies and/or other types
of capital, such as planned earning, unrealized profit or implicit government
guarantee. EC is highly relevant because it can provide key answers to specific
business decisions or for evaluating the different business units of a bank.
Dynamic Provisioning: At present, banks generally make two types of provisions
viz., general provisions on standard assets and specific provisions on non-performing
assets (NPAs). The present provisioning framework does not have countercyclical or
cycle smoothening elements. Though the RBI has been following a policy of
countercyclical variation of standard asset provisioning rates, the methodology has
been largely based on current available data and judgment, rather than on an
analysis of credit cycles and loss history. Since the level of NPAs varies through the
economic cycle, the resultant level of specific provisions also behaves cyclically.
Consequently, lower provisioning during upturns, and higher provisioning during
downturns have pro-cyclical effect on the real economy. However, few banks have
started making floating provisions without any predetermined rules; many banks are
away from the concept which has become difficult for inter-bank comparison. In the
above backdrop, RBI introduced dynamic provisioning framework for Indian banks to
address pro-cyclicality of capital and provisioning to meet the international
standards. Recently, RBI has allowed banks to recognize some of their assets like
real estate, foreign currency and deferred tax, reducing the extra capital needs of
state-owned banks by 15 per cent. The move is aimed to align the regulatory capital
of banks with the Basel-III standards.
Leverage Ratio: It is the tier-1 capital divided by the sum of on-balance sheet
exposures, derivative exposures, securities financing transaction exposures and off-
balance sheet items. This ratio is calibrated to act as a credible supplementary
measure to the risk based capital requirements with the objective to constrain the
build-up of leverage in the banking sector to avert destabilizing deleveraging
processes for the sound financial economy and to reinforce the risk based
requirements with a simple, non-risk based “backstop” measure. The desirable
exposure should be within 25 times of tier-1 capital.
Banks in India need substantial capital funds in the ensuing years mainly to fund the
credit growth which is likely to grow at around 15% to 20% p.a. and banks are
required to set aside a portion of capital for the said purpose. Banks also need
additional capital to write off bad loans as well as to meet the operational risks on
account of weaker implementation of systems and procedures. More importantly, the
implementation of Basel-III norms warrants pumping of substantial capital funds.
Raising these funds, though, will require several steps, apart from legislative
changes as Public Sector Banks can not dilute its equity below 51%. Attracting
private capital warrants minimum governance and structural reforms. It is also
proposed to create an independent Bank Holding Company to invite private capital
without diluting the equity to address the issue.