Beneficial ownership

Beneficial ownership:::( Most important knowledge point view)

When a bank/FI identifies a customer for opening an account, it should identify the beneficial owner(s)
and take all reasonable steps in terms of Rule 9(3) of the PML Rules to verify his identity, as per
guidelines provided below:

(a) Where the client is a company, the beneficial owner is the natural person(s), who, whether
acting alone or together, or through one or more juridical person, has/have a controllingownership interest or who exercises control through other means.
Explanation- For the purpose of this sub-clause-
1. “Controlling ownership interest” means ownership of/entitlement to more than 25 per cent of
the shares or capital or profits of the company.
2. “Control” shall include the right to appoint majority of the directors or to control the
management or policy decisions including by virtue of their shareholding or management
rights or shareholders agreements or voting agreements.
(b) Where the client is a partnership firm, the beneficial owner is the natural person(s), who,
whether acting alone or together, or through one or more juridical person, has/have ownership
of/entitlement to more than 15 per cent of capital or profits of the partnership.
(c) Where the client is an unincorporated association or body of individuals, the beneficial
owner is the natural person(s), who, whether acting alone or together, or through one or more
juridical person, has/have ownership of/entitlement to more than 15 per cent of the property or
capital or profits of the unincorporated association or body of individuals.
(d) Where no natural person is identified under (a), (b) or (c) above, the beneficial owner is the
relevant natural person who holds the position of senior managing official.
(e) Where the client is a trust, the identification of beneficial owner(s) shall include identification of
the author of the trust, the trustee, the beneficiaries with 15% or more interest in the trust and
any other natural person
exercising ultimate effective control over the trust through a chain of control or ownership.
(f) Where the client or the owner of the controlling interest is a company listed on a stock
exchange, or is a subsidiary of such a company, it is not necessary to identify and verify the
identity of any shareholder or beneficial owner of such companies.
There exists the possibility that trust/nominee or fiduciary accounts can be used to circumvent the
customer identification procedures. In such cases, banks/FIs should determine whether the
customer is acting on behalf of another person as trustee/nominee or any other intermediary. If so,
banks/FIs should insist on satisfactory evidence of the identity of the intermediaries and of the
persons on whose behalf they are acting, as also obtain details of the nature of the trust or other
arrangements in place. The different categories of beneficiaries should be identified as defined
above. In the case of a 'foundation', steps should be taken to verify the founder managers/ directors
and the beneficiaries, if defined.

NRI facilities

Facilities for Non-resident Indians (NRIs)

Purpose

v) To hedge the exchange rate risk on the market value of investment made under the

portfolio scheme in accordance with provisions of FERA, 1973 or under notifications issued

there under or in accordance with provisions of FEMA, 1999. For access to ETCD market, see para. 4 below. vi) To hedge the exchange rate risk on the amount of dividend due on shares held in Indian

companies. vii) To hedge the exchange rate risk on the amounts held in FCNR (B) deposits. viii) To hedge the exchange rate risk on balances held in NRE account. Products

ix) Forward foreign exchange contracts with rupee as one of the currencies, and foreign currency-

INR options. x) Additionally, for balances in FCNR (B) accounts – Cross currency (not involving the rupee)

forward contracts to convert the balances in one foreign currency to other foreign currencies in

which FCNR (B) deposits are permitted to be maintained. (c)Terms

9 and conditions for Non-Resident Indians (NRIs) participating in the Exchange

Traded Currency Derivatives (ETCD)

i. NRIs shall designate an AD Cat-I bank for the purpose of monitoring and reporting their combined

positions in the OTC and ETCD segment

(an)NRIs may take positions in the currency futures / exchange traded options market to hedge the

currency risk on the market value of their permissible (under FEMA, 1999) Rupee investments in

debt and equity and dividend due and balances held in NRE accounts. (ao)The exchange/ clearing corporation will provide details of all transactions of the NRI to the

designated bank. (ap)The designated bank will consolidate the positions of the NRI on the exchanges as well as the

OTC derivative contracts booked with them and with other AD banks. The designated bank shall

monitor the aggregate positions and ensure the existence of underlying Rupee currency risk and

bring transgressions, if any, to the notice of RBI / SEBI. (aq)The onus of ensuring the existence of the underlying exposure shall rest with the NRI

concerned. If the magnitude of exposure through the hedge transactions exceeds the magnitude of

underlying exposure, the concerned NRI shall be liable to such penal action as may be taken by

Reserve Bank of India under the Foreign Exchange Management Act (FEMA), 1999.

Memory Techniques

Memory Techniques
Every aspirants/student aspires for good memory to succeed in the exams. Since our present exam system is based on
reproducing from memory what is read earlier, having a good memory is certainly desirable. As stated earlier, 'I don't have
a good memory' is a common grievance and complaint from aspirants/student s. Surely, genes and hereditary factors have
something to do with the natural memory of a person; however, you will be surprised to know that good memory can easily be cultivated by adopting a few, well-proven, scientific memory techniques, known as Mnemonics.
What are Mnemonics?
Mnemonics are creative aids to memory.You may observe that, generally, committing to memory or recalling from memory
involves:
1. Repetition, or
2. Association, or
3. Picturization, or
4. Combination of the above
Committing to memory by repetition is a well known technique. This is, in fact, the method used by us all, while learning
nursery rhymes.
Association involves associating the thing to be remembered with any one of the senses such as sight, word, smell, taste,
or touch. Association can also be related to a person, incident or situation. You can also associate the thing to be
remembered with any of the human feelings such as love, hate, affection, fear, shame, surprise, wonder, peace, anger etc.
Color, humor, drama, exaggeration etc. also can be associated effectively with items to be remembered.
Picturization involves connecting the thing to be remembered with a mental picture, which is unique. That means: recalling the
mental picture will instantly bring to your mind the thing to be remembered. Many times, a combination of all the above
methods is employed to device a good memory technique.

How to be successful?

How to be successful?
To achieve success you should:

 Dream a 'big dream': Yes, you should dream... and, dream 'big. Don't be ashamed to dream big. All
great achievers started with their 'big dreams. But, your dream must be very strong and not just a
'day dream with no foundation of a strong will. Remember: to dream is far better than to sleep, since a
dreamer flies in the sky whereas a man in deep sleep remains firmly on bed only.

 Visualize strongly: Yes, believe in your dream, which only means believe in yourself. Visualize
very strongly yourself winning or going to the stage and receiving the 'trophy. Strongly visualized
desires have a strange way of getting materialized and become a reality.

 Motivate yourself: Strong motivation is the fuel to take you to your destination. Be self
motivated. Strong motivation gives you an undiminished energy, enthusiasm, drive and vision
required to achieve success.

 Put appropriate, intelligent efforts: Yes, you should have necessary 'tools' to execute any job
efficiently. Here, as a aspirants/student , you should put necessary, intelligent efforts to enhance
your skills in listening, reading, revising, writing the exams etc.

 Relax, and be calm: Have a peaceful composure. Let your mind be calm, collected, sharp and
receptive. Nothing much is achieved by a person whose mind is confused. As said earlier, mind is
only a tool; but, keep it clean and sharp to use it efficiently and achieve maximum results.

 Trust in God: Realize that there is a Power superior to man, which controls the universe. Once
you know that you have put in your sincere and best efforts towards achieving the goal, surrender
yourself to that Power and be at peace. It is well said: 'God helps those who help themselves!:
So, success is sure to follow.

TT and Bill rates

TT Rates and Bill Rates

Following 4 types of buying and selling rates are important:
1. TT Buying rate
2. Bill Buying rate
3. TT Selling rate
4. Bill Selling rate
In Interbank market, exchange rate is quoted up to 4 decimals in multiples of 0.0025. e.g.
1USD=53.5625/5650
For customers the exchange rate is quoted in two decimal places i.e. Rupees and paisa. e.g. 1
USD =Rs. 55.54.
Amount being paid or received will be rounded off to nearest Rupee.

TT Buying Rate
It is required to calculate when our Nostro account is already credited or
being credited without delay e.g. Receipt of DD, MT, TT or collection of
Foreign bills. This rate is used for cancellation of Forward Sales Contract.
Calculation
Spot Rate – Exchange Margin
Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before
receipt of Foreign Exchange in the Nostro account i.e. Nostro account is
credited after the purchase transaction. In such cases.
Examples are:
 Export Bills Purchased/Discounted/Negotiated.
 Cheques/DDs purchased by the bank.
Calculation
Spot Rate + Forward Premium (or deduct forward discount) – Exchange
margin.
TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.
It is desired in issue of TT, MT or Draft. It is also desired in crystallization of
Export bills and Cancellation of Forward purchase contract.
Calculation
Spot Rate + Exchange Margin
Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against
Import transactions:
Calculation
Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill
Selling

Kyc aml

KYC AML::

1. KYC, AML & CFT guidelines are issued under act.
a) KYC Act b) PMLA 2002 c) BR Act d) NI Act
2. FATF (Financial Action Task Force on Money Laundering) also known as GAFI
(Groupe d'action financiere) has its head quarters at
a) New Delhi b) London c) Paris d) Geneva
3. Section 12 of PMLA places the following obligations on the Bank except
a) Maintaining a record of prescribed transactions & preserving records there of.
b) Furnishing information of prescribed transactions to the specified authority.
c) Verifying and maintaining records of the identity of its clients and identifying the
beneficial owners, if any, of such clients
d) None of the above
4. Under KYC/AML/CFT/Fraud prevention measures, observance of KYC compliance and
fraud prevention day is observed on..
a) 1st August b) 5th August
c) 1st September d) 5th September
5. The Anti Money Laundering Cell of the Bank has been established at
a) Jaipur b) Nagpur c) Bhubaneswar d) New Delhi
6. In case the PoS transaction amount is Rs. and above, the merchant is required
to obtain the copy of PAN in case of domestic card transaction.
a) 20000 b) 150000 c) 100000 d) 50000
7. Smurfing, Layering and Integration are three types of
a) Money laundering Activity b) Money tracking Activity
c) Source tracking Activity d) User tracking Activity
8. The Software used for generation of Suspicious Transactions Report is known as:
a) E-KYC b) AMLOCK c) E-BANCS d) E-AML
9. Which of the following is the key element of KYC/AML/CFT?
a) Customer Identification & Acceptance
b) Customer Identification & Transaction Monitoring
c) Customer Acceptance, Customer Identification, Risk Categorization & Monitoring
of transaction
d) Customer Acceptance & Risk Management

10. "Controlling ownership interest" means ownership of or entitlement to more than
percent of shares or capital or profits of a company.
a) 50 b) 10 c) 15 d) 25
11. Which is not one of the documents from the "Officially Valid Documents" list prescribed by
the RBI.
a) Post office ID b0 PAN Card c) DL d) Adhaar
12. Facilities/Restrictions in 'Small account' includes
a) the aggregate of all credits in a financial year does not exceed rupees one lakh
b) the aggregate of all withdrawals and transfers in a month does not exceed rupees
ten thousand
c) the balance at any point of time does not exceed rupees fifty thousand
d) All the above
13. For Low risk customers, Customer Identification data should be updated once in
years.
a) 3 b) 4 c) 10 d) 8
14. Branches may open bank account in favor of foreign students studying in
India.
a) SB b) NRO c) CA d) NRE
15. As per the Simplified KYC guidelines, the current limits for balance in Small Deposit
Accounts should not exceed
a) Rs.20,000 b) Rs.50,000 c) Rs.1,00,000 d) Rs.2,00,000
16. Counterfeit Currency Reports should be submitted to: -
a) LHO KYC Deptt b) Controlling Office
c) FIU-IND d) None of the above
17. Politically exposed persons are:
a) Individuals who are or have been entrusted with prominent public function in a
foreign country
b) MLAs and MPs
c) Individuals related to a political party
d) All the above
18. Cash Transaction Reports (CTRs) are required to be compiled by branches and submitted
to Controllers for onward transmission to FIU-IND at intervals.
a) Weekly b) Fortnightly c) Monthly d) Bimonthly
19. Cash withdrawals and deposits for Rs. lacs and above in deposit, cash credit
and overdraft accounts to be recorded in a separate register and reported to controlling
office every month.
a) 5 b) 10 c) 15 d) 20

1. (b) 2. (c) 3. (d) 4. (a) 5. (a) 6. (d) 7. (a) 8. (b) 9. (c) 10. (d)
11. (a) 12. (d) 13. (c) 14. (b) 15. (b) 16. (c) 17. (a) 18. (c) 19. (b)

Ratio

Ratio Analysis
Financial statements: The statement which provides us the financial position of a
Balance Sheet are called “Finance Statements”, which includes – Trading Account (in
case of Manufacturing concerns), Profit & Loss Account, Balance Sheet, Cash Flow
Statement and Funds Flow Statement. The analysis of Balance Sheet is a process of
bringing down the difficult matter into a simple and easily understandable one. To
have a clear understanding of the financial position of the Business concern, at least
three years financial statements are to be ascertained. They provide us treasure of
information. Balance Sheet of a business concern shows the strength of the concern
on a given date but not reveal the current state of affairs of the concerns. Balance
Sheet is having certain limitations, because it does not disclose the critical factors,
such as Managerial Efficiency, Technical competence, Marketing capabilities and
Competition in the market.
Ratio means a comparison of two items which are having cause and relationship.
Ratios can be expressed in percentage or in number of times. Depending upon the
nature, the ratios are broadly classified in to four categories viz., Liquidity Ratios,
Leverage Or Solvency Ratios, Activity Ratios and Profitability Ratios.
1. LIQUIDITY RATIOS: These Ratios helps to find out the ability of the business
concern to pay the short term liability of its liquidity. Any adverse position in liquidity
leads to sudden fall of the unit.
i) Current Ratio: Current Ratio denotes the capacity of the business concern to
meet its current obligation out of the total value of the Current Assets. Current Ratio
= Current Assets / Current Liabilities. Term Loan installments falling due for payment
in next 12 months are to be taken as Term Liability for the purpose of calculation of
Current Ratio /MPBF. Inter-corporate deposits are to be treated as Non-Current
Assets. Ideal Current Ratio is 2:1. Acceptable Ratio as per our Loan Policy
guidelines is 1.33:1 for the limits enjoying above `6.00 crores and 1.15:1 for the
business concerns availing limits of below `6.00 crores. Any deviation below the
required ratio requires ratification of Higher Authority.
ii) Quick Ratio Or Acid Test Ratio: This ratio is a comparison of Quick Assets to
Current Liabilities. Quick Assets mean the assets which have instant liquidity of the
business concern. Though the Inventory and Prepaid expenses are part of Current
Assets, it may be difficult to sell and realize the inventory. Hence, Inventory and
Prepaid expenses are to be excluded for arriving the Quick Asset Ratio.
Current Assets – (Inventory+Prepaid Exp) Quick
Ratio or Acid Test Ratio = ----------------------------------------------
Current Liabilities
Ideal Quick Ratio is 1:1. Current Ratio is always to be read along with Quick Ratio. A
fall in the Quick Ratio in comparison to the Current Ratio indicates high inventory
holdings.
2. LEVERAGE AND SOLVENCY RATIOS: These Ratios helps to find out the Long
Term Financial stability of the business concern
i)Debt Equity Ratio: Long Term Debt / Equity – Here, Equity refers Tangible Net
worth. The Ideal ratio is 2:1 and the higher may also be considered as safe.
ii) Debt Service Coverage Ratio: It helps to know the capacity of the firm to
repay the Long Term Loan Instalment and Interest. Ideal DSCR is 2:1. The higher
the DSCR, we may fix the lower repayment period. However, banks may also

consider DSCR 1.20:1 where fixed income generation is assured, such as Rent
Receivables etc.
Net Profit After Tax + Depreciation +Int. on TL
DSCR = -------------------------------------------------------------
Int. on TL + Instalment on TL
iii) Fixed Assets Coverage Ratio (FACR): This ratio indicates the extent of Fixed
assets met out of long term borrowed funds. Ideal Ratio is 2:1
Net Block
FACR = --------------------------- (Net Block means Total Assets– Depreciation)
Long Term Debt
iv) Interest Coverage Ratio:
EBIDT
Interest Coverage Ratio = ---------------
Interest
Where EBIDT is Earning Before Interest, Depreciation and Tax. This ratio indicates
the interest servicing capacity of the unit. Higher the ratio has probability of nonservicing
of interest and hence avoidance of slippage of asset.
3. ACTIVITY RATIOS:
i) Inventory Turnover Ratio: Inventory constitutes raw material, work in process,
finished goods etc. The ratio is arrived by dividing Inventory by average monthly Net
sales to arrive at inventory levels in number of months. Lower the ratio, the faster
the movement of inventories and Higher the ratio slower the movement of
inventories. It also indicates the time taken to replenish the inventories. Separate
parameters are laid down for fabrication units & seasonal industries (maintaining
peak level inventories as at March) where operating cycle is longer compared to
other businesses and others.
Inventory x (RM+WIP+FG) x 12 (OR ) Cost of Goods Sold
Net Sales = Average Stock ((Opening Stock+Closing stock)/2)
ii) Debtors Velocity Ratio: Debtors
------------ x period
Credit sales
Lower the collection period indicates efficiency in realization of receivables and viceversa.
iii) Creditors Velocity Ratio: Trade Creditors
---------------------- x period
Credit Purchase
Higher velocity denotes that the company is enjoying credit from its suppliers and it
has bearing on Maximum Permissible Bank Finance (MPBF)
iv) Assets Turnover Ratio:
Net Sales
ASSET TURNOVER RATIO=-----------------------------
Total Operating Assets
Total Operating Assets= Total Assets – Intangible Assets. Higher the ratio indicates
favorable situation of optimum utilization of all the fixed assets.
4. PROFITABILITY RATIOS:
i) Gross Profit Ratio -> Gross Profit/Net Sales*100 – Gross Profit Ratio
indicates the manufacturing efficiency and Pricing policy of the concern. Higher
percentage indicates higher sales volume, better pricing of the product or lesser cost
of production

ii) Net Profit Ratio: Net Profit After Tax
----------------------------------- X 100
Net Sales
A decline trend is a pointer to some unhealthy development unless the company had
made usurious profits in the past and has consciously decided to reduce its profits by
lowering the prices of its product.
iii) Return on Equity: Net Profit After Tax
----------------------------------- X 100
Tangible Networth
Working Capital Assessment
i) Turnover Method: (for WC limits up to & inclusive of `6.00 Crore)
A. Accepted Projected Sales Turnover
B. 25% of Sales Turnover
C. Margin @ 5 % of Sales Turnover
D. Actual NWC available as per latest Audited Balance Sheet
E. B-C
F. B-D
G. M.P.B.F = E or F, whichever is less.
ii) Inventory Method – For WC limits up to & inclusive of `6.00 Crore
A. Total Current Assets
B. Current Liabilities (other than Bank Borrowings)
C. Working Capital Gap = A – B
D. Margin @ 13% of Projected Current Assets
E. Actual NWC available as per latest Audited Balance Sheet
F. C-D
G. C-E
H. M.P.B.F = F or G, whichever is less.
Maximum Working Capital credit limit up to which Turn Over method can be
extended is `6 Crores. Where the limits of above `6.00 Crore, the margin is to be
taken as 25% projected current assets. If actual NWC is less than required
margin, the borrower has to bring in the short fall.
The minimum acceptable Current Ratio for working capital credit facility up to `6
crore & above `6 crore is 1.15 & 1.33 respectively.
Maximum acceptable level of Total Debt- Equity Ratio is 4.
Maximum permissible Gearing Ratio while assessing the eligibility for nonfunded
limits is 10.
Standard average DSCR specified for all Term Loans is 1.50 to 2.00. However,
in case of assured source of income, it can be taken as 1.20. Lower DSCR can be
accepted for Rural Godowns

Moody's CICC

Moody's CICC:: Details

Level 1:

1 The Commercial Credit
Landscape in india

1 Overview of the commercial credit landscape in India
2 Role of RBI and legal due diligence
3 Types of credit facilities offered for commercial borrowers

2 Fundamentals of Credit
Risk, Credit Rating and
Appraisal Process
4 Understanding credit risk
5 Credit assessment framework and underwriting
6 Understanding credit ratings

3 Accounting Issues in
Financial Statements
for Bankers
7 Introduction to accrual accounting
8 Asset conversion cycle
9 Capital investment cycle
10 Operating cycle
11 Assets and liabilities
12 Financial reporting, Indian accounting standards and disclosure standards
13 Identifying creative accounting issues

4 Credit Analysis
Framework – Business
Risk Assessment
14 Credit analysis framework - business risk
15 Assessing business environment
16 Assessing industry status
17 Assessing competition
18 Assessing company vulnerability
5 Credit Analysis
Framework – Management
Risk Assessment
19 Credit analysis framework - management and owner risk
20 Management integrity
21 Management skill and execution
22 Management scope
6 Credit Analysis
Framework – Financial
Risk Assessment
23 Credit analysis framework - financial risk analysis
24 Businesses and their borrowing needs
25 Profitability ratios
26 Activity ratios
27 Capital spending, gearing, and debt coverage
28 Cash flow analysis
29 Projections, sensitivity analysis and credit risk assessment
7 Credit Analysis
Framework - Assessing
Fund-Based and Non-
Fund Based Credits
30 Assessment of working capital facilities
31 Assessment of term loan for capital investment
32 Assessment of quasi credit/non-funded facilities
8 Credit Analysis
Framework – Structure,
Securities and Risk
Mitigation Assessment
33 Group structure consideration
34 Facility structuring and documentation
35 Security and guarantees
36 Covenants and risk triggers
9 Credit Decision,
Pricing and Effective
Credit Monitoring
37 Credit decision and pricing
38 Credit administration/documentation
39 Effective credit monitoring processes
10 Commercial Banking,
Problem Credit and
NPA Management
40 Early detection signals and impairment management practices
41 Impairment grading and regulatory reporting and classification procedures
42 Recovery management process and institutional approach for recovery resolution - JLF/CDR

LEVEL 2 Skills Application Course
Level 2 comprises practical application of concepts covered in Level 1, using real-life case studies and lending scenarios.
The interactive simulations are aimed at strengthening job performance by providing candidates with realistic lending
decisions they would expect to encounter in their day-to-day jobs.
CASE STUDY SCENARIOS WILL BE USED TO BUILD THE FOLLOWING CAPABILITIES:
» Undertake an effective business risk analysis and credit assessment.
» Analyse and interpret financial statements and assess
overall financial risk (including use of CMA formats).
» Assess long-term capital expansion related term loan
requirements, using applicable assessment methodologies
and tools (CMA), and propose appropriate structure
that ensures adequate debt servicing capacity.
» Undertake proactive loan monitoring and early
alert reviews to avoid problem loans.
Certification Exam
» It is a two-hour in-person exam. A pass score
of 50% is required to earn the certification.
Conduct management risk assessment.
» Assess working capital requirements, using applicable
assessment methodologies (including MPBF) and propose
the right credit facilities based on borrower risk.
» Propose superior risk mitigation/protection through evaluating
the collateral/security controls and effective loan covenants.

The combination of both Level 1 and Level 2 courses supports the overall development and
continuous improvement of credit skills relevant to the market. Upon completion of Level 2,
the candidate will be eligible to register for the certification exam.

Basel committee

BASEL COMMITTEE ::
The Basel Committee on Banking Supervision provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality ofbanking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues,
approaches and techniques, with a view to promoting common understanding. The Committees Secretariat is
located at the Bank for International Settlements (BIS) in Basel, Switzerland.
FEATURES OF BASEL II NORMS
Basel II Norms are considered as the reformed & refined form of Basel I Accord. The Basel II Norms primarily
stress on 3 factors, viz. Capital Adequacy, Supervisory Review and Market discipline. The Basel Committee
calls these factors as the Three Pillars to manage risks.

PILLAR I: CAPITAL ADEQUACY REQUIREMENTS

Under the Basel II Norms, banks should maintain a minimum capital adequacy requirement of 8% of risk as-
sets. For India, the Reserve Bank of India has mandated maintaining of 9% minimum capital adequacy re-
quirement. This requirement is popularly called as Capital Adequacy Ratio (CAR) or Capital to Risk Weighted
Assets Ratio (CRAR).

PILLAR II: SUPERVISORY REVIEW

Banks majorly encounter with 3 Risks, viz. Credit, Operational & Market Risks. Basel II Norms under this Pillar
wants to ensure that not only banks have adequate capital to support all the risks, but also to encourage them
to develop and use better risk management techniques in monitoring and managing their risks.

 The process has four key principles:

• Banks should have a process for assessing their overall capital adequacy in relation to their risk profile
and a strategy for monitoring their capital levels.
• Supervisors should review and evaluate bank‟s internal capital adequacy assessment and strategies,
as well as their ability to monitor and ensure their compliance with regulatory capital ratios.
• Supervisors should expect banks to operate above the minimum regulatory capital ratios and should
have the ability to require banks to hold capital in excess of the minimum.
• Supervisors should seek to intervene at an early stage to prevent capital from falling below minimum
level and should require rapid remedial action if capital is not mentioned or restored.
•
PILLAR III: MARKET DISCIPLINE:

Market discipline imposes banks to conduct their banking business in a safe, sound and effective manner.
Mandatory disclosure requirements on capital, risk exposure (semiannually or more frequently, if appropriate
are required to be made so that market participants can assess a bank‟s capital adequacy. Qualitative disclo-
sures such as risk management objectives and policies, definitions etc. may be also published.

BASEL III

The Reserve Bank released, guidelines outlining proposed implementation of Basel III capital regulation in
India. These guidelines are in response to the comprehensive reform package entitled
“Basel III: A global regulatory framework for more resilient banks and banking systems” of the Basel Commit-
tee on Banking Supervision (BCBS) issued in December 2010.
The major highlights of the draft guidelines are:

MINIMUM CAPITAL REQUIREMENTS

• Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted
assets (RWAs);
• Tier 1 capital must be at least 7% of RWAs; and
Total capital must be at
least 9% of RWAs.

CAPITAL CONSERVATION BUFFER
The capital conservation buffer in the form of Common Equity of 2.5% of RWAs. A such minimum Cap-
ital Adequacy ratio for banks will be 11.5% after full application of the capital conservation buffer by 31
March 2018.