Beruflich Dokumente
Kultur Dokumente
Prof. b.p.mishra
XIMB
XUB
1
Operational Risk Indicators
Employee sick days
Employee review & Grading for promotion
Staff Turnover
Failed background checks on employees
Above market returns
Transaction volume
Amount of Overtime worked
Investment in technology
System Downtime
Age of Hardware
Capacity to Usage ratio
Margin on Product
Level of training
2
Definition
3
Gross income
4
Value equivalent to operational risk-
weighted asset
Value equivalent to operational risk-weighted asset
is defined as an amount that indicates a level of
operational risk which is calculated according to the
RBI guideline.
5
Three alternative calculation
approaches
Three alternative calculation approaches, that is :
6
All approaches use gross income as a proxy in the
calculation of value equivalent to operational risk-weighted
asset, implying that a commercial bank with high gross
income shall have high operational risk.
7
Basic Indicator Approach (BIA)
A commercial bank shall calculate minimum
capital base for operational risk equal to the
average over the previous three years of a fixed
percentage (a constant risk value at 15 percent) of
positive annual gross income.
8
ERWABIA 12.5 K BIA
K BIA
(GI i ..... n )
n
Where,
ERWABIA = Value Equivalent to operational risk-weighted asset under
BIA
KBIA = Minimum capital base for operational risk under BIA
GI1n = Annual gross income, (where positive), over the previous
three years
= Constant risk value, under BIA, equals to 15%
N= Number of years for which gross income is positive
9
Banks are advised to compute capital charge for
operational risk Under the basic indicator approach:
c) = 15%
10
If the annual gross income for any given year is
negative or equal to zero, such income must be
excluded from the numerator and such year must be
subtracted from the total number of years in the
denominator.
11
Calculation of Capital with respect to
Operationally Risk weighted Assets
For XYZ bank , The gross income for last three years are given as under
Rs 9000. crores March, 2014
Rs11000 crores March, 2015
Rs 4000crores March, 2016. Find out what is its
operationally risk weighted asset And what is the capital requirement
under BIA.
13
ERWASAOR 12.5 K SAOR
max (GI
year13
18 18 ),0
K SAOR
3
Where,
14
Business line Type of business
1. Corporate Finance I. Corporate and government financing 18%
management
II. Merchant banking
III. Financial advisory services
2. Trading & Sales I. Sales 18%
II. Market making
III. Proprietary positions
IV. Treasury
3. Retail Banking I. Retail banking 12%
II. Private banking
III. Card services
4. Commercial Banking I. Commercial Banking 15%
5. Payment and I. Payment and Settlement 18%
Settlement
6. Agency Services I. Custody and trust 15%
II. Corporate Agency
7. Asset management I. Asset management 12%
8. Retail brokerage I. Retail brokerage 12%
15
Business line Type of business Rs in
crores
1. Corporate Finance I. Corporate and government financing 18% 32
management
II. Merchant banking 53
III. Financial advisory services 8
2. Trading & Sales I. Sales 18% 76
II. Market making 9
III. Proprietary positions 41
IV. Treasury 321
3. Retail Banking I. Retail banking 12% 870
II. Private banking 65
III. Card services 15
4. Commercial Banking I. Commercial Banking 15% 984
5. Payment and I. Payment and Settlement 18% 142
Settlement
6. Agency Services I. Custody and trust 15% 7
II. Corporate Agency 63
7. Asset management I. Asset management 12% 532
8. Retail brokerage I. Retail brokerage 12% 31
16
Type of business Rs in crores amount = 15%
18
Shortcomings of Basel II
The main charge against Basel II is that it is precise risk
sensitivity that made it blatantly Procyclical.
In good times, when Market is doing well, Bank provides
more lending to borrowers
Since, borrowers are doing well, Basel II complied banks do
not require additional capital.as unexpected loss is not
severe.
On the other hand, in stressed times, when banks require
additional capital( high UL) and markets are averse to buy
shares issued by Banks
Where as Bank needs more capital in stress scenario
During the crisis, it was the failure to bring in capital when
under pressure that forced major international banks
insolvency, thereby triggering the world into recession
19
Basel III is an enhancement of Basel II
20
Improving the Quality, Consistency
and
Transparency of the Capital Base
21
BASEL III Capital Conservation Buffer
The capital conservation buffer
(CCB) is designed to ensure that banks
build up capital buffers during normal
times (i.e. outside periods of stress)
which can be drawn down as losses are
incurred during a stressed period.
22
BASEL II & III
23
24
25
Additional Capital Requirement:
Basel III (India)
26
Implementation
For any given country, this buffer will only be in effect when
there is excess credit growth that results in a system-wide
build up of risk. The countercyclical capital buffer, when in
effect, would be introduced as an extension of the capital
conservation buffer range
Additional 2.5% other T I Cap Ratio..2019
32
When buffers have been drawn down,
One way banks should look to rebuild them
is through
Reducing Discretionary distributions of Earning.
Discretionary distributions of Earning
A bank with CET 1 capital ratio in the range of 6.125% - 6.75 % is required
to conserve 80% of its Earning in the subsequent Financial Year.
( Pay out not more than 20% in terms of Dividend, Buy-back, discretionary
Bonus payment is allowed)
Thanks