022313 capitaladequacyframework 30 risk weighted

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Unformatted text preview: f fully secured ((i) Land and building which are valued by an expert valuer and where the valuation is not more than three years old, and (ii) Plant and machinery in good working condition at a value not higher than the depreciated value as reflected in the audited balance sheet of the borrower, which is not older than eighteen months. 02/23/13 29 02/23/13 Capital Adequacy Framework 29 Off-Balance Sheet Items Off-Balance The total risk weighted off­balance sheet credit exposure is calculated as the sum of the risk­weighted amount of the market related and non­market related off­balance sheet items. The risk­ weighted amount of an off­balance sheet item that gives rise to credit exposure is generally calculated by means of a two­step process: (a) the notional amount of the transaction is converted into a credit equivalent amount, by multiplying the amount by the specified credit conversion factor or by applying the current exposure method, and (b) the resulting credit equivalent amount is multiplied by the risk weight applicable to the counterparty or to the purpose for which the bank has extended finance or the type of asset, whichever is higher. 02/23/13 Capital Adequacy Framework 30 Risk Weighted Securitisation Exposures Risk i) Banks shall calculate the risk weighted amount of an on­balance sheet securitisation exposure by multiplying the principal amount (after deduction of specific provisions) of the exposures by the applicable risk weight. ii) The risk­weighted asset amount of a securitisation exposure is computed by multiplying the amount of the exposure by the appropriate risk weight determined in accordance with issue specific rating assigned to those exposures by the chosen external credit rating agencies as indicated in the following tables: Domestic rating agencies AAA AA A BBB BB B or below or unrated RW for banks 20 30 50 100 350 Deduction 30 50 100 Deductions other than originators (%) RW originator (%) 02/23/13 20 Capital Adequacy Framework 31 External Credit Assessments: External Eligible Credit Rating Agencies In accordance with the principles laid down in the Revised Framework, the Reserve Bank of India has decided that banks may use the ratings of the following domestic credit rating agencies (arranged in alphabetical order) for the purposes of risk weighting their claims for capital adequacy purposes: a) Credit Analysis and Research Limited; b) CRISIL Limited; c) FITCH India; and d) ICRA Limited. The Reserve Bank of India has decided that banks may use the ratings of the following international credit rating agencies (arranged in alphabetical order) for the purposes of risk weighting their claims for capital adequacy purposes where specified: a. Fitch; b. Moodys; and 02/23/13 32 Capital Adequacy Framework c. Standard & Poor’s Credit Risk Mitigation Credit 02/23/13 Simple & comprehensive approaches Legal certainty, robust recovery procedures Effects of CRM not to be double counted Should not result in increasing other risks Haircuts to be used in the comprehensive approach Capital Adequacy Framework 33 Eligible financial collateral Eligi...
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