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iii) The ratings indicated in Table – 14 represent the ratings assigned by the domestic rating agencies. In the case of exposures toward debt securities issued by foreign Central Governments and foreign corporates, the haircut may be based on ratings of the international rating agencies, as indicated in Table 15.
iv) Sovereign will include Reserve Bank of India, DICGC and CGTSI, which are eligible for zero per cent risk weight.
V Banks may apply a zero haircut for eligible collateral where it is a National Savings Certificate, Kisan Vikas Patras, surrender value of insurance policies and banks’ own deposits.
vi) The standard supervisory haircut for currency risk where exposure and collateral are denominated in different currencies is eight per cent (also based on a 10
business day holding period and daily marktomarket)
Capital Adequacy Framework Illustrations on Credit Risk Mitigation (LoanExposures: Part I)
Particulars Case 1 Case 2 Case 3 Case 4 Case 5 Exposure 100 100 100 100 100 Maturity of Exposure 2 3 6 3 3 Nature of Exposure Corporate Loan Corporate Loan Corporate Loan Corporate Loan Corporate Loan Currency INR INR USD INR INR Exposure in INR 100 100 4000 100 100 Rating of Exposure BB A BBB AA B Applicable RW 150 50 100 30 150 He 0 0 0 0 0 Collateral 100 100 4000 2 100 02/23/13 Currency INR INR INR USD INR 38 Illustrations on Credit Risk Mitigation (LoanExposures: Part II)
Collateral in Rs 100 100 4000 80 100 Residual Maturity of Collateral (Yrs)
Nature of Collateral 2 3 6 3 5 Sovereign (GOI) Security
NA Bank Bonds Corporate Bonds Unrated BBB Foreign Corporate Bonds
AAA (S&P) Units of Mutual Funds
AA Haircut for Collateral (%) 0.02 0.06 0.12 0.04 0.08 Haircut for Currency Mismatches (%)
Total HC on Collateral 0 0 0.08 0.08 0 2 6 800 9.6 8.0 Collateral after HC 98 94 3200 70.4 92 Net Exposure 2 6 800 29.6 8 Risk Weight (%)
02/23/13 150 50 100 30 150 Rating of Collateral Capital Adequacy Framework 39 Risk Weights for Maturity Mismatches
Risk Collateral with maturity mismatches are only recognised when
their original maturities are greater than or equal to one year. In all cases, collateral with maturity mismatches will no longer be recognised when they have a residual maturity of three months or less.
When there is a maturity mismatch with recognised credit risk mitigants (collateral, onbalance sheet netting and guarantees) the following adjustment will be applied:
Pa = P x ( t 0.25 ) ÷ ( T 0.25)
Pa = value of the credit protection adjusted for maturity mismatch
P = credit protection (e.g. collateral amount, guarantee amount) adjusted for any haircuts
t = min (T, residual maturity of the credit protection arrangement) expressed in years
T = min (5, residual maturity of the exposure) expressed in years
02/23/13 Capital Adequacy Framework 40 Internal Ratings Based Approach
• Internal ratings based (IRB) approach Foundation Advanced Goal: Should contain incentives for migration from standardized to IRB approach 02/2...
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- Spring '13
- Basel II, Capital requirement, Operational risk, capital adequacy framework