Internalmodelsapproachima formarketrisk april12010

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Unformatted text preview: uacy Framework 13 Framework Framework 02/23/13 Capital Adequacy Framework 14 RBI Time-Frame RBI Serial No. Approach The earliest date of Likely date of making application approval by the by banks to the RBI RBI a. Internal Models Approach (IMA) For Market Risk April 1, 2010 March 31, 2011 b. The Standardised Approach (TSA) April 1, 2010 for Operational Risk September 30, 2010 c. Advanced Measurement April 1, 2012 Approach (AMA) for Operational Risk Internal Ratings­Based (IRB) April 1, 2012 Approaches for Credit Risk (Foundation­ as well as Advanced IRB) Capital Adequacy Framework March 31, 2014 d. 02/23/13 March 31, 2014 15 Capital Funds of Banks Capital Banks are required to maintain a minimum Capital to Risk­weighted Assets Ratio (CRAR) of 9 percent on an ongoing basis. Banks are encouraged to maintain, at both solo and consolidated level, a Tier I CRAR of at least 6 per cent. Banks which are below this level must achieve this ratio on or before March 31, 2010. A bank should compute its Tier I CRAR and Total CRAR in the following manner: Tier I CRAR = [Eligible Tier I capital funds]/ . [Credit Risk RWA* + Market Risk RWA + Operational Risk RWA] * RWA = Risk weighted Assets Total CRAR = [Eligible total capital funds]/ [Credit Risk RWA + Market Risk RWA + Operational Risk RWA] 02/23/13 Capital Adequacy Framework 16 Elements of Tier I Capital Elements For Indian banks, Tier I capital would include the following elements: i) Paid­up equity capital, statutory reserves, and other disclosed free reserves, if any; ii) Capital reserves representing surplus arising out of sale proceeds of assets; iii) Innovative perpetual debt instruments eligible for inclusion in Tier I capital, which comply with the regulatory requirements as specified in Annex – 2 (RBI/2011­12/61 DBOD.No.BP.BC.11/ 21.06.001 / 2010­11 July 1, 2011) ; iv) Perpetual Non­Cumulative Preference Shares (PNCPS), which comply with the regulatory requirements as specified in Annex – 3; and v) Any other type of instrument generally notified by the Reserve Bank from time to time for inclusion in Tier I capital. 02/23/13 Capital Adequacy Framework 17 Elements of Tier II Capital Elements 1. Revaluation Reserves: These reserves often serve as a cushion against unexpected losses, but they are less permanent in nature and cannot be considered as ‘Core Capital’. 2. General Provisions and Loss Reserves: Such reserves, if they are not attributable to the actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, can be included in Tier II capital. 3. Hybrid Debt Capital Instruments: In this category, fall a number of debt capital instruments, which combine certain characteristics of equity and certain characteristics of debt. 4. Subordinated Debt: To be eligible for inclusion in Tier II capital, the instrument should be fully paid­up, unsecured, subordinated to the claims of other creditors, free of restrictive clauses, and should not be redeemable at the initiative of the h...
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This note was uploaded on 02/23/2013 for the course BANKING 101 taught by Professor Mehta during the Spring '13 term at Albany State University.

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