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Unformatted text preview: ble Cash EQUIVALENT, CDs, Counter party deposit with lending Bank. Gold – bullion & jewellery (99.99 purity) Central & State Govt. securities KVP, NSC, LIC policy Debt securities rated by a chosen Credit Rating Agency in respect of which banks should be sufficiently confident about the market liquidity where these are either: a) Attracting 100 per cent or lesser risk weight i.e., rated at least BBB(­) when issued by public sector entities and other entities (including banks and Primary Dealers); or b) Attracting 100 per cent or lesser risk weight i.e., rated at least PR3 /P3/F3/A3 for short­term debt instruments. 02/23/13 Capital Adequacy Framework 34 Eligible financial collateral Eligible Debt Securities not rated by a chosen Credit Rating Agency in respect of which banks should be sufficiently confident about the market liquidity where these are: a) issued by a bank; and b) listed on a recognised exchange; and c) classified as senior debt; and d) all rated issues of the same seniority by the issuing bank are rated at least BBB(­) or PR3/P3/F3/A3 by a chosen Credit Rating Agency; and e) the bank holding the securities as collateral has no information to suggest that the issue justifies a rating below BBB(­) or PR3/P3/F3/A3 (as applicable) and; f) Banks should be sufficiently confident about the market liquidity of the security. Units of Mutual Funds regulated by the securities regulator of the jurisdiction of the bank’s operation mutual funds where: a) a price for the units is publicly quoted daily i.e., where the daily NAV is available in public domain; and b) Mutual fund is limited to investing in the instruments listed in this paragraph. 02/23/13 Capital Adequacy Framework 35 Calculation of capital requirement Calculation For a collateralised transaction, the exposure amount after risk mitigation is calculated as follows: E* = max {0, [E x (1 + He) ­ C x (1 ­ Hc ­ Hfx)]} where: E* = the exposure value after risk mitigation E = current value of the exposure for which the collateral qualifies as a risk mitigant He = haircut appropriate to the exposure C = the current value of the collateral received Hc = haircut appropriate to the collateral Hfx = haircut appropriate for currency mismatch between the collateral and exposure The exposure amount after risk mitigation (i.e., E*) will be multiplied by the risk weight of the counterparty to obtain the risk­weighted asset amount for the collateralised transaction. 02/23/13 Capital Adequacy Framework 36 Haircuts Haircuts i) In principle, banks have two ways of calculating the haircuts: (i) standard supervisory haircuts, using parameters set by the Basel Committee, and (ii) own­estimate haircuts, using banks’ own internal estimates of market price volatility. Banks in India shall use only the standard supervisory haircuts for both the exposure as well as the collateral. ii) The Standard Supervisory Haircuts (assuming daily mark­to­market, daily re­ margining and a 10 business­day holding period), expressed as percentages. Table 14...
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