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Capital Management & Profit Planning

Capital Management & Profit Planning. Basel II. Tier I-Core Capital Paid up capital ,Free Reserves and unallocated surpluses Tier II-Supplementary Capital

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Capital Management & Profit Planning

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  1. Capital Management &Profit Planning

  2. Basel II Tier I-Core Capital Paid up capital ,Free Reserves and unallocated surpluses Tier II-Supplementary Capital Subordinated debt of more than 5 years maturity ,loan loss reserve, revaluation reserve,investment fluctuation reserve,limited life preference share-restricted to 100% of tier I capital Tier III Capital subordinated debt with shot term maturity [min 2 years] for market risk

  3. Total Risk weighted Assets • Risk weighted assets of credit risk plus • 12.5* Capital requirement for market risk plus • 12.5* capital requirement for for operational risk

  4. Three pillars • First Pillar-minimum capital requirements • Second pillar-supervisory process • Third pillar-market discipline

  5. Standardized Approach Internal rating based approach [1]Foundation Approach [2]Advanced IRB Approach Capital Charge for Credit Risk

  6. Capital Charge for Operational Risk • The Basic Indicator Approach • The Standardized Approach • Advanced Management Approach

  7. Standardized Approach for Operational Risk • Beta factor- a fixed percentage set by Basel committee • Maximum 18% • Minimum 12% • Banks activities are divided into 8 business lines-corporate finance,trading,retail banking, commercial banking, payment &settlement, agency services, asset management, retail brokering

  8. Asset Classification • Standard Assets • Sub Standard Assets • Doubtful Assts • Loss Assets

  9. Provisioning • Standard Assts 0.40% • Substandard- • Secured -provision 10% • Unsecured[realisable value is not more than 10% of o/s] –provision 20%

  10. Provision Doubtful I- first 12 months Provision 20% realizable value of security plus 100% shortfall of security Doubtful II-further 24 months Provision 30% realizable value of security plus 100% shortfall of security Doubtful III-for over 36 months 100% provision Loss Assets 100%

  11. Thank you ravindran@iibf.org.in

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