1. Private and Confidential
Basel III impact on Indian Banks
February 2011

2. Index
a. Where we are?
b. Basel III : Transitional Arrangements
c. Basel III : Key Components
d. Basel III : Critical Components impact on Indian
Banks
e. Basel III impact on Public Sector Banks
f. Basel III impact on Private Banks
g. Basel III impact on Foreign Banks
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3. Where we are?
2010 2011 2012 2013 2014 2015 2016
Internal Models Approach for Market Risk
•Final Guidelines for IMA issued in April 2010.
•The earliest date of making application by banks to RBI is 1st April
2010.
Internal Rating Based Approach for Credit Risk (Foundation
as well as Advanced)
•The earliest date for making application by banks 1st April 2012
•Guidelines note under process
Advanced Measurement Approach for Operational Risk
•Draft Guidelines note on 6th January 2011.
•The earliest date for making application by banks 1st April 2012
Basel III: Regulatory Framework (contd. Next slide)
•Guidelines issued in December 2010.
•Common equity requirement at 4.5% by 1st January 2015
•Tier 1 capital requirement at 6% by 1st January 2015.
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4. Basel III : Transitional Arrangements
1
2
3
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5. Basel III : Key Components
Capital Ratios/targets 1 Capital definition
2 Countercyclical buffers
3 Minimum capital standards
4 Leverage ratio
5 Systemic risk
RWA Requirements 6 Counterparty risk
7 Trading book and securitization
(also known as Basel II.5)
Liquidity Standards 8 Liquidity coverage ratio
9 Net stable funding ratio
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6. Basel III : Key Components
 Basel III is BOTH a firm-specific, risk based framework and a system-wide, systemic risk-
based framework
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7. Basel III : Impact on Indian Banks
Public sector banks (PSBs) –
 Marginal reduction in Tier 1 Capital. - Use of preference share capital and perpetual
debt instruments.
 To support rapid loan-book expansion in the coming years, government supports may
Definition of Capital
be required to enhance core tier 1 capital, assuming that government continue to hold
51% stake. Currently, there are only seven PSBs in which government equity is more
than 65%
 Banks with Core Tier I less than 7% would be negatively impacted.
Countercyclical  It will have a impact on profitability and Return on equity (ROE)
buffers
 Deductions should be from core capital may lead to reduction of amount in core
Deductions
capital for Indian Banks
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8. Basel III : Impact on Indian Banks
 Banks having a huge trading book and off balance sheet derivative exposures will be
RWA
impacted due to increased risk coverage (capital) on account of counterparty credit
Requirements
risk.
 The implementation of liquidity ratio (LCR/NSFR) is from 2015 can lead Indian
Liquidity Ratio Banks to maintain additional liquidity
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9. Basel III impact on Public Sector Banks
4.5% 7% 10.5%
6.40%
Vijaya Bank 7.69%
12.50% Common Equity Tier 1
6.85%
United Bank 8.16%
12.80% Tier-1 (Net of Deduction) %
7.06%
Union Bank 7.91%
12.51% CRAR
4.90%
UCO Bank 7.06%
13.21%
7.17%
As per the March 2010 dataset
Syndicate Bank 8.24%
12.70%
8.60%
State Bank of India - Group 9.28%
13.49%
 The Average Common Equity Tier
Punjab & Sind Bank
7.14%
7.68%
13.10%
1 capital of Public Sector Banks is
Punjab National bank
8.04%
9.11%
7.27% and average CRAR is
14.16%
8.63% 13.21%.
Oriental Bank of Commerce 9.28%
12.54%
7.68%
Indian Overseas Bank 8.67%
14.78%  The Maximum and minimum of the
Indian Bank
10.50%
11.13%
12.71%
core capital (common equity tier 1)
IDBI Bank
4.37%
6.35% are 10.50% and 4.37%.
11.48%
7.33%
Dena Bank 8.16%
12.77%  Core Capital - One Bank is below
8.19%
Corporation Bank 9.25%
15.37% Basel III prescribed CET
4.71%
Central Bank of India 6.83%
12.23%
Canara Bank
7.99%
8.54%
 Tier 1 - Three Banks are falling
13.43%
5.61% short of Basel III prescribed Tier I
Bank of Maharashtra 6.41%
7.51%
12.78%
capital (net of deductions).
Bank of India (Consolidated) 8.57%
13.00%
Bank of Baroda
8.43%
9.20%
14.36%
 The CRAR of all the public sector
Andhra Bank
7.81%
8.18% banks is above 10.5%.
13.93%
7.72%
Allahabad Bank 8.12%
13.62%
%
0
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4
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4
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6
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10. Basel III impact on Private Banks
4.5% 7% 10.5%
9.62%
ING Vysya Bank 10.11% Common Equity Tier 1
14.91%
Tier-1 (Net of Deduction) %
9.65%
Indusind 9.65% CRAR
15.33% As per the March 2010 dataset
12.42%
South Indian Bank 12.42%  The Average Common Equity Tier
15.39%
1 capital of Private Banks is
10.89% 12.67% and average CRAR is
Axis Bank 11.18%
15.80% 14.91%.
12.79%
Jammu & Kashmir Bank 12.79%  The Private Banks are well
15.89%
cushioned above the Basel III
13.13%
HDFC Bank 13.26% defined Core (Common Equity Tier
17.44% 1) capital
16.92%
Federal Bank 16.92%  The Maximum and minimum of the
18.36%
core capital (common equity tier 1)
12.12%
ICICI Group 12.92% are 17.31% and 9.62%.
19.15%
17.31%  The CRAR of all the private banks
Kotak Group 17.31%
is above 10.5%.
19.28%
11.84%
Yes Bank 12.85%
%
.0
0
1
%
.0
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4
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.0
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11. Basel III impact on Foreign Banks
4.5% 7% 10.5%
6.72% Common Equity Tier 1
RBS 7.94% Tier-1 (Net of Deduction) %
15.77%
CRAR As per the March 2010 dataset
Standard Chartered
8.94%  The Average Common Equity
8.94%
Bank Tier 1 capital of Foreign Banks is
12.41%
13.78% and average CRAR is
16.39%.
16.50%
Deutsche Bank 16.50%  The Foreign Banks are well
18.03%
cushioned above the Basel III
defined Core (Common Equity
16.62% Tier 1) capital
Barclays Bank 16.62%
17.21%  The Maximum and minimum of
the core capital (common equity
16.63% tier 1) are 17.29% and 6.72%.
HSBC Bank 16.63%
17.86%  The CRAR of all the foreign banks
is above 10.5%.
17.29%
Citibank -Group 17.29%
 However, these are as per the
17.07% March 2010 dataset and the
implementation of definition of
capital as per Basel III are not
%
0
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0
1
%
5
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2
1
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5
1
%
5
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7
1
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0
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%
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0
%
5
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2
%
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%
5
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taken into consideration.
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13. A global minimum liquidity standard
Liquidity Coverage Ratio (LCR)
 The ratio is intended to ensure that a bank maintains adequate levels of unencumbered high quality
assets to meet its liquidity needs.
 Measured as the ratio of the bank’s high quality liquid assets (numerator), divided by its net cash
outflows over a 30-day period (denominator)
 The high quality assets included in the numerator include only
Cash, central bank reserves that can be accessed during times of stress, marketable securities
meeting certain criteria, and government or central bank debt
 The denominator will be calculated by taking into account certain “run-off factors”
 LCR will be introduced as an observation exercise in 2011, and will be imposed as a rule as
from 2015.
High-quality liquid assets
LCR =
Net Cash Outflow (30 days)
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