Basel Framework

Procedure for Computation of CRAR Computation of aggregate of funded and non-funded exposure of a borrower for the purpose of assignment of risk weight may net-off against: Outstanding exposure of the borrower Advances collateralised by cash margins or deposits Credit balances in current or other accounts which are not earmarked for specific purposes and free from any lien

Procedure for Computation of CRAR Computation of aggregate of funded and non-funded exposure of a borrower for the purpose of assignment of risk weight may net-off against: –Assets where provisions for depreciation or for bad debts have been made –Claims received from (DICGC (Deposit Insurance and Credit Guarantee Corporation)) / Export Credit Guarantee Corporation (ECGC) kept in a separate account pending adjustment –Subsidies received against advances in respect of Government sponsored schemes and kept in a separate account

Computation of CRAR for Foreign Exchange Contracts and Gold Foreign exchange contracts includes –Cross currency interest rate swaps –Forward foreign exchange contracts –Currency futures –Currency options purchased –Other contracts of a similar nature Foreign exchange contracts with an original maturity of 14 calendar days or less, irrespective of the counterparty, assigned zero risk weight as per international practice Two stage calculation is applied

Stages of Computation Step 1 Notional principal amount of each instrument is multiplied by a conversion factor Residual Maturity Conversion Factor –One year or less: 2% –Over one year to five years: 10% –Over five years: 15% Step 2 Adjusted value obtained is to be multiplied by the risk weight allotted to the relevant counter-party

Computation of CRAR for Interest Rate Related Contracts Interest rate contracts include –Single currency interest rate swaps –Basis swaps –Forward rate agreements –Interest rate futures –Interest rate options purchased –Other contracts of a similar nature Two stage calculation is applied

Stages of Computation Step 1 –Notional principal amount of each instrument is multiplied by the percentages Step 2 –Adjusted value obtained is to be multiplied by the risk weight allotted to the relevant counter-party MaturityConversion Factor One year & less0.5% 1 year > 5 years1.10% Ones five years3.05%

Computation of Position of Interest Rate Derivatives InstrumentSpecific risk change General market risk charges Exchange traded futures Government debt security Corporate debt security Index on interest rate No Yes No Yes OTC forwards Government debt securities Corporate debt securities Index on interest rate No Yes No Yes Forward rate agreements and swapsNoYes Forward foreign exchangeNoYes Options Government debt securities Corporate debt securities Index on interest rate Forward rate agreements, swaps No Yes No

Treatment of Options Simplified approach Subject to separately calculated capital charges that incorporates both general market risk and specific risk Risk numbers thus generated are then added to the capital charges for the relevant category

Simplified Approach to Capital Charge PositionCapital Change Long cash and Long put Or Short cash and Long call Market value multiplied by the sum of specific and general market risk changes Long call Or Long put Lesser of market value multiplied by the sum of specific and general market risk changes or market value of the options

Treatment of Options Intermediate approaches –Delta plus method Delta equivalent position of each option becomes part of the standardised methodology with the delta-equivalent amount subject to the applicable general market risk charges –Scenario method Uses simulation techniques to calculate changes in the value of an options portfolio for changes in the level and volatility of its associated underlying instrument. General market risk charge is determined by the scenario grid that produces the largest loss.

Computation of Capital for Market Risk RiskCapital charge Interest Rate General market Risk XXX Net position (parallel shift) Horizontal disallowance Vertical disallowance (basics) Options Specific market risk XXX General market risk XXX Specific risk XXX Foreign exchange & gold XXX Total capital XXXX (Amount )

Computation of Capital for Market Risk Capital FundsXXX Tier I capitalXX Tier II capitalXX Risk Weighed assetsXXX Risk weighted assets for credit riskXX Risk weighted assets for market riskXX Total CRARXX Minimum capital required to support credit risk (Risk weighted assets for credit risk x 9%) XX Tier I (4.5% x Risk weighted assets for credit risk)XX Tier II (4.5% x Risk weighted assets for credit risk)XX Capital applicable to support market risk (Capital fund – Minimum capital required to support credit risk) XX Tier-I (Tier I capital –Tier I capital requirement to support credit risk) XX Tier-II (Tier II capital –Tier II capital requirement to support credit risk) XX (Amount in value)

Capital for Equity Risk The instruments covered include equity shares, whether voting or non-voting, convertible securities that behave like equities, for example: units of mutual funds, and commitments to buy or sell equity. Capital charge for specific risk will be 11.25% and specific risk is computed on the banks’ gross equity positions (sum of all long equity positions and of all short equity positions – short equity position is, however, not allowed for banks in India). The general market risk charge will also be 9% on the gross equity positions.

Risk Weights for Computation of Capital Charge for Credit Risk Sr. No. Item of asset or liabilityRisk Weight % IBalances 1.Cash, balances with RBI0 2.i. Balances in current account with other banks20 ii. Claims on Bank20 IIInvestments(Applicable to securities held in Held to Maturity (HTM)) 1.Investments in Government Securities.0 2.Investments in other approved securities guaranteed by Central / State Government. 0

Sr. No. Item of asset or liabilityRisk Weight % 3.Investments in other securities where payment of interest and repayment of principal are guaranteed by Central Government. (Investments in Indira Kisan Vikas Patra (IVP/KVP) and investments In bonds and debentures where payment of interest and principal is guaranteed by Central Government.) 0 4.Investments in other securities where payment of interest and repayment of principal are guaranteed by State Governments. 0 5.Investments in other approved securities where payment of interest and repayment of principal are not guaranteed by Central/State Govt. 20

Sr. No. Item of asset or liabilityRisk Weight % 6.Investments in Government guaranteed securities of Government undertakings which do not form part of the approved market borrowing program Claims on commercial banks20 8.Investments in bonds issued by other banks20 9.Investments in securities which are guaranteed by banks as to payment of interest and repayment of principal Investments in subordinated debt instruments and bonds issued by other banks or public financial institutions for their Tier II capital. 20

Sr. No. Item of asset or liabilityRisk Weight % 11.Deposits placed with SIDBI/NABARD in lieu of shortfall in lending to priority sector Investment in mortgage backed securities (MBS) of residential assets of housing finance companies (HFCs) which are recognized and supervised by National Housing Bank Investment in mortgage backed securities (MBS) which are backed by housing loan qualifying for 50% risk weight. 50

Sr. No. Item of asset or liabilityRisk Weight % 14.Investment in securitized paper pertaining to an Infrastructure facility Investments in debentures/ bonds/ security receipts/ Pass through certificates issued by securitization company / SPVs/ reconstruction company and held by banks as investment All other investments including investments in securities issued by private financial institutions Direct investment in equity shares, convertible bonds, debentures and units of equity oriented mutual funds 125

Sr. No. Item of asset or liabilityRisk Weight % 18.Investment in mortgaged backed securities and other securitized exposures to commercial real estate Investments in venture capital funds Investments in securities issued by SPVs underwritten on originator banks during the stipulated period of three months Investments in securities issued by SPVs in respect of securitization of standard asset underwritten on bank as third party service provider during the stipulated period of three months 100

Sr. No. Item of asset or liabilityRisk Weight % 22.NPA Investment purchased from other banks Investments in instruments issued by non banking finance companies - ND-SI 125 IIILoans & Advances including bills purchased and discounted and other credit facilities 1.Loans guaranteed by Government of India0 2.Loans guaranteed by State Governments.0 3.Loans granted to public sector undertakings of Government of India Loans granted to public sector undertakings of State Governments. 100

Sr. No. Item of asset or liabilityRisk Weigh% 5. i) ii) For the purpose of credit exposure, bills purchased /discounted/negotiated under letter of credit (LC) is treated as an exposure on the LC issuing bank and assigned risk weight as is normally applicable to inter-bank exposures. Bills negotiated under LCs, bills Purchased /discounted/negotiated without LCs, 20 (i) Govt0 (ii) Banks20 (iii) Others100

Sr. No. Item of asset or liabilityRisk Weight % 6.Others including PFIs100 7.Leased assets100 8.Advances covered by DICGC(Deposit insurance and credit guarantee)/ECGC 50 9.Small scale industry advances guaranteed by Credit Guarantee Fund Trust for Small Industries (CGTSI) up to the guaranteed portion Insurance cover under business credit shield50 11.Advances against term deposits, Life policies, NSCs(National Savings Certificates), IVPs and KVPs where adequate margin is available. 0

Sr. No. Item of asset or liabilityRisk Weight % 12.Loans and advances granted to staff of banks which are fully covered by superannuation benefits and mortgage of flat/house Housing loans above 30 lakh sanctioned to Individuals against the mortgage of residential housing properties having LTV(Loan to values) ratio equal to or less than 75% Housing loans upto 30 lakhs sanctioned to Individuals against the mortgage of residential housing properties having LTV(Loan to values) ratio equal to or less than 75% Housing loans of 75 lakh and above sanctioned to individuals (irrespective of LTV(Loan to values) ratio) 125

Sr. No. Item of asset or liabilityRisk Weight % 16. i) Consumer credit including personal loans and credit cards Educational Loans Loans up to 1 lakh against gold and silver ornaments Takeout Finance (i) Unconditional takeover (in the books of lending institution) (a) Where full credit risk is assumed by the taking over institution (b) Where only partial credit risk is assumed by taking over institution i) the amount to be taken over ii) the amount not to be taken over

Sr. No. Item of asset or liabilityRisk Weight % 18.(ii) Conditional take-over (in the books of lending and Taking over institution) Advances against shares to individuals for investment in equity shares (including IPOs/ESOPs), bonds and debentures, units of equity oriented mutual funds, etc Secured and unsecured advances to stock brokers Fund based exposures commercial real estate NPA purchased from other banks Loans & Advances NBFC-ND-SI125

Sr. No. Item of asset or liabilityRisk Weight % IVOther Assets 1.Premises, furniture and fixtures100 2.Income tax deducted at source (net of provision)0 Advance tax paid (net of provision)0 Interest due on Government securities0 Accrued interest on CRR balances and claims on RBI on account of Government transactions (net of claims of Government/RBI on banks on account of such transactions) 0 All other assets100