In today’s (June 8, 2022) statement of development and regulatory policies the Reserve Bank of India issued guidelines to market participants regarding the exchange of variation margin (VM) for non-centrally cleared derivatives (NCCDs). Derivatives are financial instruments whose value is derived from other underlying assets. There are mainly four types of derivative contracts such as…
RBI on Monday through notification announced that “it has been decided to permit banks to reckon Government securities as Level 1 HQLA* under FALLCR** within the mandatory SLR requirement up to 16 percent of their NDTL, under Basel III Framework on Liquidity Standards. Consequently, the total HQLA carve-out from the mandatory SLR, which can be…
In order to protect depositors from the risk of a bank becoming insolvent, the banking regulator has prescribed banks and other authorised financial institutions to fund themselves with a minimum amount of capital (CAR) in terms of Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure…
The Reserve Bank of India today announced that State Bank of India, HDFC Bank, and ICICI Bank will remain as Domestic Systemically Important Banks (D-SIBs) and therefore will have to maintain additional common equity tier 1 (CET1) capital ratios in the same manner prescribed in 2020. SIBs are considered as banks that are ‘too big…
Capital conservation buffer (CCB) is a concept introduced under the international Basel III norms. According to Basel III norms, during good times, banks must build up a capital buffer that can be drawn from when there is stress. Individual countries are allowed to take their own decision in this matter. In India, to adhere to…
Sufficient capital is required by banks to absorb any losses that arise during the normal course of their banking operations. A capital requirement (also known as regulatory capital or capital adequacy) of each bank is decided by the banking regulators (Central Banks) to prevent commercial banks from taking excess leverage and becoming insolvent in the…
RBI on Monday clarified on criteria for the Inclusion of Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital under Basel –III capital regulations. The issue was examined by the regulator as ‘several banks have approached us to clarify the maximum amount of capital funds that can be raised overseas’ the circular said. The Central…
Additional Tier Capital (also known as AT1 bonds) is a type of unsecured, perpetual bonds issued predominantly by banks to raise additional Tier 1 capital without any maturity date (perpetual), but they have a call option. These bonds are issued by banks to shore up their core capital base to meet the Basel-III norms. Features…
A bank stress test is an exercise conducted under hypothetical scenarios designed to determine whether the bank has enough capital to withstand a negative economic shock. Most risk management models, including stress tests, use historical statistical relationships to assess risk. They assume that risk is driven by a known and constant statistical process, ie they…
RBI on Friday (08.01.2021) said that all commercial banks (including small finance banks, payments banks, and Local area banks) are required to put in place a risk-based internal audit (RBIA) system as part of their internal control framework that relies on a well-defined policy for internal audit, functional independence with sufficient standing and authority within…