ICICI Bank 2010 Annual Report Download - page 181

F101
6. CREDIT RISK: PORTFOLIOS SUBJECT TO THE STANDARDISED APPROACH
a. External ratings
The Bank uses the standardised approach to measure the capital requirements for credit risk. As per the
standardised approach, regulatory capital requirements for credit risk on corporate exposures is measured
based on external credit ratings assigned by External Credit Assessment Institutions (ECAI) specified by RBI in
its guidelines on Basel II. As stipulated by RBI, the risk weights for resident corporate exposures are assessed
based on the external ratings assigned by domestic ECAI and the risk weights for non-resident corporate
exposures are assessed based on the external ratings assigned by international ECAI. For this purpose, the
domestic ECAI specified by RBI are CRISIL Limited, Credit Analysis & Research Limited, ICRA Limited and
Fitch India and the international ECAI specified by RBI are Standard & Poor’s, Moody’s and Fitch. Further, the
RBI’s Basel II framework stipulates guidelines on the scope and eligibility of application of external ratings. The
Bank reckons the external rating on the exposure for risk weighting purposes, if the external rating assessment
complies with the guidelines stipulated by RBI.
The key aspects of the Bank’s external ratings application framework are as follows:
z The Bank uses only those ratings that have been solicited by the counterparty.
z Foreign sovereign and foreign bank exposures are risk-weighted based on issuer ratings assigned to them.
z The risk-weighting of corporate exposures based on the external credit ratings includes the following:
i) The Bank reckons external ratings of corporates either at the credit facility level or at the borrower
(issuer) level. The Bank considers the facility rating where both the facility and the borrower rating
are available given the more specific nature of the facility credit assessment.
ii) The Bank ensures that the external rating of the facility/borrower has been reviewed at least once by
the ECAI during the previous 15 months and is in force on the date of its application.
iii) When a borrower is assigned a rating that maps to a risk weight of 150%, then this rating is applied
on all the unrated facilities of the borrower and risk weighted at 150%.
iv) Unrated short-term claim on counterparty is assigned a risk weight of at least one level higher than
the risk weight applicable to the rated short term claim on that counterparty.
z The RBI guidelines outline specific conditions for facilities that have multiple ratings. In this context, the
lower rating, where there are two ratings and the second-lowest rating where there are three or more
ratings are used for a given facility.
b. Credit exposures by risk weights
At March 31, 2010, the net credit exposures subject to the standardised approach and after adjusting for credit
risk mitigation by risk weights were as follows:
Rupees in billion
Exposure category Amount outstanding1,2
Less than 100% risk weight 1,910.58
100% risk weight 3,120.95
More than 100% risk weight 323.20
Deducted from capital 47.69
Total35,402.42
1. Credit risk exposures include all exposures as per RBI guidelines on exposure norms subject to credit risk and investments in
held-to-maturity category. Direct claims on domestic sovereign which are risk-weighted at 0% and regulatory capital instruments
of subsidiaries which are deducted from the capital funds have been excluded.
2. Net of credit risk mitigants.
3. Includes all entities considered for Basel II capital adequacy computation.
7. CREDIT RISK MITIGATION
a. Collateral management and credit risk mitigation
The Bank has a Board approved policy framework for collateral management and credit risk mitigation
techniques, which include among other aspects guidelines on acceptable types of collateral, ongoing
monitoring of collateral including the frequency and basis of valuation and application of credit risk mitigation
techniques.
BASEL II – PILLAR 3 DISCLOSURES (CONSOLIDATED)
at March 31, 2010