ICICI Bank 2010 Annual Report Download - page 184

F104
z Market risk:
i) Liquidity risk: Risk arising on account of lack of secondary market to provide ready exit options to
the investors/participants.
ii) Interest rate/currency risk: Mark to market risks arising on account of interest rate/currency
fluctuations.
z Operational risk:
i) Co-mingling risk: Risk arising on account of co-mingling of funds belonging to investor(s) with that
of the originator and/or collection and processing servicer when there exist a time lag between
collecting amounts due from the obligors and payment made to the investors.
ii) Performance risk: Risk arising on account of the inability of a collection and processing agent to collect
monies from the underlying obligors as well as operational difficulties in processing the payments.
iii) Regulatory and legal risk: Risk arising on account of
– non-compliance of the transaction structures with the extant applicable laws which may result
in the transaction(s) being rendered invalid;
– conflict between the provisions of the transaction documents with those of the underlying financial
facility agreements; and
– non enforceability of security/claims due to imperfection in execution of the underlying facility
agreements with the borrower(s).
z Reputation risk: Risk arising on account of
i) rating downgrade of a securitised instrument due to unsatisfactory performance of the underlying
asset pool; and
ii) inappropriate/imprudent practices followed by the collection & processing agent.
In addition to the above, securitised assets are exposed to prepayment risk. Prepayment risk arises on account
of prepayment of dues by obligors/borrowers in the assigned pool either in part or full.
Processes in place to monitor change in risks of securitisation exposures
The Bank has established appropriate risk management processes to monitor the risks on securitisation
exposures, which include:
z Monitoring credit risk
The Bank in the capacity of collection and processing agent prepares monthly performance reports which
are circulated to investors/assignees/rating agencies. The securitised pools are continuously monitored
and those requiring attention are subjected to specific interventions (e.g. focused collection efforts in
affected geographies etc.) to improve their performance.
The risk assessment of the pools is done continuously by the rating agencies based on amortisation
level, collection efficiency, credit enhancement utilisation levels and credit cover available for balance
deal tenor.
z Monitoring market risk
The Bank ascertains market value of the securitisation exposures based on extant norms which is compared
with their book value to assess the marked to market impact of these exposures monthly.
Bank’s policy governing the use of credit risk mitigation to mitigate the risks retained through securitisation
exposures
The Bank has not used credit risk mitigants to mitigate retained risks.
b. Summary of the Bank’s accounting policies for securitisation activities
Whether the transactions are treated as sales or financings
The Bank transfers commercial and consumer loans through securitisation transactions. The transferred
loans are de-recognised and gains/losses are accounted for only if the Bank surrenders the rights to benefits
specified in the underlying securitised loan contract. Recourse and servicing obligations are accounted for
net of provisions.
In accordance with the RBI guidelines for securitisation of standard assets, with effect from February 1, 2006,
the Bank accounts for any loss arising from securitisation immediately at the time of sale and the profit/
premium arising from securitisation is amortised over the life of the securities issued or to be issued by the
special purpose vehicle to which the assets are sold.
BASEL II – PILLAR 3 DISCLOSURES (CONSOLIDATED)
at March 31, 2010