ICICI Bank 2011 Annual Report Download - page 186

F108
Credit risk mitigation techniques
The RBI guidelines on Basel II allow the following credit risk mitigants to be recognised for regulatory capital
purposes:
• Eligible financial collateral which include cash (deposited with the Bank), gold (including bullion and jewellery,
subject to collateralised jewellery being benchmarked to 99.99% purity), securities issued by Central and State
Governments, Kisan Vikas Patra, National Savings Certificates, life insurance policies with a declared surrender
value issued by an insurance company which is regulated by the insurance sector regulator, certain debt
securities, mutual fund units where daily net asset value is available in public domain and the mutual fund is
limited to investing in the instruments listed above.
• On-balance sheet netting, which is confined to loans/advances and deposits, where banks have legally
enforceable netting arrangements, involving specific lien with proof of documentation.
• Guarantees, where these are direct, explicit, irrevocable and unconditional. Further, the eligible guarantors
would comprise:
- Sovereigns, sovereign entities stipulated in the RBI guidelines on Basel II, bank and primary dealers with a
lower risk weight than the counterparty; and
- Other entities, which are rated AA(-) or better.
The Bank reckons the permitted credit risk mitigants for obtaining capital relief only when the credit risk mitigant
fulfills the conditions stipulated for eligibility and legal certainty by RBI in its guidelines on Basel II.
Concentrations within credit risk mitigation
The RBI guidelines, among its conditions for eligible credit risk mitigants, require that there should not be a material
positive correlation between the credit quality of the counterparty and the value of the collateral being considered.
RMG conducts the assessment of the aspect of material positive correlation on cases referred to it and accordingly
evaluates the eligibility of the credit risk mitigant for obtaining capital relief. Currently, the Bank does not have any
concentration risk within credit risk mitigation.
b. Portfolio covered by eligible financial collateral (March 31, 2011)
` in billion
Amount1
Exposures fully covered by eligible financial collateral, after application of haircut 77.62
Exposures fully covered by eligible corporate guarantees 15.25
1. Includes all entities considered for Basel II capital adequacy computation.
The processes for capital computation and credit risk mitigation based on Basel II guidelines are consistent across
subsidiaries of the Bank.
8. SECURITISATION
a. Securitisation objectives, roles played by the Bank and the risks
Objectives
The Bank’s primary objective of securitisation activities is to increase the efficiency of capital and enhance the
return on capital employed by diversifying sources of funding.
Roles played by the Bank
In securitisation transactions backed by assets either originated by the Bank or third parties, the Bank plays the
following major roles:
• Underwriter: allowing un-subscribed portions of securitised debt issuances, if any to devolve on the Bank,
with the intent of selling at a later stage.
BASEL II – PILLAR 3 DISCLOSURES (CONSOLIDATED)
at March 31, 2011