ICICI Bank 2012 Annual Report Download - page 65

Annual Report 2011-2012 63
The capital management framework is complemented by the risk management framework, which includes a
comprehensive assessment of all material risks. Stress testing, which is a key aspect of the capital assessment
process and the risk management framework, provides an insight into the impact of extreme but plausible
scenarios on the risk profile and capital position. Based on our Board-approved stress testing framework, we
conduct stress tests on our various portfolios and assess the impact on our capital ratios and the adequacy of
our capital buffers for current and future periods. We periodically assess and refine our stress tests in an effort
to ensure that the stress scenarios capture material risks as well as reflect possible extreme market moves that
could arise as a result of market conditions. Internal capital adequacy assessment process at the consolidated
level integrates the business and capital plans and the stress testing results of the group entities.
Based on the internal capital adequacy assessment process, we determine our capital needs and the
optimum level of capital by considering the following in an integrated manner:
 strategic focus, business plan and growth objectives;
 regulatory capital requirements as per RBI guidelines;
 assessment of material risks and impact of stress testing;
 perception of credit rating agencies, shareholders and investors;
 future strategy with regard to investments or divestments in subsidiaries; and
 evaluation of options to raise capital from domestic and overseas markets, as permitted by RBI from time
to time.
We formulate our internal capital level targets based on the internal capital adequacy assessment process
and endeavour to maintain the capital adequacy level in accordance with the targeted levels at all times.
Basel III
In order to strengthen the resilience of the banking sector to potential future shocks, together with ensuring
adequate liquidity in the banking system, the Basel Committee on Banking Supervision (BCBS) issued the
Basel III proposals on December 17, 2009. Following a consultation phase on these proposals, the final
set of Basel III rules were issued on December 16, 2010. The Basel III rules on capital consist of measures
on improving the quality, consistency and transparency of capital, enhancing risk coverage, introducing a
supplementary leverage ratio, reducing pro-cyclicality and promoting countercyclical buffers, and addressing
systemic risk and interconnectedness. The Basel III rules on liquidity consist of a measure of short-term
liquidity coverage ratio aimed at building liquidity buffers to meet stress situations, and a measure of long-
term net stable funding ratio aimed at promoting longer term structural funding. BCBS has stipulated a
phased implementation of the Basel III framework between January 1, 2013 and January 1, 2019.
On May 2, 2012, RBI issued the final guidelines on the Basel III capital regulations. We continue to monitor
developments on the Basel III framework and believe that our current robust capital adequacy position,
adequate headroom currently available to raise hybrid/debt capital and demonstrated track record of access
to domestic and overseas markets for capital raising will enable us to adapt to the Basel III framework. RBI
issued the draft guidelines on Basel III liquidity standards on February 21, 2012 and solicited feedback from
the industry on these guidelines. The final guidelines on Basel III liquidity standards are awaited from RBI.
ASSET QUALITY AND COMPOSITION
Loan concentration
We follow a policy of portfolio diversification and evaluate our total financing in a particular sector in light
of our forecasts of growth and profitability for that sector. Between 2003 and 2006, the banking system as
a whole saw significant expansion of retail credit, with retail loans contributing for a major part of overall
systemic credit growth. In line with this, we experienced rapid growth in our retail loan portfolio and an
increase in the proportion of retail loans in our total loans. From fiscal 2008, the share of retail loans in