ICICI Bank 2013 Annual Report Download - page 178

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Stress testing, which is a key aspect of the ICAAP and the risk management framework, provides an insight
on the impact of extreme but plausible scenarios on the Bank’s risk profile and capital position. Based on
the Board-approved stress testing framework, the Bank conducts stress tests on its various portfolios and
assesses the impact on its capital ratios and the adequacy of capital buffers for current and future periods.
The Bank periodically assesses and refines its 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. The business and capital plans and the stress testing results of the group entities are integrated
into the ICAAP.
Based on the ICAAP, the Bank determines the level of capital that needs to be maintained by considering the
following in an integrated manner:
• Bank’s strategic focus, business plan and growth objectives;
• regulatory capital requirements as per the 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.
Monitoring and reporting
The Board of Directors of ICICI Bank maintains an active oversight over the Bank’s capital adequacy levels. On
a quarterly basis an analysis of the capital adequacy position and the risk weighted assets and an assessment
of the various aspects of Basel II on capital and risk management as stipulated by RBI, are reported to the
Board. Further, the capital adequacy position of the banking subsidiaries and the significant non-banking
subsidiaries based on the respective host regulatory requirements is also reported to the Board. In line with
the RBI requirements for consolidated prudential report, the capital adequacy position of the ICICI Group
(consolidated) is reported to the Board on a half-yearly basis.
Further, the ICAAP which is an annual process also serves as a mechanism for the Board to assess and
monitor the Bank’s and the Group’s capital adequacy position over a four year time horizon.
Capital adequacy of the subsidiaries
Each subsidiary in the Group assesses the adequate level of capitalisation required to meet its respective
host regulatory requirements and business needs. The Board of each subsidiary maintains oversight over the
capital adequacy framework for the subsidiary either directly or through separately constituted committees.
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 in fiscal 2010. Following a consultation phase on these proposals, the final set of Basel III
rules were issued in fiscal 2011. 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.
During the year, RBI issued the final guidelines on the Basel III capital regulations. The implementation of this
framework would commence from April 1, 2013 in a phased manner through till March 31, 2018.
In May 2012, RBI lowered the minimum leverage ratio requirement from 5% to 4.5%.
In January 2013, RBI issued the draft guidelines on the composition of capital disclosure requirements, in
addition to the existing Pillar 3 guidance. Along with this, RBI prescribed different treatments for capitalisation
BASEL II – PILLAR 3 DISCLOSURES (CONSOLIDATED)
at March 31, 2013