Internal Capital Adequacy Process is mandatory disclosure for Banks in INDIA and worldwide

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ICAAP – Internal
Capital Adequacy
Assessment Process

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Presentation on ICAAP
Overview
 Basel II and its Three Pillars
 Overview of Pillar II
 ICAAP & SREP
 Risk & Capital
 ICAAP Process
 Components of ICAAP
 Pillar II Risks
 BOB ICAAP & its implementation
 Policy
 Structure
 Data Collection
 Reporting

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Why Pillar II ?
1. Measurement and Management of Bank specific risks other than
regulatory defined
2. Pillar 2 establishes a process of prudential supervision that
complements and strengthens Pillar 1.
3. Pillar II includes Quanti able (interest rate risk fi in the non-trading
book, concentration risk and the residual risk that remains when
collateral is lower than expected), but also risks that require a more
qualitative approach (such as reputational and strategic risk).
(ICAAP)
4. ICAAP links together the Banks strategy, future business
development, the risks related to these and the capital adequacy.
Basel I did not include any of this.

7. Overview of Pillar II
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9. ICAAP & SREP
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10. Responsibilities - Supervisors vs Bank
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SUPERVISOR
Review and Evaluate a Bank’s
ICAAP
Take appropriate action if not
satisfied
Review and Evaluate Bank’s
compliance with Capital Ratio.
Ability to require Banks to hold
capital more than the minimum.
Intervene at an early stage to
prevent capital falling below
minimum
Rapid remedial action if capital is
not maintained and restored
BANK
Banks should have in
place a process for
assessing their overall
capital adequacy in
relation to its risk profile
and a strategy for
maintaining its capital
levels
Banks should operate
above the minimum
regulatory capital ratios

11. Risk Identification and
quantification
All risks to which banks are
or could be exposed to
including hard to measure
risks.
Stress Testing
Banks should have a stress
test program to assess the
effect of extreme yet
plausible events.
Capital Planning
Bank is supposed to adopt a
prospective approach to
Capital Adequacy. It is
required to assess the
sufficiency of capital for the
risks identified and stress
tests conducted.
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ICAAP- Split into two parts

12. RISK POLICY- Bank should have detailed
policies for managing and monitoring various
risks.
RISK APPETITE- The Risk Appetite of the
Bank in terms of various risks should be
clearly spelt out in the policies.
RISK STRUCTURE- The Bank should have
a risk architecture to manage risks.
RISK REPORTING- It is a decision support
system to identify risks and their affect on the
Bank’s business.
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Components of ICAAP

13. The Process of ICAAP of a bank can be
illustrated through the following diagram
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14. ICAAP Elements
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18. Gamut of Pillar 2 Risks
Concentration
Risk
Country
Risk
Interest Rate Risk
in
Banking Book
Risks not
fully covered
in Pillar 1
Liquidity
Risk
Reputation
Risk
Settlement
Risk
Business
and
Strategic Risk
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19. BOB ICAAP & Implementation
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BANK OF BARODA (PARENT)
Domestic Operations
Overseas operations
Domestic Subsidiaries Overseas Subsidiaries

20. Data Collection
The Risk Management Department prepares the ICAAP Document and
compute the capital requirement against various risks by co-coordinating with
heads of various departments. The following departments are associated with
the supply of ICAAP data.
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Planning Department
Marketing Department
Market Risk Management Cell
Operational Risk Management Cell
Credit Risk Management Cell
Corporate Accounts and Taxation Department
Human Resource Management
Public Relations and Official Language Department
ASCROM Cell in Recovery Department

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Company Secretary Department
Compliance Department
Legal Department
Operations and Services Department
Retail Banking Department
Wholesale Banking Department
Mid Office Cell
International Subsidiaries and Territories

22. Reporting
 ICAAP is prepared on quarterly basis and submitted to the ALCO and BOARD for
review and further directions if any.
 The reviewed ICAAP document is submitted to the regulator.
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Thank You..!!