Basel II
Regulatory capital optimization by selecting suitable approach
Overview
Auronova has complete suite of capabilities to support the clients in end-to-end implementation of the Basel II framework.
Our services comprise of implementation of guidelines for all the three pillars i.e. Pillar I, Pillar II & Pillar III requirements as stipulated by the local regulator.
Pillar I
Under Pillar I, we support clients to comply with guidelines and improve internal risk management architecture for three key risks to which banks are exposed i.e. Credit Risk, Market Risk & Operational Risk.
Pillar II
We have developed expertise to help our clients to comply with Pillar II requirements of Basel II. Pillar II requires banks to identify the other material risks which are not covered under Pillar I and develop methodology to assess the regulatory capital required for these risks.
It primarily focuses on ‘Internal Capital Adequacy Assessment Process’ of the banks and review of the same by the regulators to make sure that bank has sufficient capital to support all the material risks as per its business strategy.
Pillar III
We help in supporting clients in disclosure requirements for all types of risks as per Pilllar III requirements of Basel II
Offerings
- Credit Risk – We support our clients in implementation of Standardised Approach, Foundation Internal Rating Based (FIRB) Approach & Advanced Internal Rating Based (AIRB) Approach, suitable to their respective portfolios. We conduct Impact assessment or comparative analysis to identify the suitable approach for the bank’s portfolio along with the cost benefit analysis.
- Market Risk – Based on the complexity of operations of our clients, we identify the suitable approach for Market Risk Pillar I Capital assessment. Our capabilities support implementation of both Standardised & IMA approach for market risk. Please also read about our capabilities in supporting the banks, for latest guidelines in the market risk area, i.e. ‘Fundamental Review of Trading Book’ (FRTB). (Link to FRTB Page)
- Operational Risk – Three approaches has been stipulated for assessment of operational risk charge under Basel II, i.e. Basic Indicator Approach, Standardised Approach & Advanced Measurement Approach (AMA). We support our clients in implementation of all the three approaches based on the evolution of their operational risk management framework.
- System Implementation – We support our clients in implementation of ‘Basel II Capital Calculation Engine’ for consistent estimation of capital charge based on the selected approach, and regulatory reporting.
- ICAAP – We help our clients in setting up the complete ‘Internal Capital Adequacy Assessment Process’ inclusive of developing governance structure, policies & procedures, risk appetite statement and assessment of capital required for all the material risks in the portfolio of the bank inclusive of Pillar I risks. This assessment takes into consideration projected future risk profile of the bank.
- Stress Testing – Stress Testing is an integral part of ICAAP. We support banks to develop the internal stress testing framework inclusive of sensitivity based stress tests of risk drivers, developing scenarios based stress tests as well as reverse stress testing. Further, we support our clients in meeting the requirements of ‘Standard Regulatory Stress Tests’, which are designed by the local regulators to check the capital adequacy of all the banks on a common set of macroeconomic assumptions.
We help in supporting clients in disclosure requirements for all types of risks as per Pilllar III requirements of Basel II
- Credit Risk
- Market Risk
- Operational Risk
- Tier 1 Capital Disclosure
- Tier 2 Capital Disclosure
- Securitization
- Purchased Receivable
