Disclosures under New Capital Adequacy (Basel III) Framework

Mumbai Branch
Mumbai Branch
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Scope of Application and Capital Adequacy
Scope of application:
Qualitative Disclosures: The disclosures and analysis provided herein below are in respect of the Mumbai Branch, India (‘the Bank’) of Krung Thai Bank Public Company Limited which is incorporated in Thailand and predominantly owned by the Royal Thai Government through Financial Institution Development Fund of Thailand. The Bank has no subsidiaries which are subject to consolidation requirements. It has only one branch in India which operates as a standalone entity.
Quantitative Disclosures: The Bank has no subsidiaries and therefore the disclosure on the aggregate amount of capital deficiencies in subsidiaries is not applicable. Similarly, the risk-weighted aggregate amount of the bank’s total interests in insurance entities is not applicable to the Bank.

Capital structure:
The capital structure of the Bank comprises of interest free funds provided by its Head Office in the form of Tier 1 capital and supplemented by Statutory Reserves created out of profits from operations in India. Reserves and General Provisions not assigned to loss or diminution in value of any specific asset form the Tier 2 capital of the Bank.

Composition of capital

31.03.2016

(Basel III)

31.03.2015

(Basel III)

Tier 1 Capital

Start-Up Capital-Interest free funds remitted from H.O.

358,445

358,445

Statutory Reserves

142,553

125,726

Deduction on account of Intangible Assets-Deferred Tax Assets

(1,437)

(4,481)

Less: Deposit with overseas branch

Nil

Nil

Total Tier1 Capital

499,561

479,690

Tier2 Capital

Total eligible Tier2 Capital

15,040

9,790

Total Eligible Capital

514,601

489,480


Capital Adequacy:
Qualitative Disclosures: The Banks’ policy is to maintain a strong capital base so as to maintain confidence of depositors and the market and to sustain and augment the current activities and future growth plan of the Bank. The Bank maintains CRAR and Core CRAR well above the regulatory requirement on an ongoing basis and is commensurate with the Banks’ overall risk profile. The Bank’s capital management framework includes a comprehensive internal capital adequacy assessment process (ICAAP) conducted annually which determines the adequate level of capitalisation for the Bank to meet regulatory norms and current and future business needs, including under stress scenarios. The ICAAP encompasses capital planning, identification and measurement of material risks and the relationship between risk and capital. The Bank has developed and documented a suitable Internal Capital Adequacy Assessment Process (ICAAP).

Quantitative Disclosures:

Particulars

31.03.2016

(Basel III)

31.03.2015

(Basel III)

(a)   Capital requirement for Credit Risk:

  • Portfolios subject to standardized approach

72,577

73,884

  • Securitization exposures

Nil

Nil

(b)   Capital requirement for Market Risk:

  • Standardized Duration Approach;

  • Interest Rate Risk

9,728

3,561

  • Foreign Exchange Risk

4,770

4,770

  • Equity Risk

Nil

Nil

(c)   Capital requirement for Operational Risk:

  • Basic Indicator Approach

21,700

19,289

(d)   Common Equity Tier-1 Capital ratio %

40.39

42.53

  • Tier 1 Capital ratio %

40.39

42.53

  • Tier 2 Capital ratio %

1.22

0.87

  • Total Capital ratio (CRAR) %

41.61

43.40


Risk Exposure and Assessment
General qualitative disclosure for each risk area (identified as under), risk management objectives and policies, processes and techniques used by the Bank to identify, measure, monitor and control the following risks as material to its nature of operations:
  • Credit Risk
  • Market Risk
  • Operational Risk
  • Liquidity Risk
  • Interest Rate Risk in the Banking Book

Credit Risk: General Disclosures (including equities):
Qualitative Disclosure:
Credit Risk is defined as the risk of financial loss arising when the Banks’ borrowers or counter-parties fail to meet their obligations in accordance with the agreed terms. The goal of credit risk management is to maximize the Banks’ risk adjusted rate of return by maintaining credit-risk exposures within acceptable parameters.
The Bank does not have retail loans segment. There are no Term Loans. The Bank has Cash Credit Advances and Bills Discounting in its funded exposures and issues/confirms Letters of Credit and also Guarantees in its’ non-funded exposure.
The Bank has a Credit Committee to independently assess the credit proposal in context with the risk rating guidelines set by the Head Office. All credit limits are approved by H.O after thorough assessment of the risk profile of the borrower or counter-party. The Banks’ Credit Committee ensures credit facilities are released after proper approval and against proper documentation. It also monitors concentration risk by setting up limits for maximum exposure to individual borrower, bank/industry.
The Head Office has well defined policies and procedures for identifying, measuring and monitoring quality and composition of credit and for controlling credit risk in all its activities. The Bank has adopted the definition of “past due” and “impaired” as defined by RBI for income recognition and asset classification. The Bank has risk-based internal audit and monthly concurrent branch audit.

Quantitative Disclosure:

Total Gross Credit Exposures without taking into account the effect of Credit Risk Mitigation techniques:

2016

2015

Total fund based credit risk exposure

130,000

170,500

Total non-fund based credit risk exposure

1,000

13,000


Industry-Type distribution of exposures:

Industry Name

Fund Based

Non-Fund Based

Total

Petrochemicals

7,230

Nil

7,230

Iron and Steel

21,997

Nil

21,997

Decoration

Nil

1,000

1,000


Residual contractual maturity breakdown of assets:

Particulars

Cash & Balances with RBI

Inter Bank Assets

Investments

Advances

Fixed & Other Assets

Total

Next Day

              685

      164,173

                Nil

                Nil

                   5

         164,864

02-07 D

                Nil

        80,000

         46,576

                Nil

           2,762

         129,338

08-14 D

                Nil

                Nil

         59,845

                Nil

           9,244

           69,089

15-28 D

      138,754

                Nil

         35,606

                Nil

           1,820

         176,179

29D-3M

                Nil

      285,000

                Nil

        29,227

        21,939

         336,166

3M-6M

                Nil

   1,452,510

      116,801

                Nil

        65,723

      1,635,034

6M-12M

                Nil

      756,255

      277,397

                Nil

        17,690

      1,051,342

1YR-3YR

                Nil

                Nil

      451,170

                Nil

                Nil

         451,170

3YR-5YR

                Nil

                Nil

         50,548

                Nil

                Nil

           50,548

Over5YRS

                Nil

                Nil

                Nil

                Nil

        40,742

           40,742

Total

      139,439

   2,737,938

   1,037,943

         29,227

      159,925

      4,104,472


Credit Risk: Portfolios subject to Standardised Approach
Qualitative Disclosure:
The Bank is using Credit Risk Assessment of ICRA, CRISIL, FITCH and CARE for the purpose of arriving at risk weightage wherever available.

Quantitative Disclosure:
As at March 31, 2016 the Bank does not have rated claims of any borrower counter-party.

Particulars

Below 100% risk weight

3,970,431

100% risk weight

259,259

More than 100% risk weight

Nil


Credit Risk Mitigation: Standardised Approaches
Qualitative Disclosure:
It is the policy of the Bank to obtain collaterals for credits, unless the business case warrants clean lending. The Bank has a policy for valuation of immovable properties taken as collaterals which envisage assessment of market value by approved valuer and periodic revaluation. Cash deposits / cash equivalent are taken at face value. The Bank uses various collaterals both financial as well as non-financial as credit risk mitigants. All deeds of ownership / titles related to collateral are held in physical custody under the control of authorised executives. Cash security is however recognised only as a fallback option and repayment of facilities are primarily sought from the cash flow of the borrower’s business. However, collateral may be an important mitigant of risk.
Description of the main types of recognised collaterals: Fixed deposit receipts and cash margin. Other collaterals: Equitable mortgage of immovable properties, charge over stock and debtors.
Main type of guarantor counterparty and their creditworthiness: Main types of guarantors include corporate, parent companies, partners and directors. Net worth is calculated based on financial statements / tax returns.
Information about (market or credit) risk concentrations within the mitigation taken: The Bank reduces its credit exposure to counterparty with the value of eligible financial collateral to take account of the risk mitigating effect of the collateral.

Quantitative Disclosure:
For disclosed credit risk portfolio under the standardised approach, the total exposure that is covered by the total value of eligible financial collateral, for credit portfolio is ` 1,000,000.

Securitization: Disclosure for Standardised Approach
Qualitative Disclosure and Quantitative Disclosure:
Not applicable as the Bank has not entered into any securitization activity.

Market Risk in Trading Book:
Market risk arises from changes in equity value that came as a result of changes in market factors such as volatility of interest rates, foreign exchange rate and securities prices and consequently affect income and capital fund of the Bank.
The Bank has an ALM and Investment Policy for conducting investment and foreign exchange business. It is the Banks’ policy to trade in securities and foreign exchange only to maintain SLR and other statutory requirement and for hedging merchant transactions respectively. The Bank does not take exposure to equity, commodity and capital market.
The Bank is following the modified duration for calculating market risk on securities held under AFS category and capital charge for market risk in foreign exchange is calculated at 9% on the open position limit of the Bank.
The Head Office has adopted Value at Risk (VaR) to assess market risk. VaR refers to the maximum value of losses upon changes of market risk factors at confidence level of 99 percent during one-day position. The Bank also conducts Liquidity and Interest Gap Analysis, NII Simulation, Volatility and Stress Tests.

Quantitative Disclosure:
The capital requirement for market risk is as under:

Particulars

`

Interest Rate Risk

9,728

Foreign Exchange Risk

4,770

Equity Risk

Nil


Operational Risk:
Operational risk includes risk arising from inadequacy or deficiency of internal work process, human resources, work system or external incidents including legal risk. The Bank tries to provide its staff members at all levels with the knowledge and right understanding about operational risk so they will realize the significance and their participation in operational risk management.
The Bank has defined operation procedures for each of its product and services. It has a policy document on Know Your Customer (KYC), Anti-Money Laundering Procedures, Business Continuity Plan and Disaster Recovery Plan. The Bank has risk-based internal audit and concurrent audit systems which facilitate identifying and rectifying operational deficiencies.
Capital charge for operational risk is computed as per the basic indicator approach. The average of the gross income as defined in the new capital adequacy framework guidelines, for the previous three years is considered for computing the capital charge.

Interest Rate Risk in Banking Book (IRRBB)
Interest rate risk calculation in the banking book is based on a present value basis. Interest rate risk exposure is measured with Interest Rate Gap Analysis. Additionally, behavioral study is undertaken on the maturity profile and volatility of deposits and the same is being considered in the management of Assets and Liabilities of the Bank.
Quantitative Disclosures:
The impact on the Banks’ financial condition due to the change in the interest rate is being monitored on a regular basis. Impact of 100 basis points change upward/downward in interest rate on Net Interest Income (NII) simulation amounted to an expected gain/(loss) of ` 12.35 / ` (0.67) million based on the Asset Liability position of 31 March 2016.