BASEL II:

1. What is the link between Basel II and Information Technology?

To capture and manage extensive information related to account level and operational risk events.

2. Difficulties faced by FIs - Incorrect, incomplete or inaccessible counterparty reference data

3. How to address the problem? - Implement a reliable, persistent repository (or hub) of counterparty reference

data.

4. Challenge - Collection of counterparty data from different locations on a real-time basis

5. Basic requirements for Basel II compliance:

a. Data Warehouse, Business Intelligence solutionsb. Additional Data Capturec. New data modelsd. Enhanced data qualitye. New reporting structures

# Same data is to be used for - Financial reportingMarket disclosureInternal day-to-day mgmt.

6. Use of BI service providers:

a. Development of Gap Analysisb. Operational solutions to assess additional data requirementsc. Identify options for data captured. Developing approaches to support incremental data quality, data

auditability, and data storagee. Develop standardized reporting requirementsf. Develop checklists of reconciliation requirements

(Basel II data to General Ledger Financial Reporting)

g. Ensure Basel II environment is integrated into the overall DW architecture

7. Basic themes of Basel II: Optimize risks Advance businessIncrease competitive advantageImprove Capital Efficiency

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8. Best Practices - Ensure availability of adequate regulatory capital against all risk exposures

Demonstrate a reliable system to understand, manage and price all risks encountered

9. Operational Risk (Basic Indicator Approach) Addl. Capital Rs.20KCr.

10. Risk Management Solution:

Calculate, monitor, report and understand the exposures at any level for

a. Credit Risk and Portfolio Analysis (by industry, domicile, maturity, etc.,)

b. Credit Analysis from origination to approval to loan syndication and Portfolio Management

c. Credit Risk Management Reporting and Analysis for Basel IId. Operations Risk Management for Basel II (Self-assessment

process, identification/location of KRIs, Capture & Reporting of loss events, scoring of risk drivers in accordance with Advanced Management Approach)

11. How does one start?

a. Credit Analysis for Bankingb. Credit Risk Management for Basel IIc. Operations Risk Management for Basel IId. Economic Capital Management

12. Delivery of Corporate Credit Solution:

a. Packaged cashflow modeling, pre-built fully integrated financial statements.

b. Scenario creation and management capabilities to explore multiple modeling assumptions amongst different financing alternatives

c. User-directed enquiry and analytics reporting capabilitiesd. Centralized technology to provide a unified modeling and reporting

environment with security and user administration

13. Work to be completed:

a. Data Aggregationb. Analysis

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c. Predictive Modelling

14.Key Requirements to move to advanced approaches:

a.Availability of clean historical datab.Auditability of intermediate calculationsc.Ability to map Basel II prescriptions to business rules.

15.Solution:

a. Migrate from basic approachesb. Model risk parameters - PD (Probability of Default), LGD (Loss Given Default), EAD (Exposure At Default) and Effective Maturity (EM)c. Support for stress testing and back testing for validating modelsd. Understand risk exposures in real-timee. Identify over- and under-exposed risk concentrations by geography, industry, instruments and ratingf. Consolidates global, domicile, industry, counterparty exposures for analysis and reportingg. Seamlessly access and aggregate data across disparate source systemsh. Readily detect and monitor credit concentrations against pre-set limitsi. Gain a powerful management concentration alerting capacity

16.Statistical Techniques:

i. .Regression Analysis for estimating PD and LGD.ii. .Monte Carlo Simulation for EAD.

17.Pillar I:

Regulatory Capital Calculations are specified.Four parameters (Risk Components) Probability of Default (PD)

Loss Given Default (LGD)Exposure At Default (EAD)Effective Maturity (EM)

18. Pillar II:

Describes the supervisory process.

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