Page 215 - DMGT303_BANKING_AND_INSURANCE

Banking and Insurance

Notes The average estimated cost per head for implementation of VRS for SBI and its seven
associated banks worked out to Rs. 0.65 million and Rs 0.57 million respectively. As a
result of the VRS, SBI's net profit decreased from Rs 25 billion in 1999-00 to Rs 16 billion in
2000-01.

1. The Federation of Indian Chambers of Commerce and Industry (FICCI) was founded
in 1927. It is an apex business organization in India, with a membership of several
thousand chambers of commerce, trade associations and industry bodies spread
across the country. It represents over 2,50,000 business units.
2. Indian Banks Association is an apex body, of a voluntary nature for banks in India.
It was started in 1926 and its members include Public Sector Banks, Private sector
banks, Foreign banks having offices in India, Urban-Cooperative banks,
Developmental Financial Institutions, etc. The main goal of IBA is to see
implementation of efficient and progressive banking principles in the country.

3. Non performing Assets (NPAs) are loans on which interest payments have been due
for more than one quarter (3 months) and in the case of monthly installments have
been due for more than 3 instalments.

Source: http://www.icmrindia.org/free%20resources/casestudies/State%20Bank%20of%20India-
VRS%20Story1.htm

10.8 BASEL I, II and III Banking Norms

The Basel Accords/ Norms

This refers to the banking supervision Accords (recommendations on banking regulations)-
Basel I, Basel II and Basel III-issued by the Basel Committee on Banking Supervision (BCBS).
They are called the Basel Accords as the BCBS maintains its secretariat at the Bank for International
Settlements in Basel, Switzerland and the committee normally meets there.

Basel I

Basel I is the round of deliberations by central bankers from around the world, and in 1988, the
Basel Committee (BCBS) in Basel, Switzerland, published a set of minimum capital requirements
for banks. This is also known as the 1988 Basel Accord, and was enforced by law in the Group of
Ten (G-10) countries in 1992 . Basel I is now widely viewed as outmoded. Indeed, the world has
changed as financial conglomerates, financial innovation and risk management have developed.
Therefore, a more comprehensive set of guidelines, known as Basel II are in the process of
implementation by several countries and new updates in response to the financial crisis
commonly described as Basel III.
Basel I, that is, the 1988 Basel Accord, primarily focused on credit risk. Assets of banks were
classified and grouped in five categories according to credit risk, carrying risk weights of zero
(for example home country sovereign debt), ten, twenty, fifty, and up to one hundred percent
(this category has, as an example, most corporate debt). Banks with international presence are
required to hold capital equal to 8% of the risk-weighted assets. The creation of the credit default
swap after the Exxon Valdez incident helped large banks hedge lending risk and allowed banks
to lower their own risk to lessen the burden of these onerous restrictions.
Since 1988, this framework has been progressively introduced in member countries of G-10,
currently comprising 13 countries, namely, Belgium, Canada, France, Germany, Italy, Japan,
Luxembourg, Netherlands, Spain, Sweden, Switzerland, United Kingdom and the United States
of America.

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