Ing Vysya 2009
Ing Vysya 2009
1. Scope of application
ING Vysya Bank is the controlling entity for the group, which includes its wholly owned subsidiary ING Vysya Financial services Limited (IVFSL). IVFSL is engaged in touch point verification for liability products on behalf of the Bank. The consolidation with the subsidiary ING Vysya Financial Services Limited is as per Accounting Standard 21 (AS-21). While computing the consolidated Banks Capital to Risk Weighted Assets Ratio (CRAR), the Banks investment in the equity capital of the wholly owned subsidiary is deducted 50% from Tier 1 capital and 50% from Tier 2 capital. The subsidiary of the Bank is not required to maintain any regulatory capital. The Bank has no interest in any insurance entity.
2. Capital Structure
The authorized equity share capital of the Bank is Rs.350 Crore consisting of 35 Crore equity shares of Rs.10/- each. As of March 2009, the issued and subscribed capital stood at Rs.102.93 Crore consisting of 10.29 Crore of equity shares of Rs.10/- each. The paid up share capital is Rs.102.60 Crore consisting of 10.26 Crore equity shares of Rs. 10/- each. The equity share capital of the Bank is as per the provisions of the Companies Act, 1956 and any other applicable laws or regulations. The debt capital of the Bank includes perpetual debt that qualifies as Tier 1 capital and subordinated and upper tier 2 debt that qualifies for inclusion as Tier 2 capital. The tier 1 perpetual bonds are non-cumulative and perpetual in nature and carry a call option after 10 years with an interest step up of 100 bps. The interest on these bonds is payable quarterly. The Upper tier 2 bonds are cumulative in nature with an original maturity of 15 years and a call option after 10 years. There is an interest step up option after 10 years of 100 bps. The interest on these bonds is payable quarterly. The Lower tier 2 bonds are cumulative and have an original maturity between 9-10 years. The interest on these bonds is payable annually. The repayment of principal and payment of interest on all the types of bonds mentioned above are as per the RBI regulations issued in this regard. Capital Funds
(Rs. in Crore)
Tier I Capital Tier II Capital Total Capital Funds Tier I Capital Paid-up Capital Reserves and Surplus Innovative Perpetual Debt Instruments Total Tier I Capital (Unadjusted) Deductions Investments in Subsidiaries Deferred Tax Asset Other Intangible Assets Total Deductions 1,516.32 1,046.09 2,562.41
Total Tier I Capital (Adjusted) Tier II Capital Upper Tier II Bonds Subordinated Debt eligible for Lower II Revaluation Reserves General Provisions and loss Reserves Others Total Tier II Capital (Unadjusted) Deductions Investments in Subsidiaries Total Deductions : Total Tier II Capital (Adjusted)
1,516.32
Debt capital instruments eligible for inclusion under Tier-1 and Tier-2 capital (Rs . in Crore)
Tier 1 Total amount outstanding as at 31 March 2009 INR and Foreign currency Amount raised during the year INR and Foreign currency Amount eligible to be reckoned as capital funds - INR 108.01 (JPY 2.09 bln) 108.01 (JPY 2.09 bln) 94.71 Upper Tier 2 Lower Tier 2 325.73 600.00 (JPY 6.31 bln) 199.82 210.00 (JPY 3.66 bln) 322.14 560.00
Note: FCY amounts are reported in INR at the fx rate as at 31 March 2009.
3. Capital adequacy The Capital adequacy assessment process of the Bank is intended to ensure that adequate level of capital and an optimum mix of the different components of capital is maintained by the Bank to support its strategy. This is integrated with the Banks annual planning process that takes into consideration the growth assumptions across business segments and mapping of the relevant risk weights to this projected growth so that adequate capital is maintained to cover the minimum regulatory requirement and a reasonable cushion over the regulatory minimum. Capital is actively managed at an appropriate level of frequency and regulatory ratios are a key factor in the Banks budgeting and planning process with updates of expected ratios reviewed regularly during the year by Asset and Liability Committee (ALCO). The Banks ALCO has set internal triggers and target ranges for capital management, and oversees adherence with these on an ongoing basis. The Board also oversees the capital adequacy of the Bank on a quarterly basis. Summary of the Banks capital requirement as at 31 March 2009 is presented below: Amount (Rs. in Crore) A Capital requirements for Credit Risk Portfolios subject to standardized approach 1,792.30
Securitization exposures Capital requirements for Market Risk Standardized duration approach Interest rate risk Foreign exchange risk (including gold) Equity risk Capital requirements for Operational Risk Basic Indicator approach Capital Adequacy Ratio of the Bank Tier 1 CRAR
Credit Policy Committee, reporting to RMRC, which is involved in formulating all relevant policy guidelines and procedures, and for immediate action on RBI guidelines on credit related matters; Board Credit Committee, Executive Credit Committee, Zonal Credit Committee, and other executives at Corporate Office, Zonal Offices and Regional Offices, who have delegated credit approval power, as per well-defined guidelines;
Operations Department to assure high standards of loan documentation, security creation and compliance with pre-disbursal terms and conditions; Asset Recovery Committees and Loan Review Department, which track delinquencies, identify Watch List accounts, and give guidance on remedial management; Collections Department and Special Loans Management Group (SLMG), which is involved in recovery and management of delinquent accounts including enforcement of securities, legal action through Debt Recovery Tribunal (DRT) or other processes, etc. SLMG also computes the loan loss provisions as per regulatory requirements; Credit Audit Department, which performs the on-site audit of loans.
As a general principle, the Credit Risk Policy stipulates churning of 5% of accounts on a Yearon-Year basis.
Bank follows the prudential norms prescribed by RBI and the definitions of Past due, Out of Order and Overdue are as under:
1. Impaired / Non Performing Assets (NPAs) An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A NPA is a loan or an advance where: a) interest and / or installment of principal remain overdue for a period of more than 90 days in respect of a term loan; b) the account remains 'out of order' in respect of an overdraft / Cash Credit (OD / CC);
c) a bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted; d) for short duration crop loans, an installment of principal or interest thereon remains overdue for two crop seasons; e) for long duration crop loans, an installment of principal or interest thereon remains overdue for one crop season. The Bank classifies an account as NPA only if the interest charged during any quarter is not serviced fully within 90 days from the end of the quarter. 2. Out of order / past due status An account is treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit / drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power, but there are no credits for a continuous period of 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts are also regarded as 'out of order'. 3. Overdue Any amount due to the Bank under any credit facility is 'overdue' if it is not paid on the due date fixed by the Bank. Overdues greater than 30 days are reviewed at regular intervals. Overdues greater than 60 days are included in Watch List / Stressed Accounts and monitored on continuous basis. Credit risk exposure Gross Credit Risk Exposures as on 31-03-09 Fund based exposures Non fund based exposures Rs. in Crore 25,350.69 (including investments) 6,919.31 (including derivatives)
The Bank has exposures in the domestic segment only. Distribution of credit risk exposure by Industry type Industry classification Fund based exposures (Rs. in Crore) 1,361.47 3,859.14 876.76 1,469.36 579.33 205.17 3,921.14 13,078.32 25,350.69 Non-fund based exposures (Rs. in Crore) 0 433.96 0 75.00 0 0 0 6,410.35 6,919.31 Total (Rs. in Crore)
Agri and allied activities Industry - Micro and Small Services Trade CRE NBFC CF Others Total
Residual contractual maturity breakdown of assets Other Assets including Fixed Assets 65.96 21.97 110.60 45.91 816.08 247.16 482.91 537.69 2,328.27
Maturity Bucket 1 to 14 days 15 to 28 days 29 days to 3 months Over 3 months and up to 6 months Over 6 months and up to 1 year Over 1 year and up to 3 years Over 3 years and up to 5 years Over 5 years Total
Cash and Balances with Banks 1,304.01 70.39 174.53 199.86 287.02 62.74 81.39 102.31 2,282.25
Investments 4,044.21 512.01 975.41 1,177.02 1,525.49 598.94 553.93 1,108.52 10,495.54
Advances 2,186.21 1,696.67 1,935.66 1,972.34 1,985.15 3,045.59 1,856.16 2,073.14 16,750.93
Movement of NPAs and Provision for NPAs Amount of NPAs (Gross) Substandard Doubtful 1 Doubtful 2 Doubtful 3 Loss Net NPAs: Rs. 205.95 Crore NPA Ratios: Gross NPAs to gross advances Net NPAs to net advances Movement of NPAs (Gross) Opening balance as on 1-04-08 (+) Additions (-) Reductions Closing balance as on 31-03-09 Movement of provisions for NPAs Opening balance as on 1-04-08 (+) Provisions made during the period (-) Write-off (-) Write-back of excess provisions Closing balance as on 31-03-09 Rs. in Crore 86.91 106.43 89.53 0.00 103.81 Rs. in Crore 203.15 331.81 221.76 313.20 1.86% 1.23% Rs. in Crore 204.88 45.90 31.18 7.62 23.62
Movement of Non-Performing Investments (NPIs) and Provision for depreciation on investments Amount of Non-Performing Investment: Nil Amount of provisions held for non-performing investments: Nil Movement of provisions for depreciation on investments Opening balance as on 01.04.2008 (+) Provisions made during the period (-) Write-off/Write-back of excess provisions Closing balance as on 31.03.2009 Rs. in Crore 14.67 8.79 5.88
Bank has adopted netting off of Banks own deposits, Government Securities, Debt Oriented Mutual Funds and gold, wherever the Collateral is identifiable, marketable and enforceable and complies with the RBI requirements. Sovereign exposures and Sovereign guaranteed exposures are risk weighted as per RBI directives. A system of physical verification /periodical updation of the valuation of the collateral (within a period not exceeding three years) is followed. Periodicity for unit visits also is prescribed in the Credit Risk Policy and the Credit Risk Manuals. The Bank has set up Centralized Asset Processing Units (CAPUs) at all important centres to ensure perfection of documentation and to comply with charge registration matters. Electronic filing of Charge Registration with ROC in digital format is ensured by CAPU. Insurance of securities is also assured. The Bank complies with RBI requirements for collateral eligibility to be treated as a Credit Risk mitigant. Types of collateral taken by the Bank The main types of collateral taken by the Bank are Current Assets, Plant and Machinery, Land and Building, Liquid Assets like gold, cash or fixed deposits with the Bank, Capital Market related collateral, Guarantees provided by promoters/ Central Government/State Government/ Banks/ Financial Institutions/ Other Corporates/ ECGC, etc. Type of Guarantor / Counterparty and their Credit Worthiness The types of guarantees recognized for credit risk mitigation are guarantees by Central Government, State Governments, ECGC, Banks and Corporates. The effect given for these guarantees are in line with RBI stipulations. Concentration risk within the Credit Risk Mitigants taken The Bank does not face concentration risk arising out of certain types of borrowers/ industries/ tenor as Caps have been set and are monitored. Concentration risk in terms of the mitigation taken also does not arise as the range of collateral taken, the type of borrower offering it, the location of the collateral are varied. The Exposure covered by eligible financial collateral after the application of haircuts is Rs. 984.01 Crore as at 31 March 2009. This does not include the impact of guarantor benefit. 7. Securitization: Disclosure for Standardized Approach The Bank purchases / sells loans through securitization and direct assignments. The primary objective for undertaking securitization activity by the Bank are enhancing liquidity; optimize the usage of capital and churning assets as part of risk management strategy. The Bank enters into purchase / sale of home and vehicle finance loans through SPVs/ assignment. In most of the cases, the role played by bank is that of an investor. The Bank follows the standardized approach prescribed by the RBI for the securitization activities. In accordance with the RBI guidelines, with effect from 1 February 2006, the Bank accounts for any loss arising from securitization immediately at the time of sale. The profit/premium arising from securitization is amortized over the life of the securities issued or to be issued by the special purpose vehicle to which the assets are sold. In the financial year ended 31 March 2009, the Bank has not securtised any assets as an originator and does not have any impaired/past due assets securitized or losses recognized in the current period. The total outstanding exposures securitized by the Bank and subject to securitization framework as on 31 March 2009 is Nil
Aggregate amount of securitization exposures retained or purchased as on 31st March 2009 (Rs. in Crore) S. No Type of securitization 1. Securities purchased - Home and Home equity loans 2. Liquidity facility 3. Credit enhancement 4. Other commitments Amount 120.00 Nil Nil Nil
Risk weight bands of securitization exposures on the basis of book value (Rs. Crore) Risk weight bands Less than 100% 100% More than 100% Deductions -Entirely from Tier I capital -Credit enchasing I/Os deducted from Total Capital -Credit enhancement (cash collateral) in
Amount 120.00 -
Comparative position of two years of the portfolio securitized by the Bank (Rs. in Crore) S.No Type of Securitization As at 31 As at 31 March March 2009 2008 1. Total number of loan assets securitized -Corporate Loan (in numbers) 3 2. Total book value of loan assets securitized -Corporate loan 3. Sale consideration received for securitized assets 4. Gain / loss on sale on account of securitization 5. Form and quantum (outstanding value) of service provided - Credit enhancement - Outstanding servicing liability - Liquidity support 140.00 140.30 0.30 -
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The Board has approved the Investment Policy for the financial year 2008-09. The policy is reviewed on a half-yearly basis or earlier as deemed appropriate.
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Stress testing and scenario analysis The framework and scenarios for stress testing have been outlined in detail in the Market Risk Measurement Policy. While the Value at Risk methodology assumes normality, reality has shown problems with this assumption. In general, it turns out that extreme scenarios are more likely to happen than what is to be expected under the assumption of normality. In order to be aware of extreme swings, the Bank undertakes stress tests. For event risk, a set of possible combinations is calculated. Based on the outcome of the results, limits may be adjusted and reapproved by competent authority. There are broadly two categories of stress tests used, viz. sensitivity and scenario tests. Sensitivity tests are normally used to assess the impact of change in one variable on the Banks position. Scenario tests include simultaneous moves in a number of variables. As per Basel II, the stress test limits are set in such a way that it never exceeds more than 20% of the Banks capital. Accordingly, the other risk limits are derived from this principle. Portfolios covered by standardized duration approach The following portfolios are covered by the standardized duration approach: AFS (available for sale) HFT (held for trading) for MM, FX and derivatives FX from banking books
9. Operational risk
ING Vysya Bank Ltd has defined operational risk as the risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events. It also includes the risk of reputation loss as well as legal risk; whereas strategic and business risks are not included. The Bank has various Policies (Operational Risk Policy, Information Risk Policy, Security Policy, Outsourcing Policy, Crisis Management Policy and Anti-Fraud Policy) in place to ensure effective management of Operational risks. Key stages of the operational risk management processes is risk identification, risk measurement, risk monitoring and risk mitigation. In order to make the process more effective and integrated for the business units, legal, compliance and operational risk functions in the Bank work in an integrated manner with similar processes.
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Risk Reporting
A clear defined risk reporting system has been set up in the Bank. At the regional level, RORCs have been set up to monitor the operational risk exposure with representation from the departments and senior management at the regional level. At the Corporate Office level, ORC has been set up with representation from the departments and senior management from all business lines and critical support functions of the Bank. The committees meet regularly to discuss the operational issues and take necessary steps to mitigate the risks. The Bank uses the Non-Financial Risk Dashboard (NFRD) as an operational risk reporting tool. This report highlights the identified operational risks as well as the action taken to mitigate the risks. It also provides an overview on the progress of the mitigation plans of the identified operational risks.
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Risk and Control Self Assessments Risk Awareness programs Incident Reporting and Analysis Quality of Control Scorecards Audit Findings Action Tracking Key Risk Indicator reporting Operational risk dashboard Information Security plans and implementation Crisis management planning Personal and physical security planning
Risk Mitigation
The Bank has an internal risk footprint, which it uses as threshold to decide the severity of an operational event. Further, the Bank has a centralized loss data capture mechanism that it uses for the quantification of the operational losses. The Bank currently uses the scorecard approach to measure the implementation of the operational risk management across the Bank. This approach is based on the maturity of the operational risk management in the Bank. Operational risk capital: The Bank currently qualifies for the Basic Indicator Approach operational risk capital assessment. The capital requirement for operational risk has been estimated as per the Basel II related regulatory guidelines prescribed by the Reserve Bank of India.
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VaR limit for ALM book and fraction VaR limit for the Capital book Event risk limit and Duration mismatch
The type and level of structural and mismatch interest rate risk of the Bank is managed and monitored from two perspectives, being an economic value perspective and an earnings perspective.
Economic Value perspective involves analyzing the impact of changes in interest rates on expected cash flows on assets, minus the expected cash out-flows on liabilities, plus the net cash flows of off-balance sheet items. Earning perspective involves analyzing the impact of changes in interest rates on accruals or reported earnings in the following year. This is measured by Net Interest Income (NII) or Net Interest Margin (NIM). The Bank combines both methodologies to analyze both effects simultaneously. Earnings impact perspective
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