BASEL II DISCLOSURES OF THE FEDERAL BANK LTD, AS ON 31/03/2012

I. SCOPE OF APPLICATION OF BASEL II DISCLOSURES

Table DF 1: Scope of Application
1. Qualitative disclosures
1.1 Name of the top Bank in the group to which The Federal Bank Ltd.
the framework applies
1.2 Differences in the basis of consolidation for accounting and regulatory
purposes: (outline with a brief description of entities within the group)
i) The revised capital adequacy norms (in conformity with Basel II Pillar III
requirements) apply to Federal Bank at solo level.
ii) The Bank has one fully owned subsidiary viz. Fedbank Financial Services Ltd
and an associate viz. IDBI Federal Life Insurance Company Ltd.
Consolidated financial statements of the group (parent and subsidiary) have
been prepared on the basis of audited financial statements of Federal Bank and
its subsidiary, combining and adding together the items such as assets,
liabilities, income and expenses, after eliminating intra group transactions.
1.3 That are fully consolidated: (AS 21)
Name Activity Holding %
a) The wholly owned
subsidiary has been 100 %
registered as an
NBFC.The major
Fed Bank Financial Services Ltd activities include
marketing of banks
own products and
business of lending
against gold
1.4 That are pro-rata consolidated: (AS 27)
Name Activity Holding %
a) NIL
1.5 That are given a deduction treatment:
Name Activity Holding %
a) NIL
1.6 That are neither consolidated nor deducted
Name Activity Holding %
Sale of
IDBI FEDERAL Life Insurance Company Ltd. Insurance 26 %
products
2. Quantitative disclosures
2.1 Aggregate amount of capital deficiencies in all subsidiaries not included in the
consolidation and that are deducted
Amount of
Name of subsidiary Activity shortfall deducted
(In ` Cr.)
a) NIL NA NA
The aggregate amounts (e.g. current book value) of the banks total interests in
insurance entities, which are risk-weighted as well as their name, their country
2.2 of incorporation or residence, the proportion of ownership interest and, if
different, the proportion of voting power in these entities. In addition, indicate
the quantitative impact on regulatory capital of using this method versus using
the deduction
a) Name IDBI FEDERAL Life Insurance
Company Limited.
b) Country of incorporation / residence India
c) Proportion of ownership interest 26%
d) Proportion of voting power 26%
Quantitative impact on regulatory capital of CRAR under deduction method
e) using this method versus using the is 16.16% as against 16.64%
deduction under the risk weighting method.

II. STRUCTURE AND ADEQUACY OF CAPITAL

TABLE DF 2: CAPITAL STRUCTURE
1. Qualitative Disclosures

Summary (information on the terms and conditions of the main features of all
1.1 capital instruments, especially in the case of capital instruments eligible for
inclusion in Tier 1 or in Upper Tier 2.).
Type of capital Features
Tier I Capital includes Equity Share Capital and
Reserves and surpluses comprising of Statutory
A Tier I Reserve, Capital Reserve Investments, Share
Premium, Revenue Reserve, Investment fluctuation
Reserve, Special Reserve, Contingency Reserve
and Balance in Profit & Loss A/c.
Tier II Capital includes Revaluation Reserve, Tier II
B Tier II Bonds Subordinated Debt and General Provisions
 2 Quantitative Disclosures

2.1 Details of capital instruments

Type of capital Date of Amount Tenure Coupon Rating
instrument issue in ` Cr in (% p.a.)
months
Innovative instruments
A (Tier I capital) Nil

Other capital
B instruments (Tier I) Nil

Debt capital
C instruments eligible for
inclusion in Upper Tier Nil
II capital
Subordinated debt Date of Amount Tenure Coupon Rating
eligible for inclusion in Issue in ` Cr in (% p.a.)
Lower Tier II capital Months
30.08.03 61 104 7.10 Rating by
D 26.07.04 30 117 6.85 CARE as
26.07.04 15 93 6.75 CARE
16.12.06 200 120 9.25 AA and
by Fitch as
AA-(ind)
2.2 Capital funds Amount in
` Crore
A TIER I CAPITAL
Paid up share capital
171.05
Reserves and Surplus
5,529.86
Innovative instruments (IPDI or any other instrument that may be 0.00
allowed from time to time)
Other capital instruments 0.00
Amounts deducted from Tier I capital, including goodwill and
investments 95.00
B TIER II CAPITAL (Total amount net of deductions from Tier II
capital)
Debt capital instruments eligible for inclusion in Upper Tier II 0.00
capital
Total amount outstanding 0.00
 Of which, amount raised during the current year 0.00
Amount eligible to be reckoned as capital funds 0.00
Subordinated debt eligible for inclusion in Lower Tier II capital
306.00
Total amount outstanding 306.00
Of which, amount raised during the current year 0.00
Amount eligible to be reckoned as capital funds
172.00
Other Tier II capital
198.47
Revaluation Reserve
2.43
General Provisions
196.04
Deductions from Tier II capital
95.00
C Other deductions from capital, if any. 0.00
D Total eligible capital
5,881.38
TABLE DF 3: CAPITAL ADEQUACY

1. Qualitative Disclosures

1.1 A summary discussion of the Banks approach to assess the adequacy of its
capital to support current and future activities.
1. Policy on Internal Capital Adequacy Assessment Process has been put
in place and the assessment of capital commensurate to the risk profile
is reviewed on a quarterly basis.
2. Capital requirement for current business levels and estimated future
business levels are assessed on a periodic basis.
3. CRAR has been worked out based on Basel- I and Basel- II guidelines
and it is well above the Regulatory Minimum level of 9 %.
2. Quantitative Disclosures

2.1 Minimum capital requirements under Pillar I of Basel II Amount in `

Crore.
A Capital requirements for credit risk (@ 9% CRAR) 2737.85
Portfolios subject to Standardized approach 2737.85
Securitisation exposures 0.00
B Capital requirements for market risk (Standardized duration
approach) (@ 9% CRAR) 166.34
Interest rate risk 114.57
Foreign exchange risk (including gold) 18.00
Equity risk 33.77
C Capital requirements for operational risk (Basic Indicator
Approach) (@ 9% CRAR) 277.59
 2.2 Capital Adequacy Ratio (CRAR) % for consolidated group (consolidation only
for annual disclosures) and significant bank subsidiaries
Name of entity Total CRAR Tier I CRAR
Consolidated Bank (group as a whole 16.81% 15.76%
applicable annually only)
The Federal Bank Ltd. (solo basis) 16.64% 15.86%
Significant bank subsidiaries (wherever
applicable, entity wise data)

III.RISK EXPOSURE AND ASSESSMENT

(A) Objectives and policies
Sl.
No.
1. Credit risk
1.1 Strategies and processes:

The Bank is exposed to credit risk in its lending operations. The Banks
strategies to manage the credit risks are as under:

a) Defined segment exposures delineated into retail, small and medium

enterprises and to Corporates;
b) Industry wise segment caps on aggregate lending by Bank across
Branches
c) Individual borrower wise caps on lending as well as borrower group
wise lending caps linked as a percentage to the Banks capital funds at
the end of the previous year
d) Credit rating of borrowers and allowing credit exposures only to defined
thresholds of risk levels; the approach also includes diversification of
credit rating wise borrowers but within acceptable risk parameters.
e) The Banks current entire business is within India and hence there is no
geographic cap on lending in India; there is also no cap on lending
within a State in India. However, in respect of cross border trade which
would involve exposures to banks and financial institutions located
outside India, there is a geographic cap on exposures apart from cap
on individual bank/institution
f) A well defined approach to sourcing and preliminary due diligence while
sourcing fresh credit accounts
g) A clear and well defined delegation of authority within the Bank in
regard to decision making linking risk and exposure amount to level of
approval.
h) Regular review of all credit structures and caps, continuously
strengthening credit processes, and monitoring oversight which are
regularly reviewed and duly approved by the Board of the Bank.
i) At present all the credit facilities except agricultural loans, gold loans
etc. are being sanctioned at Credit Hubs which has strengthened credit
processes.
 j) All credit proposals of `5.00 crores and above are scrutinized and risk
assessment is conducted by Integrated Risk Management Department,
independent of the business functions.

Oversight of the Boards sub committee on risk.

Bank has put in place Board approved comprehensive Credit Risk

Management Policy designed with added focus on credit risk management.
The policy aims to provide basic framework for implementation of sound credit
risk management system in the Bank. It spells out various areas of credit risk,
goals to be achieved, current practices and future strategies. Bank has also
operationalised required organizational structure and framework as prescribed
in the policy for efficient credit risk management through proactive
identification, precise measurement, fruitful monitoring and effective control of
credit risk arising from its credit and investment operations. Bank has Board
level sub committee, Risk Management Committee, to oversee Bank wide
credit risk management and senior executive level Credit Risk Management
Committee to monitor adherence to policy prescriptions and regulatory
directions. CRMC of the Bank meets once in a month to take stock of Banks
credit risk profile based on the reports placed by Credit Risk Management Cell
of Integrated Risk Management Department.

Bank has put in place detailed Loan Policy spelling out various aspects of
credit dispensation and credit administration. Loan policy stipulates measures
for avoiding concentration risk by setting prudential limits and caps on taking
sector wise, rating grade wise, and customer-constitution wise exposure. The
policy gives specific instruction on valuation of collaterals .Bank has also put in
place guidelines on fixing and monitoring of exposure ceilings to contain risk in
credit and investment exposures. The Internal Capital Adequacy Assessment
Process (ICAAP) periodically conducted by the Bank takes care of the residual
risk assessment and also adequacy of capital under Basel II norms.

1.2 Scope and nature of risk reporting / measurement systems:

Bank has developed comprehensive risk rating system that serves as a single
point indicator of diverse risk factors of counterparty and for taking credit
decisions in a consistent manner. Risk rating system is drawn up in a
structured manner, incorporating different factors such as borrower specific
characteristics, industry specific characteristics etc. Risk rating is made
applicable for loan accounts, whether funded or non-funded, with total limits
above `2lakhs. Bank uses different rating models for different types of
exposures. Rating model used for infrastructure exposures and corporate
exposures are comprehensive in structure whereas model used for small
exposures in the range of `2lakhs to `50 lakhs is relatively simple in structure.
Retail advances are rated using scoring model. At present a separate scoring
model is used for rating Home loans and Auto loans. Bank also uses a
separate rating model for rating its investment exposures. Bank is undertaking
annual validation of its rating model for exposures of `5Crores and above and
 is also conducting migration and default rate analysis of all loans of `50 lakhs
and above.

Rating process and rating output are used by the Bank in sanction and pricing
of its exposures. Bank also conducts annual credit rating of its exposures and
the findings are used in annual migration study and portfolio evaluation.

Credit facilities are sanctioned at various levels in accordance with the

delegation approved by the Board. The exercise of delegation and credit rating
assigned by the sanctioning authority are subjected to confirmation by a
different authority. Bank has also operationalised pre-sanction risk vetting of
exposures of `5Crores and above by independent Integrated Risk
Management Department. Risk rating and vetting process being done
independent of credit appraisal function ensure its integrity and independency.

Credit audit is being conducted at specified intervals. Bank has made

reasonably good progress in implementing all available instruments of credit
risk mitigation.

1.3 Policies for hedging / mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges/ mitigants:

Banks Credit Risk Management Policy also stipulates various tools for
mitigation of credit risk and collateral management. Investment Policy of the
Bank covers risk related to investment activities of the Bank and it prescribes
prudential limits, methods of risk measurement, and hedges required in
mitigation of risk arising in investment portfolio. Credit Risk Management
Committee at senior executive level and Risk Management Committee at
Board level monitor, discuss, evaluate and review risk mitigation levels and
effectiveness of mitigation measures.

Risk rating process by itself is an integral part of processes of selection of

clients and sanction of credit facilities. Exercise of delegation for sanction of
fresh loans or renewal/review of existing exposure by field level functionaries is
permitted only for borrowers above a pre-specified rating grade. Entry-level
restrictions are further tightened in certain sectors when market signals need
for extra caution. Rating of an exposure is confirmed by an independent
authority to ensure its integrity.

2. Market risk

2.1 Strategies and processes:

The Bank monitors market risk through risk limits and Middle Office in
operationally intense areas. Detailed policies like Asset Liability Management
Policy, Investment Policy, Derivatives Policy etc., are put in place for the
conduct of business exposed to market risk and also for effective management
of all market risk exposures.

The policies and practices also take care of monitoring and controlling of
 liquidity risk arising out of its banking and trading book operations.

2.2 Scope and nature of risk reporting / measurement systems:

Bank has put in place regulatory/ internal limits for various products and
business activities relating to trading book. Bank also subjects investment
exposures to credit rating. Limits for exposures to counterparties, industries
and countries are monitored and risks are controlled through Stop Loss Limits,
Overnight Limit, Daylight Limit, Aggregate Gap Limit, Individual Gap Limit,
Inter-Bank dealing and investment limits etc.Parameters like Modified Duration,
VaR etc are also used for risk management and reporting.

Bank has an independent Mid Office working on the floor of Treasury

Department for market risk management functions like onsite monitoring of
adherence to set limits, independent valuation and reporting of activities. This
separate desk monitors market/operational risks in treasury/forex operations
on a daily basis and reports directly to the Head of IRMD.

Asset Liability Management Committee (ALCO), also known as Market Risk

Management Committee, is primarily responsible for establishing market risk
management and asset liability management in the Bank, procedures thereof,
implementing risk management guidelines issued by the regulator, best risk
management practices followed globally and monitoring adherence to the
internal parameters, procedures, practices/policies and risk management
prudential limits.

2.3 Policies for hedging / mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges/ mitigants:

Policies for hedging/ mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges / mitigants are discussed in
ALCO and based on the views taken by/ mandates given by ALCO, hedge
deals/ mitigation steps are undertaken.

Liquidity risk of the Bank is assessed through Statement of Structural Liquidity

on static basis and statement of Short Term Dynamic Liquidity on dynamic
basis. Structural liquidity position is assessed on a daily basis and dynamic
liquidity position is assessed on a fortnightly basis. Additional prudential limits
on liquidity risk fixed as per ALM policy of the Bank are also monitored by
ALCO on a quarterly basis. Interest rate risk is analyzed from earnings
perspective using Traditional Gap Analysis on a monthly basis and economic
value perspective using Duration Gap Analysis on a quarterly basis .Based on
the analysis, steps are taken to minimize the impact of interest rate changes.
Advance techniques such as Stress testing, sensitivity analysis etc. are
conducted periodically to assess the impact of various contingencies.
3. Operational risk

3.1 Strategies and processes:

Bank has put in place detailed framework for Operational Risk Management
with a well-defined ORM Policy. Operational Risk Management Committee
(ORMC) at the executive level oversees bank wide implementation of Board
approved policies and processes in this regard. All new schemes/products of
the Bank are risk vetted from the point of view of operational risk, before
implementation.
Various tools, controls and mitigation measures implemented for management
of operational risk are being reviewed and updated on a regular basis, to suit
the changes in risk profile. Bank has also put in place a comprehensive bank
wide Business Continuity Plan to ensure continuity of critical operations of the
Bank covering all identified disasters.
3.2 Scope and nature of risk reporting / measurement systems:

Bank has started collection of internal operational loss data from Fiscal 2006-
07. In the year 2009, Bank has introduced separate accounting of operational
risk events to enhance transparency and to enable effective monitoring of loss
events. Well-designed format for reporting identified loss events and data in
the most granular form is put in place. Operational Risk Management Cell is
the central repository for operational loss data of the Bank. Consolidation and
analysis of loss data is placed before the Operational Risk Management
Committee on a quarterly basis.
3.3 Policies for hedging / mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges/ mitigants:

Bank is using insurance for mitigating operational risk. Bank is subscribing to

the General Bankers Indemnity Policy as mitigation against loss of securities
due to various external events. Bank also mitigates loss in other physical
assets through property insurance.

4. Interest rate risk in banking book

4.1 Strategies and processes:

Interest Rate Risk is assessed in two perspectives Earnings perspective

using Traditional Gap Analysis conducted monthly to assess the impact of
adverse movement in interest rate on the Net Interest Income (Earnings at
Risk) and economic value perspective using Duration Gap Analysis conducted
quarterly to assess the impact of adverse movement in interest rate on the
market value of Banks equity.
4.2 Scope and nature of risk reporting / measurement systems:

Interest rate risk in Banking Book is measured and Modified Duration of Equity
is evaluated on a quarterly basis. The likely drop in Market Value of Equity for
200 bps change in interest rates is computed and benchmarked under the
Internal Capital Adequacy Assessment Process for computation of Pillar II
capital charge for Interest Rate Risk. Earnings at Risk based on Traditional
 Gap Analysis are calculated on a monthly basis and adherence to tolerance
limit set in this regard is monitored and reported to ALCO / RMC. The results of
Duration Gap Analysis are also reported to ALCO / RMC. Stress tests are
conducted to assess the impact of interest rate risk under different stress
scenarios on earnings of the Bank.
4.3 Policies for hedging / mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges/ mitigants:

Bank has put in place mitigating/hedging measures prescribed by Investment

Policy, ALM Policy, Derivatives Policy and Stress Testing Policy.

Risk profiles are analyzed and mitigating strategies/hedging process are

suggested and operationalised by Treasury Department with the approval of
Senior level Committees.

(B) Structure and organization of Banks risk management function

Bank has put in place appropriate organizational framework for bank-wide

management of risk on integrated basis. The structure ensures coordinated process
for measuring and managing all types of risk on an enterprise-wide basis to achieve
organizational goals. The structure assures adherence to regulatory stipulations. The
structure is designed in tune with the general guidelines of Regulator.

Banks Board at the top of the structure has assumed overall responsibility for bank-
wide management of risk. The Board decides risk management policies of the Bank
and sets risk exposure limits by assessing Banks risk appetite and risk bearing
capacity. Risk Management Committee of the Board assumes responsibility of
devising policy and strategy for enterprise-wide risk management. The Committee
also sets guidelines for measurement of risks, risk mitigation and control parameters
and approves institution of adequate infrastructure for risk management. The
Committee meets regularly and reviews reports placed on various risk areas.
There are three support committees of senior executives (CRMC, ALCO also known
as MRMC, ORMC) responsible for implementation of policies and monitoring of level
of risks in their respective domains. The Committees are headed by Managing
Director & CEO. Senior executives from respective functional areas and risk
management are members of the Committee. The Committees meet regularly to
take stock of various facets of risk management function and place their reports to
Board level Risk Management Committee. CRMC meets at least once in a month
and ORMC meets at least once in a quarter. Depending on requirement, ALCO
meets very often. Further, an apex level Business Continuity Plan Committee is
constituted with the Managing Director & CEO as its head, to ensure continuity of
critical operations of the Bank in the event of occurrence of disasters.
Single point management of different types of risks bank-wide is made functional
through Integrated Risk Management Department. The Department is responsible
for overall identification, measurement, monitoring and control of various types of
risks faced by the Bank in its operations and compliance of risk management
guidelines and policies issued by Regulator/Board. The Department has three
separate Cells to look after three broad categories of risks. Independent Mid-Office
functioning on the floor of Treasury Department is reporting directly to the Head of
IRMD. The distinct risk Cells report to the Head of IRMD. The Head of IRMD reports
to the Managing Director & CEO through the Executive Director.

(C)Structured risk wise disclosures

TABLE DF 4: CREDIT RISK: GENERAL DISCLOSURES

1. Qualitative disclosures
1.1 Definitions of past due and impaired (for accounting purposes).

1. Non Performing Assets

An asset including a leased asset becomes non-performing when it ceases to

generate income for the bank. A non performing asset (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 as indicated in paragraph 2 below,
in respect of an Overdraft / Cash Credit (OD/CC)
c. The bill remains overdue for a period of more than 90 days in case
of bills purchased and discounted
d. The installment of principal or interest thereon remains overdue
for two crop seasons for short duration crops.
e. The installment of principal or interest thereon remains overdue for
one crop season for long duration crops.
An account is classified as NPA if the interest charged during any quarter is not
serviced fully within 90 days from the end of the quarter.

2. Out of Order 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 continuously for 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 treated 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.

4. Credit Risk
a. Inability or unwillingness of the counterparty to pay interest, repay
principal or otherwise to fulfill their contractual obligations under loan
agreements or other credit facilities
 b. Downgrading of counter parties whose credit instruments the Bank may
be holding, causing the value of those assets to fall.
c. Settlement Risk (possibility that the Bank may pay counterparty and fail
to receive the corresponding settlement in return).

1.2 Discussion of the Banks Credit Risk Management Policy

Bank has put in place a detailed Credit Risk Management Policy. Goal of this
policy is to create a transparent framework for identification, assessment and
effective management of credit risk in all operations of the Bank and to secure
organizational strength and stability in the long run. The policy aims at
contributing to the Banks profitability by efficient and profitable utilization of a
prudent proportion of the Banks resources and maintaining a reasonably
balanced portfolio of acceptable risk quality through diversification of credit risks.
The policy also envisages optimizing returns with satisfactory spread over
funding cost and overheads.
The policy also deals with structure, framework and processes for effective
management of inherent credit risk.
2. Quantitative disclosures

Amount in ` Crore
Fund Non-fund Total
based (same based (Book
as total assets value, excluding
in Balance market related
Sheet) OBS contracts
and undrawn
exposures)
2.1 Total gross credit risk exposures (after
accounting offsets in accordance with the applicable 60626.79 4722.13 65348.91
accounting regime and without taking into account the
effects of credit risk mitigation techniques)
2.2 Geographic distribution of exposures (same
basis as adopted for segment reporting adopted for
compliance with AS 17)
Overseas
Domestic 60626.79 4722.13 65348.91
2.3 Industry type distribution of exposures (with Please refer Table 4 (A)
industry break up on same lines as prescribed for
DSB returns)
2.4 Residual contractual maturity breakdown Please refer Table 4 (B)
of assets (maturity bands as used in ALM returns
should be used)
2.5 Amount of NPAs (Gross) 1300.83
Substandard 466.82
Doubtful 1 341.48
Doubtful 2 158.05
Doubtful 3 33.42
Loss 301.06
2.6 Net NPAs 199.00
 2.7 NPA ratios
Gross NPAs to gross advances (%) 3.35
Net NPAs to net advances (%) 0.53
2.8 Movement of NPAs (Gross)
Opening balance (balance as at the end of previous
Fiscal) 1148.33
Additions during the period 695.31
Reductions 542.81
Closing balance 1300.83
2.9 Movement of provisions for NPAs
Opening balance (balance as at the end of previous
Fiscal) 942.34
Provisions made during the period 221.77
Write off / Write back of excess provisions 108.78
Closing balance 1055.33
2.10 Amount of Non Performing Investments 0.00
2.11 Amount of provisions held for Non Performing Investments 0.00
2.12 Movement of provisions for depreciation on investments
Opening balance (balance as at the end of previous
Fiscal) 16.50
Provisions made during the period 51.37
Write-off 0.00
Write-back of excess provisions 16.50
Closing balance 51.37
TABLE 4 (A): INDUSTRY TYPE DISTRIBUTION OF EXPOSURES

(Amount in ` Crore)
Sl. Industry Gross lending exposures, without % to gross
No. netting credit
Fund Non-fund Total exposure
based based as per Table
DF 4 2.1
1 Mining & Quarrying 240.24 7.01 247.25 0.38
2 Food Processing 1401.87 4.07 1405.94 2.15
3 Beverages & Tobacco 16.65 0.00 16.65 0.03
4 Textiles 800.66 4.06 804.72 1.23
5 Leather & Leather products 73.51 1.73 75.24 0.12
6 Paper & paper products 200.61 1.08 201.69 0.31
7 Petroleum, Coal products &
Nuclear Fuels 1259.46 1.25 1260.71 1.93
8 Chemicals & Chem
products 659.23 1.16 660.39 1.01
9 Rubber, Plastic &their
products 101.51 0.25 101.76 0.16
10 Cement & Cem products 73.93 1.40 75.33 0.12
11 Basic Metal & Metal
products 1330.04 13.48 1343.52 2.06
12 All Engineering 428.52 233.75 662.27 1.01
13 Vehicles, parts and 70.34 0.05 70.39 0.11
 Transport Equipments
14 Gems & Jewellery 21.47 0.00 21.47 0.03
15 Construction 151.12 0.24 151.36 0.23
16 Infrastructure 4455.14 58.98 4514.12 6.91
17 Other Industries 702.45 0.00 702.45 1.07
TOTAL 11986.75 328.51 12315.26

st
As on 31 March 2012, exposure to infrastructure exceeds 5 % of the gross credit
exposure of the Bank.

TABLE 4 (B): RESIDUAL CONTRACTUAL MATURITY BREAKDOWN OF ASSETS

(Amount in ` Crore)
Cash Balances Balances Investm Advances Fixed Other Total
with RBI with other ents assets assets
banks
Day 1 395.84 4.73 207.83 1.88 182.31 1.43 794.02
2 7 days 27.05 284.07 282.36 887.62 0 1481.10
8-14 days 9.74 29.63 68.29 1246.15 0 1353.81
15-28 days 26.13 54.64 269.02 856.93 0 1206.72
29 days & up
to 3 months 151.59 523.41 1489.87 2814.34 2.18 4981.39
Over 3
months & up
to 6 months 253.98 8.83 705.58 2853.46 2.34 3824.19
Over 6
months & up
to 1 year 285.41 0 218.09 4757.42 880.82 6141.74
Over 1 year
& up to 3
years 752.98 0 898.01 17069.49 4.91 18725.39
Over 3 years
& up to 5
years 29.31 0 1423.90 3128.60 2.38 4584.19
Over 5 years 487.37 0 12045.48 3959.67 326.14 715.54 17534.20
Total 395.84 2028.29 1108.41 17402.48 37755.99 326.14 1609.6 60626.75
TABLE DF 5: DISCLOSURES FOR PORTFOLIOS SUBJECT TO THE
STANDARDIZED APPROACH
1. Qualitative disclosures
For portfolios under the Standardized Approach;
Names of credit rating agencies used, plus reasons for any changes.
Bank has approved all the four External Credit Rating Agencies accredited by
RBI for the purpose of credit risk rating of domestic borrowal accounts that
forms the basis for determining risk weights under Standardized Approach.
External Credit Rating Agencies approved are:
1. CRISIL
2. CARE
3. FITCH India
4. ICRA
No agency has been added/deleted by the Bank during the year . Wherever
short term rating is not available, long term rating grade is used to determine
risk weight of the short term claims also. However, even if short term rating is
available, it is not used to determine risk weight of long term claims.
With respect to external credit rating, Bank is using long term ratings for risk
weighting all long term claims and unrated short term claims on the same
counterparty. However, short term rating of a counterparty is used only to
assign risk weight to all short term claims of the obligor and not to risk weight
unrated long term claims on the same counterparty
For an unrated claim with respect to external credit rating, The Federal Bank
Ltd. is using long term ratings for risk weighting both unrated long term claims
as well as unrated short term claims on the same counterparty. However, short
term rating of counterparty are only used to assign risk weight to unrated short
term claims and not unrated long term claims of the same counterparty.
Wherever external credit rating of guarantor is relevant, the same should be
used as the entity rating of the guarantor and not the rating of any particular
issue of the guarantor. Whereas the entity ratings can be used to risk weight
specific unrated credit exposures of counterparty, rating of any credit exposure
of the counterparty cannot be used to arrive at risk weight of that counterparty
as guarantor.
1.2 Types of exposure for which each agency is used.
1. Rating by the agencies is used for both fund based and non-fund based
exposures.
2. Short Term Rating given by the agencies is used for exposure with
contractual maturity of less than or equal to one year (except Cash Credit,
Overdrafts and other Revolving Credits).
3. Long Term Rating given by the agencies is used for exposures with
contractual maturity of above one year and also for Cash Credit, Overdrafts
and other Revolving Credits.
4. Rating assigned to one particular entity within a corporate group is not used
to risk weight other entities within the same group.
1.3 Description of the process used to transfer public issue ratings onto
comparable assets in the Banking Book
The ratings available in public domain are mapped according to mapping
process as envisaged in RBI guidelines on the subject.

Issue Specific Ratings (Banks own exposures or other issuance of debt by the
same borrower constituent/counterparty) or Issuer Ratings (borrower
constituent/counterparty) are applied to unrated exposures of the same
borrower constituent/counterparty subject to the following:

1. Issue specific ratings are used where the unrated claim of the Bank
ranks paripassu or senior to the rated issue / debt.
2. Wherever issuer rating or issue specific ratings are used to risk weight
unrated claims, such ratings are extended to entire amount of claim on
the same counterparty.
3. Ratings used for risk weighting purposes are confirmed from the
websites of the rating agencies concerned.

2. Quantitative disclosures
Risk weight wise details of credit risk Risk Weight Amount in `
exposures (rated and unrated) after risk Crore
mitigation subject to the Standardized Below 100 % 39156.86
Approach 100 % 15081.18
(Credit equivalent amount of all exposures More than 100 % 3695.39
Deducted 0.00
subjected to Standardized Approach, after risk
mitigation) Total 57933.43

TABLE DF 6: CREDIT RISK MITIGATION: DISCLOSURES FOR

STANDARDIZED APPROACHES

1. Qualitative disclosures

Disclosures on credit risk mitigation methodology adopted by the Bank that are
recognized under the Standardized Approach for reducing capital requirements
for credit risk

1.1 Policies and processes for, and an indication of the extent to which the bank
makes use of, on- and off-balance sheet netting

Bank has no practice of on-balance sheet netting for credit risk mitigation.
Eligible collaterals taken for the exposures are separately earmarked and the
exposures are expressed without netting.
1.2 Policies and processes for collateral valuation and management

Bank has put in place Board approved policy on Credit Risk Management in
which Collateral Management, and credit risk mitigation techniques used by
the Bank for both risk management and capital computation purposes are
separately included. The Loan policy of the Bank covers various aspects of
valuation of collaterals.

1.3 Description of the main types of collateral taken by the Bank

Collaterals used by Bank as risk mitigants for capital computation under

Standardized Approach comprise eligible financial collaterals namely:
1. Cash margin and fixed deposits of the counterparty with the Bank.
2. Gold jewellery of purity 91.6% and above, the value of which is
notionally converted to value of gold with 99.99% purity.
3. Securities issued by Central and State Governments
4. Kisan Vikas Patra and National Savings Certificates.
5. Life Insurance Policies with a declared surrender value of an insurance
company regulated by the insurance sector regulator.
6. Debt securities rated by a chosen Credit Rating Agency in respect of
which the bank is sufficiently confident of market liquidity of the security
and where these securities are either:
a. Attracting 100% or lesser risk weight i.e. rated at least BBB (-)
when issued by Public sector entities and other entities including
banks and Primary Dealers or
b. Attracting 100% or lesser risk weight i.e. rated at least A3 for
short term debt instruments
7. Debt securities not rated by a chosen Credit Rating Agency in respect of
which the bank is sufficiently confident of market liquidity of the security
and where these securities are
a. Issued by the bank
b. Listed on a recognized exchange
c. Classified as senior debt
d. All rated issues of the same seniority by the issuing Bank are
rated at least BBB (-) or A3 by a chosen Credit Rating Agency
e. The bank has no information to suggest that the issue justifies a
rating below BBB (-) or A3 by a chosen Credit Rating Agency

8. Units of Mutual Funds regulated by the securities regulator of the

jurisdiction of the Banks operation and mutual funds where
a. A price for the units is publicly quoted daily i.e. where the daily
NAV is available in public domain
b. Mutual fund is limited to investing in the permitted instruments
listed.
Bank has no practice of monitoring / controlling exposures on a net basis,
though Bank is able to determine at any time loans/advances and deposits of
the same counterparty. Netting benefit, even if available, is not utilized in
capital computation under Basel II norms.
1.4 Main types of guarantor counterparty and their creditworthiness

Bank considers guarantees, which are direct, explicit, irrevocable and

unconditional for credit risk mitigation. Use of such guarantees for capital
computation is strictly as per RBI guidelines on the subject.
Main types of guarantor counter party are
a. Sovereigns (Central / State Governments)
b. Sovereign entities like ECGC, CGTSI
c. Banks and Primary Dealers with a lower risk weight than the counter
party
Other entities rate AA (-) or better. This would include guarantee cover
provided by parent, subsidiary and affiliate companies when they have lower
risk weight than the obligor. The rating of the guarantor should be an entity
rating which has factored in all the liabilities and commitments (including
guarantees) of the entity.

1.5 Information on market / credit risk concentrations within the mitigation taken by
the Bank

Majority of financial collaterals held by the Bank are by way of own deposits,
government securities, Gold, Life Insurance Policies and other approved
securities like NSC, KVP etc. Bank does not have exposure collateralized
through units of eligible MF. Bank does not envisage market liquidity risk in
respect of financial collaterals. As far as Gold, where exposure comes to less
than 6%, is considered, Bank is maintaining adequate margin (minimum 20%)
on such exposures and every exposure is reviewed/renewed/closed with in the
maximum period of 12 months stipulated for such exposures. Downward
volatility in Gold prices is low, and Gold is increasingly preferred now as an
investment asset class. Bank has long experience in this portfolio and
measures warranted by situations are timely taken as per practices followed in
the past (enhancement of margin, reduction of exposure, auction at short
notice etc). Hence, Bank does not anticipate market liquidity risk in Gold.
Overall, financial collaterals do not have any issue in realization.

Concentration on account of collateral is also relevant in the case of land &

building. Except in the case of housing loan to individuals, land and building is
considered only as additional security. As land and building is not recognized
as eligible collateral under Basel II Standardized Approach, its value is not
reduced from the amount of exposure in the process of computation of capital
charge, and is used only in the case of housing loan to individuals and non
performing assets to determine the appropriate risk weight. As such, there is
no concentration risk on account of nature of collaterals.
 (Amount in ` Crores)
2. Quantitative Disclosures
2.1 Credit risk exposure covered by eligible financial collaterals
Type of exposure Credit equivalent Value of eligible Net amount
of gross financial collateral of credit
exposure after haircuts exposure
A Loans and advances 5699.49 5203.70 495.79
B Non-market related off
balance sheet items 4430.28 507.35 3922.93
C Securitisation exposures
on balance sheet 0.00 0.00 0.00
D Securitisation exposures
off balance sheet 0.00 0.00 0.00
TOTAL 10129.77 5711.05 4418.72

2.2 Credit risk exposure covered by guarantees

Type of exposure Credit Amount of
equivalent of guarantee
gross exposure (Credit
equivalent)
A Loans and advances 2035.26 1869.16
B Non-market related off balance sheet items 64.91 63.98
C Securitisation exposures on balance sheet 0.00 0.00
D Securitisation exposures off balance sheet 0.00 0.00
TOTAL 2100.16 1933.14

TABLE DF 7: SECURITISATION: DISCLOSURES FOR STANDARDIZED

APPROACH

1. Qualitative disclosures
1.1 General disclosures on securitisation exposures of the Bank
A Objectives of securitisation activities of the Bank (including the extent to which these
activities transfer credit risk of the underlying securitized exposures away from the Bank to
other entities and nature of other risks inherent in securitized assets)
Banks securitisation exposure is limited to investments in AAA rated
securitisation instruments, primarily made in an earnings perspective and risks
inherent in the investment is within reasonable levels.
B Role of Bank in securitisation processes (originator / investor/ service provider/
facility provider etc.) and extent of involvement in each activity.
Bank has invested in rated securitized instruments and such investments are
held in its Trading Book. Bank is not active in securitisation processes in any
other manner.
C Processes in place to monitor changes in the credit and market risk of
securitisation exposures
Bank is constantly monitoring the changes in credit and market risk profile of
securitisation instruments held in the Trading Book.
D Banks policy governing the use of credit risk mitigation to mitigate the risks
retained through securitisation exposures
Bank has not retained any exposure/risk as originator of securitisation
transactions.

1.2 Accounting policies for securitisation activities

A Treatment of transaction (whether as sales or financings)

N.A
B Methods and key assumptions (including inputs) applied in valuing positions
retained or purchased
Income from investments in Pass Through Certificates is recognized on
accrual basis. Income recognition is subjected to prudential norms stipulated
by Reserve Bank of India in this regard.
C Changes in methods and key assumptions from the previous period and
impact of the changes
No change is effected in methods and key assumptions used for valuation of
investment in securitized instruments.
D Policies for recognizing liabilities on the balance sheet for arrangements that
could require the bank to provide financial support for securitized assets.
Bank has not entered into any arrangement to provide financial support for
securitized assets.
1.3 In the Banking Book, names of ECAIs used for securitisations and the types of
securitisation exposures for which each agency is used.
Bank does not have any securitisation exposure in the Banking Book.

(Amount in ` Crore)
2. Quantitative disclosures

2.1 In the Banking Book

A Total amount of exposures securitized by the Bank Nil
B For exposures securitized, losses recognized by the Bank Nil
during the current period (exposure type wise break up)
C Amount of assets intended to be securitized within a year Nil
D Of (C) above, amount of assets originated within a year Nil before
securitisation
E Securitisation exposures (by exposure type) and unrecognized gain or losses
on sale thereon
Type of exposure Amount Unrecognized
securitized gain / loss
Nil Nil Nil
TOTAL
F Aggregate amount of on-balance sheet securitisation
exposures retained or purchased by the Bank (exposure type Nil
wise breakup)

G Aggregate amount of off-balance sheet securitisation Nil

exposures (exposure type wise breakup)
 H Aggregate amount of securitisation exposures retained or purchased and
associated capital charges (exposure type wise and risk weight wise breakup)
Risk weights
Type of exposure 20% 30% 50% 100% 150% 350% 400%
Nil ---- ---- ---- ---- ---- ---- ----
I Total amount of deductions from capital on account of securitization Nil
exposures
Deducted entirely from Tier I capital-underlying exposure type wise Nil
break uo
Credit enhancing interest only strips (I/Os) deducted from total Nil
capital underlying exposure type wise break up
Other exposures deducted from total capital underlying exposure Nil
type wise break up

2.2 In the Trading Book

A Aggregate amount of exposures securitized by the Bank for which the Bank
has retained some exposures, which is subject to Market Risk approach
(exposure type wise details)
Type of exposure Gross Amount Amt retained
Nil Nil Nil
B Aggregate amount of on-balance sheet securitisation exposures retained or
purchased by the Bank (exposure type wise breakup)
Type of exposure Amt in `Cr.
Investment in Pass through Certificates 0.16
C Aggregate amount of off-balance sheet securitisation Nil
exposures (exposure type wise breakup)
D Securitisation exposures retained / purchased subject to ---
Comprehensive Risk Measure for specific risk
E Securitisation exposures retained / purchased subject to specific risk capital
charge (risk weight band wise distribution)
Type of Exposure Capital charge as % to Exposure (` Cr.)
exposure
Investment in Pass through 1.80 % 0.16
Certificates
F Aggregate amount of capital requirements for securitisation exposures (risk
weight band wise distribution)
Type of exposure Capital charge as % Capital charge `
to exposure
Investment in Pass through 1.80% `29000/-
Certificates
G Total amount of deductions from capital on account of Nil
securitisation exposures
Deducted entirely from Tier I capital underlying Nil
exposure type wise break up
Credit enhancing interest only strips (I/Os) deducted
from total capital underlying exposure type wise Nil
break up
Other exposures deducted from total capital Nil
 underlying exposure type wise break up

TABLE DF 8: MARKET RISK IN TRADING BOOK

1. Qualitative disclosures

1.1 Approach used for computation of capital charge for market risk

Bank has adopted Standardized Duration Approach as prescribed by RBI for

computation of capital charge for general market risk and is fully compliant with
such RBI guidelines. Bank uses VaR as an indicative tool for measuring Forex
risk and Equity Price risk. Standardized Duration Approach is applied for
computation of General Market Risk for

Securities under HFT category

Securities under AFS category

Open gold position limits

Open foreign exchange position limits

Trading positions in derivatives

Derivatives entered into for hedging trading book exposures
Specific capital charge for market risk is computed based on risk weights
prescribed by the Regulator.

1.2 Portfolios covered in the process of computation of capital charge

Investment portfolio under AFS and HFT, Gold and Forex open positions and
Derivatives entered for trading and hedging.

(Amount in` Crore)

2. Quantitative disclosures
2.1 Minimum capital requirements for market risk as per 166.34
Standardized Duration Approach under Basel II
Interest rate risk 114.57
Foreign exchange risk (including gold) 18.00
Equity position risk 33.77

TABLE DF 9: OPERATIONAL RISK

1. Qualitative disclosures
1.1 Approach used for computation of capital charge for operational risk (and for
which the Bank is qualified)

Bank has adopted Basic Indicator Approach as prescribed by RBI for

computation of capital charge for operational risk. Bank has initiated steps to
move on to the Advanced Measurement Approach in due course.
TABLE DF 10: INTEREST RATE RISK IN BANKING BOOK (IRRBB)
1. Qualitative disclosures

1.1 Brief description of approach used for computation of interest rate risk and
nature of IRRBB.

Interest Rate Risk in Banking Book is computed through Duration Gap

Analysis.

1.2 Key assumptions used in Duration Gap Analysis (DGA) and computation of
capital charge for Interest Rate Risk (including assumptions on prepayment of
loans and behavior of non-maturity deposits)

Board approved assumptions as stipulated in applicable policies are used in

Duration Gap Analysis and computation of capital charge for Interest Rate
Risk. The following are the key assumptions involved:
1) As indicated by RBI, assets and liabilities are grouped under the broad
heads under various time buckets and bucket wise modified duration of
these groups is computed using the suggested common maturity, coupon
and yield parameters.
2) Advances linked to BPLR and Base Rate has been placed in the bucket of
1 to 28 days as per Banks interest rate expectations.
3) All the future cash flows (future repricing amount) bucket wise are
discounted with midpoint of the bucket and suggested yield to get more
accurate treatment of cash flows. The same present value is considered to
arrive at the weighted Modified duration of each asset and liability and
further to get the weighted modified duration of Liabilities and Assets.
4) Banks average standard advances covering Bills Purchased / Discounted,
Cash Credits/ Overdrafts and term loans are mapped to appropriate
external ratings. Yield curve for BBB rated corporate bonds is used as a
proxy for yield for Banks average standard advances for arriving at the
Modified Duration of Advances.
Usual bucketing applicable to the Statement of Interest Rate Sensitivity is also
made applicable to the duration of Equity calculations. Last bucket for liabilities
is approximated as 5 years to 10 years and last bucket for Assets as 5 years to
20 years.

1.3 Frequency of measurement of interest rate risk

Measurement and Computation of Interest rate risk in Banking Book and

evaluation of Modified Duration of Equity is done by the Bank on a quarterly
basis. Bank also calculates on quarterly basis the likely drop in Market Value of
Equity with 200 bps change in interest rates. Earnings-at-Risk is measured on
a monthly basis using Traditional Gap Analysis.

(* Currency wise break up not provided as the turnover in other currencies are less than 5% of total
turnover)
 2. Quantitative disclosures - Impact of interest rate risk
2.1 Earnings perspective (Traditional Gap Analysis)
Earnings at Risk (EaR) impact for one year due to
Uniform 1% increase in interest rate (Amt in ` Cr.) 0.00
Uniform 1% decrease in interest rate (Amt in ` Cr.) 170.35
2.2 Economic value perspective percentage and quantum of 6.09%
decrease in market value of equity on account of 1%
`327.54Cr
uniform increase in interest rate
TABLE DF 11: ADDITIONAL DISCLOSURES AS PER ICAAP
1. Qualitative Disclosures
1.1

ICAAP is aimed to equip Bank to undertake various risks knowingly and more
fruitfully in a fast changing dynamics of integrated and complex global financial
market. The policy proposes process to identify, control, monitor and
appropriately mitigate all possible risks embedded in its operations so as to
draw the risk appetite and risk bearing parameters of the Bank and measure
and allocate capital for quantifiable risks. Policy aims the Bank to move
towards more advanced approaches in its capital planning and risk
assessment and thereby gather enough strength to sail safe through normal as
well as troubled times, present or future. The document envisages Bank to
give sufficient comfort to the Regulator and all its stakeholders on its stability,
growth and earning potential. Policy supports Bank to maximize shareholders
wealth and improve services delivery to the public by following industry level
best practices. ICAAP embodies risk philosophy of the Bank, take risk by
choice and not by chance.

2. Quantitative Disclosures
2.1 Additional capital requirements under ICAAP Amt in ` Cr.
Credit risk over and above Pillar I capital charge 0.00
Sectoral credit concentration risk 36.39
Geographical credit concentration risk 82.74
Interest rate risk 0.00
Liquidity risk 39.83
2.2 Overall capital adequacy of solo Bank (With aggregate of
capital charge under Pillar I and Pillar II of Basel II norms) 15.85%