ASSESSING CAPITAL ADEQUACY ACCORDING TO BASEL III NORMS USING

DATA MINING

UNDER THE GUIDANCE OF

Dr.S.Sudalai Muthu

Associate Professor

Dept. of Banking Technology

By

HARIKRISHNAN K(14381022)

(MBA-BT II YEAR)

CAPITAL ADEQUACY

Measure of a Bank Financial Strength.

Capital Adequacy Ratio (CAR) is the ratio that measures a bank capacity to meet time liabilities and risk.

RBI prescribes a minimum capital of 9% of risk weighted assets.

National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements. It is a measure of a bank's capital.

BASEL III

Basel III (or the Third Basel Accord) is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk

Basel 3 is only a continuation of effort initiated by the Basel Committee on Banking Supervision to enhance the banking regulatory framework under Basel I and Basel II

Basel III has essentially been designed to address the weaknesses that become too obvious during the 2008 financial crisis world faced

OBJECTIVE OF BASEL III

 Improve the banking sector's ability to absorb shocks arising from financial and economic stress.

Improve risk management and governance

Strengthen banks' transparency and disclosures.

COMPARISON

Requirements Under Basel II Under Basel III

Minimum Ratio of Total Capital To RWAs 8% 10.50%

Minimum Ratio of Common Equity to RWAs 2% 4.50% to 7.00%

Tier I capital to RWAs 4% 6.00%

Core Tier I capital to RWAs 2% 5.00%

DATA MINING

Process of analyzing data from different perspectives and summarizing it into useful information - information that can be used to increase revenue, cuts costs, or both.

Data mining software is one of a number of analytical tools for analyzing data. Elements

1). Extract, transform, and load transaction data onto the data warehouse system.

2). Store and manage the data in a multidimensional database system.

3). Provide data access to business analysts and information technology professionals.

4). Analyze the data by application software.

5).Present the data in a useful format, such as a graph or table.

PROPOSED WORK

Analyze the bank data (Balance Sheet of the Bank). Predict the appropriate CAR(capital Adequacy Ratio)

using data mining tools (R tool ) that should bank maintain according to the Basel III norms.