Banking Supervision TrackXBRL-based Basel II Reporting System:

Experience of Reserve Bank of IndiaA S Ramasastri & P R Ravimohan

June 24, 2009

First Three Steps

The Basel II Path

Fast Track XBRL

Future Roadmap

About 20 departments of Reserve Bank of India receive data at about 20 locations from about 200 commercial banks with about 70000 branches

Templates for reporting, called returns, which are around 250 as on date

Varying degrees of technology levels across banks

Attempts to rationalize the returns and to streamline multiple modes of data submission resulted in the origin of Online Return Filing System (ORFS)

An important fortnightly return called Form A has been brought under ORFS

It has been designed and developed using XML tags – to be in readiness for adopting XBRL

Based on the experience, the system has been extended to another 50 returns

To standardize the data elements across returns and to be in line with international practices, XBRL was considered

The Governor formed a High Level Steering Committee with the Deputy Governor as Chairperson to implement XBRL-based data reporting by banks

After a pilot study and feasibility analysis, the Committee mandated implementation of the newly introduced Basel II reporting system under XBRL

Basel II implementation is a simultaneous journey, going parallel

India has been adopting international best practices in the area of banking regulation in a well calibrated manner which is suitable to requirements of the financial system

Reserve Bank of India has emphasized on strengthening of regulation on capital adequacy as a key parameter in promoting financial stability

India adopted Basel I in a phased manner from 1992 onwards

India stipulated the capital to risk weighted asset ratio of 9.0 % as against international norms of 8% and a Tier I capital ratio of 6%.

Capital charge for market risk in line with market risk amendment of 1996 to the Basel I accord was adopted in 2005.

India adopted Basel I in a phased manner from 1992 onwards

India stipulated the capital to risk weighted asset ratio of 9.0 % as against international norms of 8% and a Tier I capital ratio of 6%.

Capital charge for market risk in line with market risk amendment of 1996 to the Basel I accord was adopted in 2005.

Implementation of Basel II in India has been in a phased and calibrated manner

All commercial banks in India have migrated to Basel II as on March 31, 2009

To begin with, India has adopted the basic / standardised approaches of Basel II.

RBI has also been preparing simultaneously for introducing advanced approaches for those banks which have sophisticated risk management structure

Pillar 1Pillar 1 Minimum Capital Minimum Capital

RequirementRequirement

Capital for Capital for Credit RiskCredit Risk((SASA; FIRB; ; FIRB;

AIRB)AIRB)

BaselBasel IIII

Capital for Capital for Market RiskMarket Risk(SMA; (SMA; SDASDA; ;

IMA)IMA)

Pillar 2Pillar 2Supervisory Supervisory

ReviewReview

Pillar 3Pillar 3Market DisciplineMarket Discipline

Capital for Capital for Operational Operational

Risk (Risk (BIABIA; SA; ; SA; AMA)AMA)

The current global financial turmoil has brought to sharp focus the role of capital regulations in promoting financial stability and mitigating procyclicality

Capital should serve as an effective buffer to absorb losses over the cycle, so as to protect both the solvency of financial institutions in the event of losses, and their ability to lend.

The recent London Summit by G 20 has articulated certain action points on capital regulation

G20 Leaders should support the progressive adoption of the Basel II capital framework, which will continue to be improved on an ongoing basis, across the G20.

In this context, the BCBS should develop standards to promote the build-up of capital buffers in good times that can be drawn down in periods of stress. The BCBS should also complement risk-based capital measures with simpler indicators to monitor the build-up of leverage.

The international standard for the minimum level of capital should remain unchanged until the financial system has recovered.

Underestimation of risk and the consequential underpricing of risk are attributed as major factors for the present crisis.

Since Basel II attempts to build a more risk sensitive framework for capital regulation it is essential that the information flow is designed to be timely and accurate

The implementation of Basel II has thrown up several challenges due to its requirement of timely receipt of information from banks in a standardised and transparent format and at the disaggregated level.

One of the challenges is upgradation of bank-wide information system through better branch connectivity within banks and then integrating this with the regulatory reporting

Under Pillar II of Basel II, RBI has to ensure that banks assess accurately all the risks they are exposed to and accurately determine the capital they need to have in commensurate with their risk profile

Under Pillar III (Market Discipline) of Basel II suitable disclosures have to be made by the banks so as to enable the market participants to take informed decisions

RBI has been monitoring banks’ exposure to certain sensitive sectors with a view to ensuring prescription of appropriate risk weight

RBI has been in a calibrated manner revising risk weights and provisioning relating to sensitive sectors with the objective of ensuring asset growth with minimum volatility.

Basel II implementation thus requires quicker,

quantitative and qualitative analysis of financial

information by the regulator so that banks can be

monitored closely vis-a-vis Basel II guidelines and

certain corrective policy measures be taken

These requirements of efficient, standardised and

transparent reporting system which facilitates

accurate and reliable extraction of data led RBI to

introduce XBRL reporting system for Basel II reports

from banks

The Basel II framework also offers multiple options of

increasing sophistication for computing capital

requirements for the three major categories of risks.

While for the present, banks are required to adopt the

relatively simpler approaches available under the

framework, RBI may permit few banks to migrate to

advanced approaches

A draft time frame for the purpose has been drawn up

Implementation of advanced approaches would require

tremendous data processing at the bank level and RBI

The requirement of maintaining long time series data, processing it and modelling several variables would throw up several issues of reporting within the banks

The requirement of assessing the data quality of

the banks and validating the models of the banks will be dependent on real time and seamless information flow between banks and RBI.

The XBRL project would be critical in this regard.

High Level Steering Committee Involvement of banks Interaction with international institutions –

Europe, Japan, Australia Learning from best practices in other

central banks – Bank of Spain Working closely with external consultants Moving the other stakeholders in India

As directed by the High Level Steering Committee, the Capital Adequacy Return (RCA 2), based on the Basel II norms has been taken up first

A 2- stage approachAn Excel Based Report preparation ToolA web portal for

Submission of Returns by the BanksViewing Bank Returns and MIS Reports by RBI

A Dimensional XBRL Taxonomy sits on top of both these applications

Taxonomy tailored to Basel II Reporting Requirements XBRL 2.1 and Dimensional Specification Compliant Taxonomy Architecture along COREP lines Multi dimensional in nature and template based

information capture

Modules Templates

Capital requirements 2

Credit risk exposure 9

Market risk exposure 4

Operational risk exposure 1

Total 425

Primary Elements 128

Dimensions 29

Domain Members 253

Hypercube 15

31

At RBI’s end, following facilities/advantages : ◦ generating standard and ad-hoc reports as required◦ maximum possible automation of processes◦ more analysis facilitated since less of data related issues

expected◦ ease of incorporating data for various analytical studies and

periodic reports◦ Quicker access to bank analysts and inspection officials◦ Provision for automated signalling of “red flags” in submitted

data which would need further analysis◦ Access of the centralized data repository by other departments

like banking policy department, monetary policy department, financial markets department etc. as required

◦ Use of business intelligence tool for advanced analytics and drill-down/roll up facility

Phased Approach In Phase I, Basel II reporting implemented International Seminar coinciding with

launch Sec 42 Return under ORFS being brought to

XBRL standards Taxonomies for Annual Accounts being

developed

Institute of Chartered Accountants of India (ICAI) has been working towards ◦ Formation of XBRL-India jurisdiction◦ Development of Taxonomies

Taxonomies for C&I already developed – yet to be implemented

Banking taxonomies getting developed RBI and ICAI are working closely

Industry-based classification◦ Commercial and Industrial companies◦ Banking companies◦ Non-Banking Financial companies

Core Schema ◦ Exhaustive list of all element declarations◦ Common elements defined once

Distinct extended links for each industry

Designing general banking taxonomy in accordance with the C&I taxonomy◦ Based on IFRS 2006◦ No dimensions

RBI can use the banking taxonomy and extend it to include dimensional structure◦ FINREP structure

IFRS 2006 IFRS 2008Release date 15th August 2006 24th June 2008

Modularity The files (Schema and linkbases) are located in one folder.

The files are organized based on the IAS and IFRS. There is a core schema containing all the elements defined, and linkages to the different folders for every IAS and IFRS.

Structure There was a common entry point, wherein the users had to select and browse the taxonomy.

The entry point is entity specific and hence has to be created by the user of the taxonomy.

Elements i) 4100 (approx) i) 2700 (approx)

ii) Elements outside the IAS and IFRS (common practices and industry specific) are included in the taxonomy

ii) Elements only from the IAS and IFRS are part of taxonomy

Dimension Vs. Tuples Tuples are used in the taxonomy

Dimensions have been included in the taxonomy

Notes to accounts information is largely tabular and therefore is

Multi-dimensional data Data points having similar attributes

IFRS 2006 – Does not use dimensionIFRS 2008 – Includes dimensions

1. Repo transactions2. Composition of Non-SLR investments3. Exchange traded Interest Rate derivatives4. Risk exposure on Derivatives5. Maturity pattern of certain items of assets

and liabilities6. Risk category wise country exposure7. Loan Assets subject to restructuring8. Segment reporting9. Related party disclosures

Maturity Deposits Advances Investments Borrowings Foreign Currency assets

Foreign Currency liabilities

1 to 14 days

15 to 28 days

29 days to 3 months

Over 3 months & up to 6 months

Over 6 months & up to 1 year

Over 1 year & up to 3 years

Over 3 years & up to 5 years

Over 5 years

Total

PRIMARY ELEMENTS

DIMENSION

• Based on IFRS 2006– Banking specific tags have been defined additionally in the

core schema– Separate extended links for the bank reporting appended to

existing taxonomy– Basic structure of financial statements and their details,

both included in the same extended link (unlike C&I)– No dimensions have been defined, instead extended links

have been used

• Implement the system for March 2010 reporting

Your Comments

and Suggestions

Please . . .

asramasastri@rbi.org.inprravimohan@rbi.org.in