Basel Norms in India

B. C. D. E. F. G. Background Functions of Basel Committee The Evolution to Basel II – First Basel Accord Capital Requirements and Capital Calculation under Basel I Criticisms of Basel I New Approach to Risk Based Capital Structure of Basel II First Pillar : Minimum Capital Requirement Types of Risks under Pillar I The Second Pillar : Supervisory Review Process The Third Pillar : Market Discipline 3 3 3 3 3 4 4 II. The Three Pillar Approach A. B. C. D. 5 5 6 6 7 7 7 III. Capital Arbitrage and Core Effect of Basel II A. Capital Arbitrage B. Bank Loan Rating under Basel II Capital Adequacy Framework C. Effect of Basel II on Bank Loan Rating IV. Basel II in India A. Implementation C. Impact on Indian Banks D. Impact on Various Elements of Investment Portfolio of Banks E. Impact on Bad Debts and NPA’s of Indian Banks D. Government Policy on Foreign Investment E. Threat of Foreign Takeover 8 8 9 10 10 10 V. Conclusion A. SWOT Analysis of Basel II in Indian Banking Context B. Challenges going ahead under Basel II 11 11 13 13 VI. VII. References The Technical Paper Presentation Team 2 I. Introduction: A. Background Basel II is a new capital adequacy framework applicable to Scheduled Commercial Banks in India as mandated by the Reserve Bank of India (RBI). The Basel II guidelines were issued by the Basel Committee on Banking Supervision that was initially published in June 2004. The Accord has been accepted by over 100 countries including India. In April 2007, RBI published the final guidelines for Banks operating in India. Basel II aims to create international standards that deals with Capital Measurement and Capital Standards for Banks which banking regulators can use when creating regulations about how much banks need to put aside to guard against the types of financial and operational risks banks face. The Basel Committee on Banking Supervision was constituted by the Central Bank Governors of the G-10 countries in 1974 consisting of members from Australia, Brazil, Canada, United States, United Kingdom, Spain, India, Japan, etc to name a few. The ommittee regularly meets four times a year at the Bank for International Settlements (BIS) in Basel, Switzerland where its 10 member Secretariat is located. B. Functions of the Basel Committee The purpose of the committee is to encourage the convergence toward common approaches and standards. However, the Basel Committee is not a classical multilateral organisation like World Trade Organisation. It has no founding treaty and it does not issue binding regulat ions. It is rather an informal forum to find policy solutions and promulgate standards. C. The Evolution to Basel II – First Basel Accord The First Basel Accord (Basel I) was completed in 1988. The main features of Basel I were: †¢ †¢ †¢ Set minimum capital standards for banks Standards focused on credit risk, the main risk incurred by banks Became effective end-year 1992 The First Basel Accord aimed at creating a level playing field for internationally active banks. Hence, banks from different countries competing for the same loans would have to set aside roughly the same amount of capital on the loans. D. Capital Requirements and Capital Calculation under Basel – I Minimum Capital Adequacy ratio was set at 8% and was adjusted by a loan’s credit risk weight. Credit risk was divided into 5 categories viz. 0%, 10%, 20%, 50% and 100%. Commercial loans, for example, were assigned to the 100% risk weight category. To calculate required capital, a bank would multiply the assets in each risk category by the category’s risk weight and then multiply the result by 8%. Thus, a Rs 100 commercial loan would be multiplied by 100% and then by 8%, resulting in a capital requirement of Rs8. E. Criticisms of Basel – I Following are the criticisms of the First Basel Accord (Basel I):†¢ †¢ It took too simplistic an approach to setting credit risk weights and for ignoring other types of risk. Risks weights were based on what the parties to the Accord negotiated rather than on the actual risk of each asset. Risk weights did not flow from any particular insolvency probability standard, and were for the most part, arbitrary. 3 †¢ †¢ †¢ The requirements did not account for the operational and other forms of risk that may also be important. Except for trading account activities, the capital standards did not account for hedging, diversification, and differences in risk management techniques. Advances in technology and finance allowed banks to develop their own capital allocation models in the 1990’s. This resulted in more accurate calculation of bank capital than possible under Basel I. These models allowed banks to align the amount of risk they undertook on a loan with the overall goals of the bank. Internal models allow banks to more finely differentiate risks of individual loans than is possible under Basel – I. It facilitates risks to be differentiated within loan categories and between loan categories and also allows the application of a capital charge to each loan, rather than each category of loan. F. New Approach to Risk-Based Capital †¢ †¢ †¢ By the late 1990’s, growth in the use of regulatory capital arbitrage led the Basel Committee to begin work on a new capital regime (Basel II) Effort focused on using banks’ internal rating models and internal risk models June 1999: The Basel Committee issued a proposal for a new capital adequacy framework to replace Basel – I. In order to overcome the criticisms of Basel – I and for adoption of the new approach to riskbased capital, Basel II guidelines were introduced. G. Structure of Basel – II Basel – II adopts a three pillar approach: †¢ †¢ †¢ Pillar I – Minimum Capital Requirement (Addressing Credit Risk, Operational Risk Market Risk) Pillar II – Supervisory Review (Provides Framework for Systematic Risk, Liquidity Risk Legal Risk) Pillar III – Market Discipline Disclosure (To promote greater stability in the financial system) II. The Three Pillar Approach The first pillar establishes a way to quantify the minimum capital requirements. The main objective of Pillar I is to align capital the adequacy ratios to the risk sensitivity of the assets affording a greater flexibility in the computation of banks’ individual risk. Capital Adequacy Ratio is defined as the amount of regulatory capital to be maintained by a bank to account for various risks inbuilt in the banking system. The focus of Capital Adequacy Ratio under Basel I norms was on credit risk and was calculated as follows: Capital Adequacy Ratio = Tier I Capital+Tier II Capital Risk Weighted Assets Basel Committee has revised the guidelines in the year June 2001 known as Basel II Norms. Capital Adequacy Ratio in New Accord of Basel II: Capital Adequacy Ratio = Total Capital (Tier I Capital+Tier II Capital) Market Risk(RWA) + Credit Risk(RWA) + Operation Risk(RWA) *RWA = Risk Weighted Assets Calculation of Capital Adequacy Ratio: Total Capital: Total Capital constitutes of Tier I Capital and Tier II Capital less shareholding in other banks. Tier I Capital = Ordinary Capital + Retained Earnings Share Premium – Intangible assets. Tier II Capital = Undisclosed Reserves + General Bad Debt Provision+ Revaluation Reserve+ Subordinate debt+ Redeemable Preference shares Tier III Capital: Tier III Capital includes subordinate debt with a maturity of at least 2 years. This is addition or substitution to the Tier II Capital to cover market risk alone. Tier III Capital should not cover more than 250% of Tier I capital allocated to market risk. A. First Pillar : Minimum Capital Requirement B. Types of Risks under Pillar I . Credit Risk Credit risk is the risk of loss due to a debtor’s non-payment of a loan or other line of credit (either the principal or interest (coupon) or both). Basel II envisages two different ways of measuring credit risk which are standarised approach, Internal Rating-Based Approach. The Standardised Approach The standardized approach is conceptually the same as the present Accord, but is more ri sk sensitive. Under this approach the banks are required to use ratings from External Credit Rating Agencies to quantify required capital for credit risk. The Internal Ratings Based Approach (IRB) Under the IRB approach, different methods will be provided for different types of loan exposures. Basically there are two methods for risk measurement which are Foundation IRB and Advanced IRB. The framework allows for both a foundation method in which a bank estimate the probability of default associated with each borrower, and the supervisors will 5 supply the other inputs and an advanced IRB approach, in which a bank will be permitted to supply other necessary inputs as well. Under both the foundation and advanced IRB approaches, the range of risk weights will be far more diverse than those in the standardized approach, resulting in greater risk sensitivity. 2. Operational Risk An operational risk is a risk arising from execution of a company’s business functions. As such, it is a very broad concept including e. g. fraud risk, legal risk, physical or environmental risks, etc. Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Although the risks apply to any organization in business, this particular risk is of particular relevance to the banking regime where regulators are responsible for establishing safeguards to protect against systematic failure of the banking system and the economy. Banks will be able to choose between three ways of calculating the capital charge for operational risk – the Basic Indicator Approach, the Standardized Approach and the advanced measurement Approaches. 3. Market Risk Market risk is the risk that the value of a portfolio, either an nvestment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices. The preferred approach is VAR(value at risk). C. The Second Pillar : Supervisory Review Process Supervisory review process has been introduced to ensure not only that banks have adequate capital to support all th e risks, but also to encourage them to develop and use better risk management techniques in monitoring and managing their risks. The process has four key principles – a) Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for monitoring their capital levels. b) Supervisors should review and evaluate bank’s internal capital adequacy assessment and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. c) Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum. ) Supervisors should seek to intervene at an early stage to prevent capital from falling below minimum level and should require rapid remedial action if capital is not mentioned or restored. D. The Third Pillar : Market Discipline Market discipline imposes strong incentives to banks to conduct their business in a safe, sound and effective manner. It is proposed to be effected through a series of disclosure requirements on capital, risk exposure etc. so that market participants can assess a bank’s capital adequacy. These disclosures should be made at least semiannually and more frequently if appropriate. Qualitative disclosures such as risk management objectives and policies, definitions etc. may be published annually. 6 III. Capital Arbitrage and Core Effect of Basel II Regulatory arbitrage is where a regulated institution takes advantage of the difference between its real (or economic) risk and the regulatory position. Securitization is the main means used by Banks to engage in Regulatory Capital Arbitrage. Example of Capital Arbitrage is given below: A. Capital Arbitrage †¢ Assume a bank has a portfolio of commercial loans with the following ratings and internally generated capital requirements – AA-A: 3%-4% capital needed – B+-B: 8% capital needed – B- and below: 12%-16% capital needed Under Basel I, the bank has to hold 8% risk-based capital against all of these loans To ensure the profitability of the better quality loans, the bank engages in capital arbitrage, it securitizes the loans so that they are reclassified into a lower regulatory risk category with a lower capital charge Lower quality loans with higher internal capital charges are kept on the bank’s books because they require less risk-based capital than the bank’s internal model indicates. †¢ †¢ †¢ B. Bank Loan Rating under Basel – II Capital Adequacy Framework †¢ On April 27, 2007, the Reserve Bank of India released the final guidelines for implementation of the New Capital Adequacy Framework (Basel II) applicable to the Banking system of the country The new framework mandates that the amount of capital provided by a bank against any loan and facility will be based on the credit rating assigned to the loan issue by an external rating agency. This means that a loan and a facility with a higher credit rating will attract a lower risk weight than one with a lower credit rating. †¢ †¢ Illustration of capital-saving potential by banks on a loan of Rs 1000 million Rating Basel I Basel II Capital Saved (Rs Long Short Risk Capital Risk Capital Million) Term Term Weight Required* Weight Required Rating Rating (Rs Million) (Rs Million) AAA P1+ 100% 90 20% 18 72 AA P1 100% 90 30% 27 63 A P2 100% 90 50% 45 45 BBB P3 100% 90 100% 90 0 BB P4 P5 100% 90 150% 135 (45) below Unrated Unrated 100% 90 100% 90 0 *Capital required is computed as Loan Amount ? Risk Weight ? 9% C. Effect of Basel – II on Bank Loan Rating †¢ †¢ Banks would either prefer that the Borrower should get itself rated, or, It would prefer that the borrowing institution should pay a higher rate of interest to compensate for the loss. 7 To substantiate the above fact, following example is taken in respect of a strong company: Loan of Rating AAA is taken of Rs 100 Crores @ 12% interest rate Capital Adequacy Rating Risk % Capital Required Opportunity Ratio (Rs Crores) Interest lost by the Bank (Rs Crores) C. A. R. Unrated 100% 9. 00 1. 08 C. A. R. New 20% 1. 80 0. 22 Total Opportunity Interest lost by the Bank (Rs Crores) 0. 86 Hence, Banks would resort to the above-mentioned measures in order to reduce or curb this loss on opportunity interest. Worse affected by this action taken by Banks would be the weaker companies. They would either be charged a higher rate of interest on loans to compensate for the loss or would alternatively have to approach another bank charging a lower rate of interest. The ideal solution to this problem would be that a weaker company should get itself rated and also take steps in order to have a better credit rating. Credit Rating is an evaluation of credit worthiness of a person, company or instrument. Thus, it indicates their willingness to pay for the obligation and the net worth. IV. Basel II in India A. Implementation The deadline for implementing the base approach of Basel II norms in India, was originally set for March 31, 2007. Later the RBI extended the deadline for Foreign banks in India and Indian banks operating abroad to meet those norms by March 31, 2008, while all other scheduled commercial banks were to adhere to the guidelines by March 31, 2009. Later the RBI confirmed that all commercial banks were Basel II compliant by March 31, 2009. Keeping in view the likely lead time that may be needed by the banks for creating the requisite technological and the risk management infrastructure, including the required databases, the MIS and the skill up-gradation, etc. , RBI has proposed the implementation of the advanced approaches under Basel II in a phased manner starting from April 1, 2010 B. Impact on Indian Banks Basel II allows national regulators to specify risk weights different from the internationally recommended ones for retail exposures. The RBI had, therefore, announced an indicative set of weights for domestic corporate long-term loans and 8 bonds subject to different ratings by international rating agencies such as Moody’s Investor Services which are slightly different from that specified by the Basel Committee (Table 1). C. Impact on various elements of the investment portfolio of banks The bonds and debentures portfolio of the banks consist of investments into higher rated companies, hence the corporate assets measured using the standardised approach may be exposed to slightly lower risk weights in comparison with the 100 per cent risk weights assigned under Basel I. The Indian banks have a large short-term portfolio in the form of cash credit, overdraft and working capital demand loans, which were un-rated, and carried a risk weight of 100 per cent under the Basel I regime. They also have short-term investments in commercial papers in their investment portfolio, which also carried a 100 per cent risk weight. The RBI’s capital adequacy guidelines has prescribed lower risk weights for short-tem exposures, if these are rated (Table 2). This provides the banks with an opportunity to benefit from their investments in commercial paper (which are typically rated in A1+/A1 category) and give them the potential to exploit the proposed short-term credit risk weights by obtaining short-term ratings for exposures in the form of cash credit, overdraft and working capital loans. The net result is that the implementation of Basel II provided Indian banks with the opportunity to significantly reduce their credit risk weights and reduce their required regulatory capital, if they suitably adjust their portfolio by lending to rated but strong corporate and increase their retail lending. According to some reports, most of the Indian banks who have migrated to Basel II have reported a reduction in their total Capital Adequacy Ratios (CARs). However, a few banks, those with high exposures to higher rated corporate or to the regulatory retail portfolio, have reported increased CARs. However, a recent study by New Delhi-based industry lobby group Assocham has concluded that Capital Adequacy Ratio (CAR) of a group of commercial banks, which were part of the study improved to 13. 48% in 2008-09 from 12. 35% in 2007-08, due to lower risk weights, implementation of Basel II norms and slower credit growth. 9 D. Bad debts and requirement of additional capital In this context, the situation regarding bad debts and NPA’s is very pertinent. The proportion of total NPAs to total advances declined from 23. 2 per cent in March 1993 to 7. per cent in March, 2004. The improvement in terms of NPAs has been largely the result of provisioning or infusion of capital. This meant that if the banks required more capital, as they would to implement Basel II norms, they would have to find capital outside of their own or the governmentâ₠¬â„¢s resources. ICRA has estimated that, Indian banks would need additional capital of up to Rs. 12,000 crore to meet the capital charge requirement for operational risk under Basel II. Most of this capital would be required by PSBs Rs. 9,000 crore, followed by the new generation private sector banks Rs. 1,100 crore, and the old generation private sector bank Rs. 750 crore. In practice, to deal with this, a large number of banks have been forced to turn to the capital market to meet their additional regulatory capital requirements. ICICI Bank, for example, has raised around Rs. 3,500 crore, thus improving its Tier I capital significantly. Many of the PSBs, namely, Punjab National Bank, Bank of India, Bank of Baroda and Dena Bank, besides private sector banks such as UTI Bank have either already tapped the market or have announced plans to raise equity capital in order to boost their Tier I capital. E. Government Policy on foreign investment The need to go public and raise capital challenged the government policy aimed at restricting concentration of share ownership, maintaining public dominance and limiting foreign influence in the banking sector. One immediate fallout was that PSBs being permitted to dilute the government’s stake to 51 per cent, and the pressure to reduce this to 33 per cent increased. Secondly, the government allowed private banks to expand equity by accessing capital from foreign investors. This put pressure on the RBI to rethink its policy on the ownership structure of domestic banks. In the past the RBI has emphasised the risks of concentrated foreign ownership of banking assets in India. Subsequent to a notification issued by the Government, which had raised the FDI limit in private sector banks to 74 per cent under the automatic route, a comprehensive set of policy guidelines on ownership of private banks was issued by the RBI. These guidelines stated, among other things, that no single entity or group of related entities would be allowed to hold shares or exercise control, directly or indirectly, in any private sector bank in excess of 10 per cent of its paid-up capital. F. Threat of foreign takeover There has been growing pressure to consolidate domestic banks to make them capable of facing international competition. Indian banks are pigmies compared with the global majors. India’s biggest bank, the State Bank of India, which accounts for onefifth of the total banking assets in the country, is roughly one-fifth as large as the world’s biggest bank Citigroup. Given this difference, even after consolidation of 10 omestic banks, the threat of foreign takeover remains if FDI policy with respect to the banking sector is relaxed. Not surprisingly, a number of foreign banks have already evinced an interest in acquiring a stake in Indian banks. Thus, it appears that foreign bank presence and consoli dation of banking are inevitable post Basel II. V. Conclusion A. SWOT Analysis of Basel II in Indian Banking Context Strenghts †¢ †¢ Aggression towards development of the existing standards by banks. Strong regulatory impact by central bank to all the banks for implementation. Presence of intellectual capital to face the change in implementation with good quality. †¢ †¢ †¢ Weaknesses Poor Technology Infrastructure Ineffective Risk Measures Presence of more number of Smaller banks that would likely to be impacted adversely. †¢ Opportunities †¢ †¢ Increasing Risk Management Expertise. Need significant connection among business,credit and risk management and Information Technology. Advancement of Technologies. Strong Asset Base would help in bigger growth. †¢ †¢ Threats Inability to meet the additional Capital Requirements Loss of Capital to the entire banking system, due to Mergers and acquisitions. Huge Investments in technologies †¢ †¢ †¢ B. Challenges going ahead under Basel II †¢ The new norms will almost invariably increase capital requirement in all banks across the board. Although capital requirement for credit risk may go down due to adoption of more risk sensitive models – such advantage will be more than offset by additional capital charge for operational risk and increased capital requirement for market risk. This partly explains the current trend of consolidation in the banking industry. Competition among banks for highly rated corporates needing lower amount of capital may exert pressure on already thinning interest spread. Further, huge implementation cost may also impact profitability for smaller banks. The biggest challenge is the re-structuring of the assets of some of the banks as it would be a tedious process, since most of the banks have poor asset quality leading to significant proportion of NPA. This also may lead to Mergers Acquisitions, which itself would be loss of capital to entire system. The new norms seem to favor the large banks that have better risk management and measurement expertise, who also have better capital adequacy ratios and geographically diversified portfolios. The smaller banks are also likely to be hurt by the rise in weightage †¢ †¢ †¢ 11 of inter-bank loans that will effectively price them out of the market. Thus, banks will have to re-structure and adopt if they are to survive in the new environment. †¢ Since improved risk management and measurement is needed, it aims to give impetus to the use of internal rating system by the international banks. More and more banks may have to use internal model developed in house and their impact is uncertain. Most of these models require minimum historical bank data that is a tedious and high cost process, as most Indian banks do not have such a database. The technology infrastructure in terms of computerization is still in a nascent stage in most Indian banks. Computerization of branches, especially for those banks, which have their network spread out in remote areas, will be a daunting task. Penetration of information technology in banking has been successful in the urban areas, unlike in the rural areas where it is insignificant. An integrated risk management concept, which is the need of the hour to align market, credit and operational risk, will be difficult due to significant disconnect between business, risk managers and IT across the organizations in their existing set-up. Implementation of the Basel II will require huge investments in technology. According to estimates, Indian banks, especially those with a sizeable branch network, will need to spend well over $ 50-70 Million on this. Computation of probability of default, loss given default, migration mapping and supervisory validation require creation of historical database, which is a time consuming process and may require initial support from the supervisor. With the implementation of the new framework, internal auditors may become increasingly involved in various processes, including validation and of the accuracy of the data inputs, review of activities performed by credit functions and assessment of a bank’s capital assessment process. Pillar 3 purports to enforce market discipline through stricter disclosure requirement. While admitting that such disclosure may be useful for supervisory authorities and rating agencies, the expertise and ability of the general public to comprehend and interpret disclosed information is open to question. Moreover, too much disclosure may cause information overload and may even damage financial position of bank. Basel II proposals underscore the interaction between sound risk management practices and corporate good governance. The bank’s board of directors has the responsibility for setting the basic tolerance levels for various types of risk. It should also ensure that management establishes a framework for assessing the risks, develop a system to relate risk to the bank’s capital levels and establish a method for monitoring compliance with internal policies. The risk weighting scheme under Standardised Approach also creates some incentive for some of the bank clients to remain unrated since such entities receive a lower risk weight of 100 per cent vis-a-vis 150 per cent risk weight for a lowest rated client. This might specially be the case if the unrated client expects a poor rating. The banks will need to be watchful in this regard. †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ We can conclude by saying that the Basel II framework provides significant incentives to banks to sharpen their risk management expertise to enable more efficient risk-return tradeoffs, it also presents a valuable opportunity to gear up their internal processes to the 12 international best standards. This would require substantial capacity building and commitment of resources through close involvement of the banks’ Top Management in guiding this arduous undertaking. Notwithstanding intense competition, the expansionary phase of the economy is expected to provide ample opportunities for the growth of the banking industry. The growth trajectory, adherence to global best practices and risk management norms are likely to catapult the Indian Banks onto the global map, making them a force to reckon with. VI. References 1. The Evolution to Basel II by Donald Inscoe, Deputy Director, Division of Insurance and Research, US Federal Deposit Insurance Corporation. 2. Basel II – Challenges Ahead of the Indian Banking Industry by Jagannath Mishra and Pankaj Kumar Kalawatia. 3. Basel II Norms and Credit Ratings by CA Sangeet Kumar Gupta. 4. The Business Line Magazine. 5. The Chartered Accountant – Journal of the Institute of Chartered Accountants of India. 6. www. bis. org 7. www. rbi. org. in 8. www. wikipedia. org 9. www. google. com VII. The Technical Paper Presentation Team Name of Member Email ID’s rahulscsharma@icai. org tulsyan. abhishek@yahoo. co. in sikha. kedia0311@gmail. com ca. gouravmodi@gmail. com Praveen_did@yahoo. com 1. Rahul Sharma 2. Abhishek Tulsyan 3. Sikha Kedia 4. Gourav Modi 5. Praveen Didwania 13 Basel Norms in India Basel Norms in India Basel Norms in India B. C. D. E. F. G. Background Functions of Basel Committee The Evolution to Basel II – First Basel Accord Capital Requirements and Capital Calculation under Basel I Criticisms of Basel I New Approach to Risk Based Capital Structure of Basel II First Pillar : Minimum Capital Requirement Types of Risks under Pillar I The Second Pillar : Supervisory Review Process The Third Pillar : Market Discipline 3 3 3 3 3 4 4 II. The Three Pillar Approach A. B. C. D. 5 5 6 6 7 7 7 III. Capital Arbitrage and Core Effect of Basel II A. Capital Arbitrage B. Bank Loan Rating under Basel II Capital Adequacy Framework C. Effect of Basel II on Bank Loan Rating IV. Basel II in India A. Implementation C. Impact on Indian Banks D. Impact on Various Elements of Investment Portfolio of Banks E. Impact on Bad Debts and NPA’s of Indian Banks D. Government Policy on Foreign Investment E. Threat of Foreign Takeover 8 8 9 10 10 10 V. Conclusion A. SWOT Analysis of Basel II in Indian Banking Context B. Challenges going ahead under Basel II 11 11 13 13 VI. VII. References The Technical Paper Presentation Team 2 I. Introduction: A. Background Basel II is a new capital adequacy framework applicable to Scheduled Commercial Banks in India as mandated by the Reserve Bank of India (RBI). The Basel II guidelines were issued by the Basel Committee on Banking Supervision that was initially published in June 2004. The Accord has been accepted by over 100 countries including India. In April 2007, RBI published the final guidelines for Banks operating in India. Basel II aims to create international standards that deals with Capital Measurement and Capital Standards for Banks which banking regulators can use when creating regulations about how much banks need to put aside to guard against the types of financial and operational risks banks face. The Basel Committee on Banking Supervision was constituted by the Central Bank Governors of the G-10 countries in 1974 consisting of members from Australia, Brazil, Canada, United States, United Kingdom, Spain, India, Japan, etc to name a few. The ommittee regularly meets four times a year at the Bank for International Settlements (BIS) in Basel, Switzerland where its 10 member Secretariat is located. B. Functions of the Basel Committee The purpose of the committee is to encourage the convergence toward common approaches and standards. However, the Basel Committee is not a classical multilateral organisation like World Trade Organisation. It has no founding treaty and it does not issue binding regulat ions. It is rather an informal forum to find policy solutions and promulgate standards. C. The Evolution to Basel II – First Basel Accord The First Basel Accord (Basel I) was completed in 1988. The main features of Basel I were: †¢ †¢ †¢ Set minimum capital standards for banks Standards focused on credit risk, the main risk incurred by banks Became effective end-year 1992 The First Basel Accord aimed at creating a level playing field for internationally active banks. Hence, banks from different countries competing for the same loans would have to set aside roughly the same amount of capital on the loans. D. Capital Requirements and Capital Calculation under Basel – I Minimum Capital Adequacy ratio was set at 8% and was adjusted by a loan’s credit risk weight. Credit risk was divided into 5 categories viz. 0%, 10%, 20%, 50% and 100%. Commercial loans, for example, were assigned to the 100% risk weight category. To calculate required capital, a bank would multiply the assets in each risk category by the category’s risk weight and then multiply the result by 8%. Thus, a Rs 100 commercial loan would be multiplied by 100% and then by 8%, resulting in a capital requirement of Rs8. E. Criticisms of Basel – I Following are the criticisms of the First Basel Accord (Basel I):†¢ †¢ It took too simplistic an approach to setting credit risk weights and for ignoring other types of risk. Risks weights were based on what the parties to the Accord negotiated rather than on the actual risk of each asset. Risk weights did not flow from any particular insolvency probability standard, and were for the most part, arbitrary. 3 †¢ †¢ †¢ The requirements did not account for the operational and other forms of risk that may also be important. Except for trading account activities, the capital standards did not account for hedging, diversification, and differences in risk management techniques. Advances in technology and finance allowed banks to develop their own capital allocation models in the 1990’s. This resulted in more accurate calculation of bank capital than possible under Basel I. These models allowed banks to align the amount of risk they undertook on a loan with the overall goals of the bank. Internal models allow banks to more finely differentiate risks of individual loans than is possible under Basel – I. It facilitates risks to be differentiated within loan categories and between loan categories and also allows the application of a capital charge to each loan, rather than each category of loan. F. New Approach to Risk-Based Capital †¢ †¢ †¢ By the late 1990’s, growth in the use of regulatory capital arbitrage led the Basel Committee to begin work on a new capital regime (Basel II) Effort focused on using banks’ internal rating models and internal risk models June 1999: The Basel Committee issued a proposal for a new capital adequacy framework to replace Basel – I. In order to overcome the criticisms of Basel – I and for adoption of the new approach to riskbased capital, Basel II guidelines were introduced. G. Structure of Basel – II Basel – II adopts a three pillar approach: †¢ †¢ †¢ Pillar I – Minimum Capital Requirement (Addressing Credit Risk, Operational Risk Market Risk) Pillar II – Supervisory Review (Provides Framework for Systematic Risk, Liquidity Risk Legal Risk) Pillar III – Market Discipline Disclosure (To promote greater stability in the financial system) II. The Three Pillar Approach The first pillar establishes a way to quantify the minimum capital requirements. The main objective of Pillar I is to align capital the adequacy ratios to the risk sensitivity of the assets affording a greater flexibility in the computation of banks’ individual risk. Capital Adequacy Ratio is defined as the amount of regulatory capital to be maintained by a bank to account for various risks inbuilt in the banking system. The focus of Capital Adequacy Ratio under Basel I norms was on credit risk and was calculated as follows: Capital Adequacy Ratio = Tier I Capital+Tier II Capital Risk Weighted Assets Basel Committee has revised the guidelines in the year June 2001 known as Basel II Norms. Capital Adequacy Ratio in New Accord of Basel II: Capital Adequacy Ratio = Total Capital (Tier I Capital+Tier II Capital) Market Risk(RWA) + Credit Risk(RWA) + Operation Risk(RWA) *RWA = Risk Weighted Assets Calculation of Capital Adequacy Ratio: Total Capital: Total Capital constitutes of Tier I Capital and Tier II Capital less shareholding in other banks. Tier I Capital = Ordinary Capital + Retained Earnings Share Premium – Intangible assets. Tier II Capital = Undisclosed Reserves + General Bad Debt Provision+ Revaluation Reserve+ Subordinate debt+ Redeemable Preference shares Tier III Capital: Tier III Capital includes subordinate debt with a maturity of at least 2 years. This is addition or substitution to the Tier II Capital to cover market risk alone. Tier III Capital should not cover more than 250% of Tier I capital allocated to market risk. A. First Pillar : Minimum Capital Requirement B. Types of Risks under Pillar I . Credit Risk Credit risk is the risk of loss due to a debtor’s non-payment of a loan or other line of credit (either the principal or interest (coupon) or both). Basel II envisages two different ways of measuring credit risk which are standarised approach, Internal Rating-Based Approach. The Standardised Approach The standardized approach is conceptually the same as the present Accord, but is more ri sk sensitive. Under this approach the banks are required to use ratings from External Credit Rating Agencies to quantify required capital for credit risk. The Internal Ratings Based Approach (IRB) Under the IRB approach, different methods will be provided for different types of loan exposures. Basically there are two methods for risk measurement which are Foundation IRB and Advanced IRB. The framework allows for both a foundation method in which a bank estimate the probability of default associated with each borrower, and the supervisors will 5 supply the other inputs and an advanced IRB approach, in which a bank will be permitted to supply other necessary inputs as well. Under both the foundation and advanced IRB approaches, the range of risk weights will be far more diverse than those in the standardized approach, resulting in greater risk sensitivity. 2. Operational Risk An operational risk is a risk arising from execution of a company’s business functions. As such, it is a very broad concept including e. g. fraud risk, legal risk, physical or environmental risks, etc. Basel II defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Although the risks apply to any organization in business, this particular risk is of particular relevance to the banking regime where regulators are responsible for establishing safeguards to protect against systematic failure of the banking system and the economy. Banks will be able to choose between three ways of calculating the capital charge for operational risk – the Basic Indicator Approach, the Standardized Approach and the advanced measurement Approaches. 3. Market Risk Market risk is the risk that the value of a portfolio, either an nvestment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors. The four standard market risk factors are stock prices, interest rates, foreign exchange rates, and commodity prices. The preferred approach is VAR(value at risk). C. The Second Pillar : Supervisory Review Process Supervisory review process has been introduced to ensure not only that banks have adequate capital to support all th e risks, but also to encourage them to develop and use better risk management techniques in monitoring and managing their risks. The process has four key principles – a) Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for monitoring their capital levels. b) Supervisors should review and evaluate bank’s internal capital adequacy assessment and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. c) Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum. ) Supervisors should seek to intervene at an early stage to prevent capital from falling below minimum level and should require rapid remedial action if capital is not mentioned or restored. D. The Third Pillar : Market Discipline Market discipline imposes strong incentives to banks to conduct their business in a safe, sound and effective manner. It is proposed to be effected through a series of disclosure requirements on capital, risk exposure etc. so that market participants can assess a bank’s capital adequacy. These disclosures should be made at least semiannually and more frequently if appropriate. Qualitative disclosures such as risk management objectives and policies, definitions etc. may be published annually. 6 III. Capital Arbitrage and Core Effect of Basel II Regulatory arbitrage is where a regulated institution takes advantage of the difference between its real (or economic) risk and the regulatory position. Securitization is the main means used by Banks to engage in Regulatory Capital Arbitrage. Example of Capital Arbitrage is given below: A. Capital Arbitrage †¢ Assume a bank has a portfolio of commercial loans with the following ratings and internally generated capital requirements – AA-A: 3%-4% capital needed – B+-B: 8% capital needed – B- and below: 12%-16% capital needed Under Basel I, the bank has to hold 8% risk-based capital against all of these loans To ensure the profitability of the better quality loans, the bank engages in capital arbitrage, it securitizes the loans so that they are reclassified into a lower regulatory risk category with a lower capital charge Lower quality loans with higher internal capital charges are kept on the bank’s books because they require less risk-based capital than the bank’s internal model indicates. †¢ †¢ †¢ B. Bank Loan Rating under Basel – II Capital Adequacy Framework †¢ On April 27, 2007, the Reserve Bank of India released the final guidelines for implementation of the New Capital Adequacy Framework (Basel II) applicable to the Banking system of the country The new framework mandates that the amount of capital provided by a bank against any loan and facility will be based on the credit rating assigned to the loan issue by an external rating agency. This means that a loan and a facility with a higher credit rating will attract a lower risk weight than one with a lower credit rating. †¢ †¢ Illustration of capital-saving potential by banks on a loan of Rs 1000 million Rating Basel I Basel II Capital Saved (Rs Long Short Risk Capital Risk Capital Million) Term Term Weight Required* Weight Required Rating Rating (Rs Million) (Rs Million) AAA P1+ 100% 90 20% 18 72 AA P1 100% 90 30% 27 63 A P2 100% 90 50% 45 45 BBB P3 100% 90 100% 90 0 BB P4 P5 100% 90 150% 135 (45) below Unrated Unrated 100% 90 100% 90 0 *Capital required is computed as Loan Amount ? Risk Weight ? 9% C. Effect of Basel – II on Bank Loan Rating †¢ †¢ Banks would either prefer that the Borrower should get itself rated, or, It would prefer that the borrowing institution should pay a higher rate of interest to compensate for the loss. 7 To substantiate the above fact, following example is taken in respect of a strong company: Loan of Rating AAA is taken of Rs 100 Crores @ 12% interest rate Capital Adequacy Rating Risk % Capital Required Opportunity Ratio (Rs Crores) Interest lost by the Bank (Rs Crores) C. A. R. Unrated 100% 9. 00 1. 08 C. A. R. New 20% 1. 80 0. 22 Total Opportunity Interest lost by the Bank (Rs Crores) 0. 86 Hence, Banks would resort to the above-mentioned measures in order to reduce or curb this loss on opportunity interest. Worse affected by this action taken by Banks would be the weaker companies. They would either be charged a higher rate of interest on loans to compensate for the loss or would alternatively have to approach another bank charging a lower rate of interest. The ideal solution to this problem would be that a weaker company should get itself rated and also take steps in order to have a better credit rating. Credit Rating is an evaluation of credit worthiness of a person, company or instrument. Thus, it indicates their willingness to pay for the obligation and the net worth. IV. Basel II in India A. Implementation The deadline for implementing the base approach of Basel II norms in India, was originally set for March 31, 2007. Later the RBI extended the deadline for Foreign banks in India and Indian banks operating abroad to meet those norms by March 31, 2008, while all other scheduled commercial banks were to adhere to the guidelines by March 31, 2009. Later the RBI confirmed that all commercial banks were Basel II compliant by March 31, 2009. Keeping in view the likely lead time that may be needed by the banks for creating the requisite technological and the risk management infrastructure, including the required databases, the MIS and the skill up-gradation, etc. , RBI has proposed the implementation of the advanced approaches under Basel II in a phased manner starting from April 1, 2010 B. Impact on Indian Banks Basel II allows national regulators to specify risk weights different from the internationally recommended ones for retail exposures. The RBI had, therefore, announced an indicative set of weights for domestic corporate long-term loans and 8 bonds subject to different ratings by international rating agencies such as Moody’s Investor Services which are slightly different from that specified by the Basel Committee (Table 1). C. Impact on various elements of the investment portfolio of banks The bonds and debentures portfolio of the banks consist of investments into higher rated companies, hence the corporate assets measured using the standardised approach may be exposed to slightly lower risk weights in comparison with the 100 per cent risk weights assigned under Basel I. The Indian banks have a large short-term portfolio in the form of cash credit, overdraft and working capital demand loans, which were un-rated, and carried a risk weight of 100 per cent under the Basel I regime. They also have short-term investments in commercial papers in their investment portfolio, which also carried a 100 per cent risk weight. The RBI’s capital adequacy guidelines has prescribed lower risk weights for short-tem exposures, if these are rated (Table 2). This provides the banks with an opportunity to benefit from their investments in commercial paper (which are typically rated in A1+/A1 category) and give them the potential to exploit the proposed short-term credit risk weights by obtaining short-term ratings for exposures in the form of cash credit, overdraft and working capital loans. The net result is that the implementation of Basel II provided Indian banks with the opportunity to significantly reduce their credit risk weights and reduce their required regulatory capital, if they suitably adjust their portfolio by lending to rated but strong corporate and increase their retail lending. According to some reports, most of the Indian banks who have migrated to Basel II have reported a reduction in their total Capital Adequacy Ratios (CARs). However, a few banks, those with high exposures to higher rated corporate or to the regulatory retail portfolio, have reported increased CARs. However, a recent study by New Delhi-based industry lobby group Assocham has concluded that Capital Adequacy Ratio (CAR) of a group of commercial banks, which were part of the study improved to 13. 48% in 2008-09 from 12. 35% in 2007-08, due to lower risk weights, implementation of Basel II norms and slower credit growth. 9 D. Bad debts and requirement of additional capital In this context, the situation regarding bad debts and NPA’s is very pertinent. The proportion of total NPAs to total advances declined from 23. 2 per cent in March 1993 to 7. per cent in March, 2004. The improvement in terms of NPAs has been largely the result of provisioning or infusion of capital. This meant that if the banks required more capital, as they would to implement Basel II norms, they would have to find capital outside of their own or the governmentâ₠¬â„¢s resources. ICRA has estimated that, Indian banks would need additional capital of up to Rs. 12,000 crore to meet the capital charge requirement for operational risk under Basel II. Most of this capital would be required by PSBs Rs. 9,000 crore, followed by the new generation private sector banks Rs. 1,100 crore, and the old generation private sector bank Rs. 750 crore. In practice, to deal with this, a large number of banks have been forced to turn to the capital market to meet their additional regulatory capital requirements. ICICI Bank, for example, has raised around Rs. 3,500 crore, thus improving its Tier I capital significantly. Many of the PSBs, namely, Punjab National Bank, Bank of India, Bank of Baroda and Dena Bank, besides private sector banks such as UTI Bank have either already tapped the market or have announced plans to raise equity capital in order to boost their Tier I capital. E. Government Policy on foreign investment The need to go public and raise capital challenged the government policy aimed at restricting concentration of share ownership, maintaining public dominance and limiting foreign influence in the banking sector. One immediate fallout was that PSBs being permitted to dilute the government’s stake to 51 per cent, and the pressure to reduce this to 33 per cent increased. Secondly, the government allowed private banks to expand equity by accessing capital from foreign investors. This put pressure on the RBI to rethink its policy on the ownership structure of domestic banks. In the past the RBI has emphasised the risks of concentrated foreign ownership of banking assets in India. Subsequent to a notification issued by the Government, which had raised the FDI limit in private sector banks to 74 per cent under the automatic route, a comprehensive set of policy guidelines on ownership of private banks was issued by the RBI. These guidelines stated, among other things, that no single entity or group of related entities would be allowed to hold shares or exercise control, directly or indirectly, in any private sector bank in excess of 10 per cent of its paid-up capital. F. Threat of foreign takeover There has been growing pressure to consolidate domestic banks to make them capable of facing international competition. Indian banks are pigmies compared with the global majors. India’s biggest bank, the State Bank of India, which accounts for onefifth of the total banking assets in the country, is roughly one-fifth as large as the world’s biggest bank Citigroup. Given this difference, even after consolidation of 10 omestic banks, the threat of foreign takeover remains if FDI policy with respect to the banking sector is relaxed. Not surprisingly, a number of foreign banks have already evinced an interest in acquiring a stake in Indian banks. Thus, it appears that foreign bank presence and consoli dation of banking are inevitable post Basel II. V. Conclusion A. SWOT Analysis of Basel II in Indian Banking Context Strenghts †¢ †¢ Aggression towards development of the existing standards by banks. Strong regulatory impact by central bank to all the banks for implementation. Presence of intellectual capital to face the change in implementation with good quality. †¢ †¢ †¢ Weaknesses Poor Technology Infrastructure Ineffective Risk Measures Presence of more number of Smaller banks that would likely to be impacted adversely. †¢ Opportunities †¢ †¢ Increasing Risk Management Expertise. Need significant connection among business,credit and risk management and Information Technology. Advancement of Technologies. Strong Asset Base would help in bigger growth. †¢ †¢ Threats Inability to meet the additional Capital Requirements Loss of Capital to the entire banking system, due to Mergers and acquisitions. Huge Investments in technologies †¢ †¢ †¢ B. Challenges going ahead under Basel II †¢ The new norms will almost invariably increase capital requirement in all banks across the board. Although capital requirement for credit risk may go down due to adoption of more risk sensitive models – such advantage will be more than offset by additional capital charge for operational risk and increased capital requirement for market risk. This partly explains the current trend of consolidation in the banking industry. Competition among banks for highly rated corporates needing lower amount of capital may exert pressure on already thinning interest spread. Further, huge implementation cost may also impact profitability for smaller banks. The biggest challenge is the re-structuring of the assets of some of the banks as it would be a tedious process, since most of the banks have poor asset quality leading to significant proportion of NPA. This also may lead to Mergers Acquisitions, which itself would be loss of capital to entire system. The new norms seem to favor the large banks that have better risk management and measurement expertise, who also have better capital adequacy ratios and geographically diversified portfolios. The smaller banks are also likely to be hurt by the rise in weightage †¢ †¢ †¢ 11 of inter-bank loans that will effectively price them out of the market. Thus, banks will have to re-structure and adopt if they are to survive in the new environment. †¢ Since improved risk management and measurement is needed, it aims to give impetus to the use of internal rating system by the international banks. More and more banks may have to use internal model developed in house and their impact is uncertain. Most of these models require minimum historical bank data that is a tedious and high cost process, as most Indian banks do not have such a database. The technology infrastructure in terms of computerization is still in a nascent stage in most Indian banks. Computerization of branches, especially for those banks, which have their network spread out in remote areas, will be a daunting task. Penetration of information technology in banking has been successful in the urban areas, unlike in the rural areas where it is insignificant. An integrated risk management concept, which is the need of the hour to align market, credit and operational risk, will be difficult due to significant disconnect between business, risk managers and IT across the organizations in their existing set-up. Implementation of the Basel II will require huge investments in technology. According to estimates, Indian banks, especially those with a sizeable branch network, will need to spend well over $ 50-70 Million on this. Computation of probability of default, loss given default, migration mapping and supervisory validation require creation of historical database, which is a time consuming process and may require initial support from the supervisor. With the implementation of the new framework, internal auditors may become increasingly involved in various processes, including validation and of the accuracy of the data inputs, review of activities performed by credit functions and assessment of a bank’s capital assessment process. Pillar 3 purports to enforce market discipline through stricter disclosure requirement. While admitting that such disclosure may be useful for supervisory authorities and rating agencies, the expertise and ability of the general public to comprehend and interpret disclosed information is open to question. Moreover, too much disclosure may cause information overload and may even damage financial position of bank. Basel II proposals underscore the interaction between sound risk management practices and corporate good governance. The bank’s board of directors has the responsibility for setting the basic tolerance levels for various types of risk. It should also ensure that management establishes a framework for assessing the risks, develop a system to relate risk to the bank’s capital levels and establish a method for monitoring compliance with internal policies. The risk weighting scheme under Standardised Approach also creates some incentive for some of the bank clients to remain unrated since such entities receive a lower risk weight of 100 per cent vis-a-vis 150 per cent risk weight for a lowest rated client. This might specially be the case if the unrated client expects a poor rating. The banks will need to be watchful in this regard. †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ We can conclude by saying that the Basel II framework provides significant incentives to banks to sharpen their risk management expertise to enable more efficient risk-return tradeoffs, it also presents a valuable opportunity to gear up their internal processes to the 12 international best standards. This would require substantial capacity building and commitment of resources through close involvement of the banks’ Top Management in guiding this arduous undertaking. Notwithstanding intense competition, the expansionary phase of the economy is expected to provide ample opportunities for the growth of the banking industry. The growth trajectory, adherence to global best practices and risk management norms are likely to catapult the Indian Banks onto the global map, making them a force to reckon with. VI. References 1. The Evolution to Basel II by Donald Inscoe, Deputy Director, Division of Insurance and Research, US Federal Deposit Insurance Corporation. 2. Basel II – Challenges Ahead of the Indian Banking Industry by Jagannath Mishra and Pankaj Kumar Kalawatia. 3. Basel II Norms and Credit Ratings by CA Sangeet Kumar Gupta. 4. The Business Line Magazine. 5. The Chartered Accountant – Journal of the Institute of Chartered Accountants of India. 6. www. bis. org 7. www. rbi. org. in 8. www. wikipedia. org 9. www. google. com VII. The Technical Paper Presentation Team Name of Member Email ID’s rahulscsharma@icai. org tulsyan. abhishek@yahoo. co. in sikha. kedia0311@gmail. com ca. gouravmodi@gmail. com Praveen_did@yahoo. com 1. Rahul Sharma 2. Abhishek Tulsyan 3. Sikha Kedia 4. Gourav Modi 5. Praveen Didwania 13

Global Warming Essay Example | Topics and Well Written Essays - 500 words - 4

Global Warming - Essay Example The solution is through the concerted efforts of various nations to help each other deal with this environmental trouble in one accord. There are international treaties or agreements that have been made by various nations to help lessen and remedy the damage done by global warming to the environment. Two international and multilateral agreements, the Montreal Protocol of 1987 and Kyoto Protocol of 1998, pay much attention to the damaging effect of world activities to the atmosphere. As cited by Morissette (1989): Its formulation was a response to a growing international consensus on the need to protect stratospheric ozone from depletion by CFCs. The Montreal Protocol is a landmark agreement in that it is the first international treaty for mitigating a global atmospheric problem before serious environmental impacts have been conclusively detected. Upon the agreement of the various countries that participated in the formation and agreement to the Montreal Protocol, the battle against global warming further developed as time went by, and with new concerns. This eventually led to a new agreement known as the Kyoto Protocol.   The  Kyoto Protocol of 1998  is an international treaty deliberated to communicate nations collectively to decrease  global warming,  and to deal with the effects of temperature increases that are inevitable after more than a century of heavy industrialization. Manne and Richels (1998) exposited that this was â€Å"to reduce their aggregate anthropogenic carbon dioxide equivalent emissions by at least 5 percent below 1990 levels in the commitment period 2008 to 2012.† (p.2). The nations that approve of the Kyoto Protocol concur to decrease emissions of six greenhouse gases that increase the problems of global warming. These nations are also permitted to utilize emissions trading to reach their obligations if they maintain or increase their greenhouse gas emissions. All of these activities

Woman in Yoruba Research Paper Example | Topics and Well Written Essays - 750 words

Woman in Yoruba - Research Paper Example This art included the use of wood, clay, stone, ivory, bronze, copper, and brass as material for these visual art works. Provenance in African arts is often hard to prove. This is the same case in Yoruba art where the artist is not clearly identified as the author of that art work. Concepts of authenticity in African art is different by virtue of the African concept of ownership; the owner of that art work is the person who ordered or commissioned an art work and not the artist himself. This is further compounded by the fairly recent commodification of African art (Stokes, 1999: 10). Many art objects were sold and re-sold to different private individuals and museums as result. It is not surprising that quite often, real authorship is lost and very hard to trace indeed. Hints in public knowledge of the real author of an art work may impinge on the owner in terms of prestige, power, and success in the public persona arena (ibid.). This is why most of Yoruba art hardly reflects on the real authorship but rather emphasizes the ownership of it. One aspect of Yoruba art that is very prominent is the use of art works in religious worship. A number of Yoruba art works reflect the ritualistic traditions among the people and an art work shown as an example here is good symbolism of the central role of religion (see Fig. 1). Women in Yoruba society occupy an important role. Although most scholarly literature points to a male-dominated society, this is not the case as validated by their works of art. The women in Yoruba have acquired divine authority as shown in the arts (Abiodun, 1989:2). It is a significant deviation from the common misconceptions of male dominance. The women as depicted in Yoruba art are almost always calm, dignified, and possessed of divine powers. In Yoruba art, women are accorded as powerful but also as subordinates (Olajubu, 2003:105). The essence of most Yoruba art is to

The New Trend in Advertising :: Free Essays Online

The New Trend in Advertising Advertising may have finally found the only medium that can reach the right person with the right message at the right time. What is this groundbreaking medium? As a relatively young medium that’s shaking up the advertising world, the Internet is now considered a way to advertise to mass markets. According to Business Week’s article †The Online Ad Surge,† online advertising only accounts for 4.3% of advertising in the United States, yet the Internet accounts for more than 14% of the country’s media time. With predictions of $9.3 billion in online advertising spending this year, companies are beginning to recognize the Internet as a practicable advertising medium. This essay will provide a summary of â€Å"The Online Ad Surge† and an evaluation of the article. Article Summary Internet advertising has undergone a dramatic change in recent years. Online ads have moved from text-only to flashy, full-motion videos. Jupiter Research analyst Gary Stein states, â€Å"A few years ago, it was kids with green hair selling ads, now Internet ads are mainstream, and part of every company’s media buy.† Although online ads aren’t going to overtake the traditional advertising mediums, the segment is growing at a rate of 7.7% a year. Within the next two years, analysts predict online advertising will be worth nearly $14 billion and will surpass the magazine industry. Online ads offer companies the ability to track every click consumers make through a website and offer the ability to immediately measure an ad’s effectiveness. Other mediums, such as television are feeling the pressure to be more accountable. Until recently, television ratings were never available in real time; however, Nielsen Media Research has implemented technology that allows for minute-by-minute feedback in selected local television markets. Online advertisers are beginning to bundle slots across the media mix. According to the article, â€Å"CNN†¦sold pricey sponsorships for Election Day coverage to companies, such as Samsung and DHL. The condition? Sponsors had to advertise on TV and the Web.† Linking several mediums together benefits both parties involved as components of the media mix can compliment each other. The rush to online advertising has created several problems for companies. The surge in ads has led to clutter, which includes instant messaging ads targeted to the youth market. Another problem is the shortage of available advertising slots.

Child & Young Person Development

0-3 yearsNewborn babies will have next to no control over their own bodies. Very small movements such as sucking and grasping these are all dependent on a series of reflexes; they do these in order to survive. By the end of their first year they would of gain more advanced mobility.Gross motor skills- for using their larger muscles to being into the sitting position without any assistance. And more fine motor skills- for using much smaller muscles like fingers and toes to being able to pass objects from hand to hand.In their second year babies/toddlers will still continue to development stronger muscles and continue to grow quickly. By this age they might be able walk and they will have more control on these movements and maybe able to feed themselves. They will have much enjoyment in playing games and toys such as playing ball, climbing on furniture or on the stairs. By the third year they might be able to dress themselves maybe with little assistance from others. And for fine motor skills with holding and drawing with pencils and pens. Also by this age they should have full ability for feeding themselves. As they continue to grow to grow so does their confidence as well.3-7 yearsBy this age children would of already started school and therefore will be able to show many different co-ordinated movements. Still be growing as a small person in confidence as a result. They should be improving skills already acquired so far but they will learn to have more control on fine motor skills such as using scissors for cutting and a pen for writing. As they continue to develop their gross motor skills will be more refined in more active activities such as running, playing sports and with use of larger equipment.7-12 years By this age group children will still continue to grow and train them skills. And now should have interest and hobbies, in which they will enjoy doing them. They will start to become more experienced in some areas a great example of this could be playing a particular sport such as football or even dance. In these activities much finer movement might be needed and this will be required for playing an musical instrument. As from this early age girls just might have started some signs of puberty, but boys usually start this later on.12-16 years This is when boys usually start puberty where girls will have now to have regular periods. There might be a large variety in height and strength. Boys will tenders to be taller than most girls on average.16-19 years This is when young people are now classed as young adults. Most girls would of now reached physical movement. Where on the other hand boys will still grow and change into their mid 20s.Communication and intellectual development Children will learn and develop at different stages. Language is a link to learning. They pick things up from their own experiences and from opportunities that they might be given from a very early age. Both communication and intellectual development can be s eem from certain tasks, and then will show own strengths and abilities by those tasks. People will have many different ideas/ways about the learning development of the way children learn. 0-3 yearsThere have been many studies shown, that in cases children who have been neglected from an early age; who don’t spend time with adults to those who have time spending time with adults. Those children who have been neglected will find it hard to learn skills and won’t have effective communication in later life. Even though babies are unable to grasp what is being said to them.They will listen and will enjoy songs and dance movement. By the end  of their first year children will start to communicate through odd words then will start to put one and two words together. As they develop so will their vocabulary will increase quite quickly, to on average most children at this age of two will know about 200 words. When they reach 2-3 years old they will still make errors with in th e correct grammar when speaking.3-7 yearsAs children start nurseries and schools as they become more social, they will gain a wider range of encounters, by this they will start to increase the number of parses that are well known and expressing. As they develop more they will start to ask a lot of questions such as â€Å"why† and â€Å"what†. Talking in past and further tenses will become easier and will be spoken with more confidence. And will look for approval from adults when starting a task.7-12 years By this age children will become fluent speakers on their main language(s). Their reading and writing abilities will become more developed. They will start to deliberate ideas they may have. They will start to show learning in more abstract terms. They will start to grasp information and will start in a more intellectual way.12-18 years By this age children would be starting or already started high school and will know what they like and dislike, favourite or least fa vourite subjects at school. And more interest will be shown in these liked subjects and activities and therefore be more absorbed in these. By this age children will be getting ready to select their chosen GCSE’s and A’ levels they would like to accomplish. If young adults lack confidence this maybe with the way it is being truant. Every young adult will feel the need to belong and feel good with what they doing and within them.16-19 years This is the time that most young adults will be leaving education and will start thinking about careers or university. And from them subjects they have chosen what qualifications they have gained. In these areas of interest,  strength will still carry on to develop as they move on.Social, emotional and behavioural development To become confided independent adults, as children we learn and develop from watching and relating to others. By being social from an early age we then learn the rights and wrongs and what is normal for accept able behaviour. In order to develop they will need to feel safe and in a secure setting environment to develop into a confided strong minded adult who advises their best ability.0-3 years As from every early age babies will gain a strong bond or attachment to which they spread most time with e.g. parent or carers. Though this social development as time goes by they will want to start to do for themselves and though disturbance will or may have tantrums of some kind.3-7years Children will still continue to find their identities. They will adore starting to play with others and with using imaginative play they will then be able to socialise. It is vital that they learn boundaries and grade lines, and why they are there. Children will still long for adult approval when given responsibility.7-12years Children will start to gain long term friends and come to be more settled in these relationships. They will be able to accomplished many forms of different activities and learn to solve pro blems. As they gain more experience they will still need to be reassurance and will quickly learn to be aware of what others think of them. All children should be given plenty of praise and encouragement to help them find themselves and nurture.12-16years As children become into young adults there will be a lot of change inside and out, with various different signs of maturity and may become vulnerable. Therefore children will still need adult guidance from many ways. Even  though they are will spending more time with other peeps; they will show some signs of childish behaviour. This age group will find themselves under pressure or stress of growing up, doing well in exams at school and what will or might be expected from them. They therefore might be unaware on how to behave in different circumstances that might occur.16-19years As they leave education and entre adulthood they will require guidance from others. As they start to entre careers and jobs thy will have none or very li ttle experience. This will influence on their emotional development and will have a knock on effect to the way they interact with others. And therefore adults should understand to their needs.1.2 From a child having an ability or disability to do something can have an effect on their development as a whole. A child’s development could be slip into groups, but they interlink with one another. If a child doesn’t develop well in a subject or an area it can affect many different ones. For example if a child is overweight not only can disrupt with their physical development, it could also have a huge impact on their social and emotional. If other peers tease them about either being overweight or by not being able to do some actives, it could make them less social with making friends. Then the child could find it humiliating, embarrassing and become self-conscious and this will affect their emotional side by low self-esteem. But if a child is talented at something it could a lso affect motions of development.Physical development Social, emotional and behavioural development – Fine motor skill & hand-eye coordination – sharing mealtimes with one another – taking turnsCOOKINGCommunication and intellectual development Measuring quantities Deciding on appropriate menus Using language to describe foods Learning how food and nutrition affect growth and health Sitting down to eat together and conversing with one another2. Understand the kinds of influences that affect children and young people’s development2.1 There are many different influences that could effect on a child’s development. These developments are subjective by a range of factors such as their backgrounds, their health and their environment. All these influences will have impact on different areas.Pupils’ background and family environment Many families will go through change within a child’s time at school these may be due to arrange of different e nvironment within family life different cultures and circumstances and school maybe unaware of any changes. These may be a loss of a family member, illness, moving house or even moving to a new country. Anyone of these could have a huge impact on a child’s life by their emotional development and might have a knock on effect on their intellectual development, then this could change a child’s behaviour and to learn as a factor.Pupils Health It is important that adults to be aware of any health problems that arise. If a child/young adult suffers from poor health or as a disability or impairment. This may restrict their development opportunities. A great example is if a child is overweight due to a medical conditions might be less able to take part in some activities. This may start to affect their physical development; this will then affect social activities. The knock on effect to again emotional will also be impacted. So with adults well aware they should be aware of co nditions & circumstances and that the right amount of support can be given.Poverty and deprivation These are likely to have a extreme influence on a child’s development, it’s proven that if a child comes from a deprived background; they are less likely to achieve well in school. They might find it hard due to lack of opportunities due to parents finding it too hard to manage their needs. By this it will have a turn on impacting on all areas of their development, or lack of it, by this the child will respond differently to situations than others.Personal choices As children turn in to young adults they will start to make their own choices on life, friendships and activities and so on. They will need advice and support from adults to enable then to make the right choices that are right for them.Looked after/ care status If a child is in care, this will have an impact on their development in many different ways. Each child should be monitored closely for any change by hav ing regular meetings. This is too able to meet their needs of that child. And to make sure they are making expected levels of progress. For where any concerns that arise they can be addressed straight away.Education Children learn at different stages; but some children may start school without any previous education. Alternatively that child may come from home schooling environment or maybe just a different way of schooling altogether. Therefore the way o child could be taught can be very well different. So as a result that child may need some extra support till they have settled in.2.2 Anyone who works with or raises children, they need to have a solid understanding of a child development and what makes that child tick. As it is very important to know what is normal for that child and what’s not. By looking out for any problems, we will be able to offer the care and support  needed to get that child back on track. For example, if a child is suffering from a break up in the family; it can be very stressful for that child and this could have an influence on their development as they could become very upset, lash out, could stop eating or could stop talking altogether.It is at most importance that the child feels they’re not at fault. There is certain problem that arises that needs to be disclosed with the school so that safety, integrity and respect on how the issue might impact on the child. In effect is to be proactive to let the child’s teacher know the following problems can stave off more severe issues, that including behaviour problems, poor grades or having difficulty to adjust to the situation the child’s family will be facing. The teacher should inform the child’s parents/carers of any concerns they feel they might have. The sooner the parents are aware the easier it will be to step in and help given any additional support that may be needed.3. Understand the potential effects of transitions on children and young pe ople’s development.3.1 Most children/ young adults may experience transitions. This may be long or short term. Transitions is known as a significant stage or experience in the life this could have an effect on their behaviour and development. Some children go through transitions when starting school for the first time or changing from one school to another, moving house can also have an impact on the child, in that they will have to make new friends. Many children make these transitions without prior personal experience. This can seem appear to them as a daunting list of ‘firsts’. For example a child’s first day at nursery or school; first night away from mum and dad etc. All these could affect the different areas of development.3.2 Sometimes transition can happen that can’t be prepared for, and it is important that the school have polices and carry out the right procedure for dealing in these seduction. If there isn’t a procedure to follow t hat it can be quite different to deal with. Sometimes it can be over looked when the  school is informed of any changes; but if we notice any changes within a child who is behaving uncharacteristically it is important that others are informed. Bereavement can have a huge impact on a child, Even if it is expected. Again the right procedure needs to be followed. Parental separation is likely to happen to a child at the school.And we will need to be sensitive when speaking to parents about this and the effects its having on the child. If a new member is being introduced, or if the amount of contact with a parent changes, this can also have a big impact on the child. Again sensually is required again when speaking about this matter. New siblings – this can found to be difficult to cope with. Emotional and behavioural development can change due to vying for parental attention, maybe for the first time.Moving house – a child can find moving house to an unknown school or ar ea to be very upsetting. It is likely that additional support should be given to help settle them. Change of carer – if a child that as moved a number of times this could again be upsetting and the child can become unsettled if they have a change of a career. The school should have both support and advice needed from social services. They both will need to work closely to help support that child. Illness or injury – we need to come to term with it and any changes in circumstances, even though these could be their own or loved one.3.3 It would be great if any advance notice could be given if a child/ group will be going through a transition so that the right opportunity to support them when or how needed. Some find it important to talk to people about their feeling during these periods by having positive relationships available. A child or group of children that are going through a transition may experience different ways. This may be:Become attention seeking Show signs of uncharacteristic behaviour Be very anxious Become quite and withdrawn If a child doesn’t receive any support other development could also be affected; by social and their emotional development. Children could find some transitions potentially traumatic.

Art And Science Of Nursing Essay - 2354 Words

Nursing practice is known as a combination of nursing knowledge and compassion in providing care and comfort to patients. Moreover, nursing practice has changed and developed into a dynamic profession to create a better health care environment. It is always essential to combine art and science aspects in nursing practice to help improve patients ‘outcomes. What is the art and science of nursing? Art and science of nursing is described in different ways through literature. According to Polos (2014), science of nursing is a combination of knowledge and performing skills. To be a competent nurse, one needs to have scientific knowledge and skills in critical thinking, clinical decision making and evidence based practice (Polos, 2014). For example, in science aspect, a nurse needs to have the knowledge of pathophysiology, biochemistry, psychosocial and skills. The scientific knowledge help nurses understand disease process, signs and symptoms of diseases to provide proper treatments and appropriate nursing interventions. On the other hand, art plays an important role in nursing practice. Polos (2014) further says art of nursing is concerned with caring, compassion, patient- centered care, and therapeutic communication delivery for patients and patients’ families. These qualities are highly evaluated by patients and contribute to pat ient’s safety and satisfaction (Polos, 2014). Art of nursing relates to the building of trusting relationships between nurses and patient andShow MoreRelatedIs Nursing an Art or Science1576 Words   |  7 Pages Is Nursing an Art or Science, or Both? NUR 1214 Abstract Nursing is defined and referred to as both an art and a science through theory and research in nursing practice. 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Crime of Fashion Counterfeiting Goods in the Fashion...

There is a saying: â€Å"Monkey see, Monkey do.† In today’s world, it seems that it’s only natural for humans to imitate what they see works in society. Though there are beneficial facets for imitating, there are also damaging consequences. Counterfeit is a strong word that describes companies that forge bills or create fake fashion goods, electronic items, and even pharmaceuticals. For the purpose of this research, the focus will be on the different aspects of counterfeiting goods in the fashion industry. Though fashion has continuously changed, been reinvented and some even being dubbed ‘classics’, one thing will always remain: a designer’s ability to express creativity. Fashion is mainly dictated by trends whether they are past, present, or†¦show more content†¦Even with the rise in awareness, should there be a stronger bind to prevent counterfeits or should counterfeiting be ignored? The issue with consumers who are clueless to di stinguish a genuine item to a fake is a harsh reality. The research will consist of statistics and more in-depth details relating to the dangerous activities involving the production and distribution of counterfeit goods. This crime in the fashion industry can get confused with the term ‘designer-inspired’. While counterfeiting claims to have been created by a luxury brand, designer inspired items are influenced by luxury brands and only use aesthetics of brands in their own specific interpretation. Below are examples of the designer inspired bags sourced from photobucket.com when the respective descriptions are searched. Many will first notice the handbags closely resemble the luxury brands. However, they are designer inspired because they use the brands as inspiration but don’t use the brands’ logos. The act of mimicking a high-end product leads to lower employments by a company. Also, when a product is so high in demand, it will be quick to lose its place on the trend radar because knockoffs are ready to circulate, using parsimonious shoppers as hosts. Studies have also shown that by funding counterfeit distributors through purchasing their goods, consumers are also funding for crimesShow MoreRelatedFashion Counterfeiting1462 Words   |  6 Pagesrather how much they will acquire from it. This leads to consumer purchasing fashion counterfeit products which is becoming a rising issue in the United States and Europe. Counterfeiting is an illegal act of producing and selling a replica of an authentic product without the permission of the designer. This market expands from movies, games, money, even medicine to clothes and accessories. Counterfeiting is a fast-growing industry that is a worldwide problem which consumers play a huge role in. AsideRead MoreThe Concept Of Copying Designs1011 Words   |  5 Pagesa mark for counterfeits. She saw copies as promotion and was cited saying, Fashion should slip out of your hands. The very idea of protecting the seasonal arts is childish. One should not bother to protect that which dies the minute it is born (Faking It). Counterfeiting is a trend that has infested corporations infinitely. The fashion industry generally has taken huge feats due to the legal problems of counterfeiting. It can be described as fighting a losing war because a brand s reputationRead MoreThe Negative Effects of Counterfeiting2458 Words   |  10 PagesProfessor Shephard 4/30/13 The Negative Effects of Counterfeiting Abstract Counterfeiting is an illegal action. There is a study that provides strong evidence as to why counterfeit items can affect not only the lives of the designers, but the everyday consumer. It costs 250 billion dollars a year, which causes people to lose their jobs. Its profit margin is larger than any other illegal business. (Crime Inc., 2010). 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It includes selling, producing, and using â€Å"fake† or â€Å"knockoff† fashion designs and passing them as authentic without rightful permission. When buyers knowingly buy counterfeited goods. They only consider the cheaper price and luxurious look of the mocked productRead MoreThe World Intellectual Property Organization1357 Words   |  6 PagesConsequently gave a way to inventions, bringing happiness along with comfort in our day to day activities. However, along with the inventions, came along, those individuals who want to plagiarize, steal or imitate one’s work. Piracy and counterfeiting terms refer to the goods that come into the market with no permission from the owner. 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There are four kinds of falsification of class luxury goods: fake products - replicas of the original products, produced with the aim to give them the originals, thereby deliberately misleading consumers; pirated products - demonstrative cheap copies of original products, the production of which is not hiding the fact of forgery; products-simulation - the goods are not identical to the original product, but like them its content, name, design, appearanceRead MoreThe Importance of Internet Regulation in Fighting Piracy and Enforcing Copyright Claims1710 Words   |  7 Pagesthe harmful effects brought by IP theft. These include counterfeiting and piracy, which affects the economies and the society. Piracy and counterfeiting are illicit activities linked to IP infringement and encompasses copyright infringement. They occur when a copyrighted work has been reproduced, performed, distributed, displayed publicly, and completed into a derivative work without the copyright owners permission. Piracy and counterfeiting scopes and magnitude continue to expand and have affectedRead MoreAbercrombie and Fitch - External Analysis and Internal Analysis3276 Words   |  14 PagesAlternative Assessment for 2BSO601 BUSINESS STRATEGY INTRODUCTION Abercrombie Fitch is an American fashion retailing company headed by president and CEO Michael Jeffries. Abercrombie Fitch brand focuses on offering apparel that reflected the youthful lifestyle for a target audience, which was college students, designed to encourage teamwork and creativity On February 2007, AF retailer operated 944 stores in 49 States, District of Columbia and Canada. Furthermore, AF currently operates four