Internal Capital Adequacy Assessment Process

RBI in the circular itself recognises that “there is no one single approach for conducting the ICAAP and the market consensus in this regard to adopt the best practice for undertaking ICAAP is yet to emerge. The methodologies and techniques are still evolving particularly in this regard for measurement of non-quantifiable risks, such as reputational and strategic risks. These guidelines, therefore, seek to provide only broad principles to be followed by banks in developing their ICAAP.

ICAAP commensurate with their size, level of complexity, risk profile and scope of operations. It is undertaken at entity level or consolidated basis. The ultimate responsibility rest with board.

Indicative list of risk as per RBI master circular:

• . Interest rate risk in the banking book
• . Credit Concentration risk
• .  Liquidity risk
• .  Settlement risk
• . Reputational risk
• . Strategic risk
• . Residual risk of securitisation

Stress testing:

• -  Determines the risk exposed to an entity in different stress scenarios
• - Assesses the entity’s capability to effectively deal with the same
• - It is conducted using scenario analysis or sensitive analysis

Content of ICAAP includes Background, Key sensitivities and future scenarios, Testing and adoption of ICAAP, Capital Adequacy, Use of ICAAP, Aggregation and diversification.