Skip to main content

Why Should All the Eurobonds Issued by Indian Banks Carry Uniform Regulatory Credit Risk Charge?

  • Chapter
  • 219 Accesses

Part of the Global Financial Markets book series (GFM)

Abstract

Credit risk charge is a major component of capital charges against investments in Eurobonds by an Indian commercial bank (henceforth “bank”): (i) market risk capital charge and (ii) credit risk capital charge. Basel II guidelines gave country regulators the freedom to decide the credit risk weights of bonds issued by banks. The Indian banking regulator Reserve Bank of India assigned a 20 per cent credit risk charge of investments in corporate bonds issued by any other bank. This was in place for quite a long time and across all banks. But credit risk varies from time to time and from issuer to issuer. This chapter seeks to sensitize the investing banks as also the regulator regarding the changing magnitudes of driver factors determining credit worthiness of a bank in terms of credit quality and credit score during the post-crisis period. A credit risk manager may assess the counterparty-default probability, looking at the credit rating of the instrument, not the issuer, as per the regulatory norm. Therefore I have chosen the two jointly largest Eurobond issuers banks in terms of outstanding amount in USD, as comparative examples. These are ICICI Bank and State Bank of India (henceforth “SBI”). Each has a liability of 1000 million USD outstanding from a single issue in the Asian offshore market. In the beginning of the financial year April 2012-March 2013 1000 USD is the largest denomination of a single issue.

Keywords

  • Credit Risk
  • Default Probability
  • Corporate Bond
  • Spot Price
  • Credit Quality

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

This is a preview of subscription content, access via your institution.

Buying options

Chapter
USD   29.95
Price excludes VAT (USA)
  • DOI: 10.1057/9781137034649_2
  • Chapter length: 9 pages
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
eBook
USD   59.99
Price excludes VAT (USA)
  • ISBN: 978-1-137-03464-9
  • Instant PDF download
  • Readable on all devices
  • Own it forever
  • Exclusive offer for individuals only
  • Tax calculation will be finalised during checkout
Softcover Book
USD   110.00
Price excludes VAT (USA)
Hardcover Book
USD   79.99
Price excludes VAT (USA)

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Altman, E.I. and Saunders, A. 1998. Credit Risk Measurement: Development Over the Last 20 Years. Journal of Banking and Finance, 21: 1721–1742.

    CrossRef  Google Scholar 

  • Bang, N. 2012. Corporate loans to trouble ICICI Bank in future. www.moneycon-trol.com/news/result-analysis/corp-loans-to-trouble-icici-bankfuture-nirmal-bang_697772.html (accessed 10 May 2012).

    Google Scholar 

  • Bank for International Settlement. 2004. Basel II: International Convergence of Capital Measurement and Capital Standards: a Revised Framework. www.bis.org/publ/bcbs107.htm (accessed 7 May 2012).

    Google Scholar 

  • Das, R. 2010. Research Methodology in Social Sciences and Management: Models on Indian Issues. Saarbrücken: Verlag Dr. Müller.

    Google Scholar 

  • Business Standard. 2008. Subprime Crisis to Hit 4 Big Banks’ Profits. www.business-standard.com/india/news/subprime-crisis-to-hit-4-big-banks%60-profits/309888/ (accessed 11 May 2012).

    Google Scholar 

  • Clearing Corporation of India Ltd. 2012. CCIL Rupee Yield Curve (ZCYC). http://ccilindia.com/RiskManagement/SecuritiesSegment/Pages/CCILRupeeYieldCurveDaily.aspx (accessed 18 May 2012).

    Google Scholar 

  • Economic Times. 2012. Govt Stake in SBI to Go Up by 2.5% Post Rs 7900 CR Capital Infusion. http://articles.economictimes.indiatimes.com/2012–01-31/news/31010436_1_rights-issue-managing-director-diwakar-gupta-state-bank (accessed 18 May 2012).

    Google Scholar 

  • Financial Cbonds Information. 2012. Bond Issues: Eurobonds ICICI Bank, 2015 (USM5314BAE13). www.cbonds.info/em/eng/emissions/emission.phtml/par-ams/id/11681 (accessed 21 May 2012).

    Google Scholar 

  • Financial Cbonds Information. 2012. Bond Issues: Eurobonds State Bank of India, 2015 (US85628UAA43). www.cbonds.info/em/eng/emissions/emission.phtml/params/id/13044 (accessed 21 May 2012).

    Google Scholar 

  • Financial Express. 2008. Hiked Repo Rate to Hit ICICI, OBC, Yes Bank: Report. www.financialexpress.com/news/hiked-repo-rate-to-hit-icici-obc-yes-bank-report/323505/ (accessed 11 May 2012).

    Google Scholar 

  • Financial Times. 2012. ft.com/Market Data. http://markets.ft.com/Research//Markets/Tearsheets/Financials?s=SBIN:NSI&subview=IncomeStatement&period=a (accessed 24 May 2012).

  • HomeFinance.nl. International Interest Rates. 2012. 12 Month US dollar LIBOR. www.homefinance.nl/english/international-interest-rates/libor/usdollar/libor-rates-12-months-usd.asp (accessed 17 May 2012).

  • ICRA. 2011. Indian Banking Sector: Challenges Unlikely to Derail the Progress Made. www.icra.in/Files/ticker/Banking%20note-final.pdf (accessed 11 May 2012).

    Google Scholar 

  • Jayadev, M. 2006. Internal Credit Rating Practices of Indian Banks. Economic and Political Weekly, 41(11): 1069–1078.

    Google Scholar 

  • livemint.com/WaH Street Journal. 2012. SBI’s War on Bad Loans Paying Off. www.livemint.com/2012/05/19001643/SBI8217s-war-on-bad-loans-p.html (accessed 25 May 2012).

  • MarketLive.in. 2011. Markets in Red. ICICI, SBI in Deep trouble. www.youtube.com/watch?v=GPlnBayQKuE (accessed 10 May 2012).

  • National Stock Exchange. 2012. Corporate Bonds. www.nse-india.com/products/content/debt/corp_bonds/cbm.htm (accessed 11 May 2012).

    Google Scholar 

  • Reserve Bank of India. 2008. Concept Paper on Credit Rating Agencies. http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/CCRA030310_R2.pdf (accessed 23 May 2012).

    Google Scholar 

  • Reserve Bank of India. 2010. Master Circular-Prudential Norms of Capital Adequacy-Basel I Framework. http://rbidocs.rbi.org.in/rdocs/notification/PDFs/49MCIR280610.pdf (accessed 23 May 2012).

    Google Scholar 

  • Reserve Bank of India. 2011. Master Circular — Prudential Norms on Capital Adequacy — Basel I Framework. http://rbidocs.rbi.org.in/rdocs/notification/PDFs/62CB300611FL.pdf (accessed 11 March 2012).

    Google Scholar 

  • Saunders, A. and Cornett, M. 2008. Financial Institutions Management: A Risk Management Approach. New York: McGraw-Hill Irwin.

    Google Scholar 

  • Shenoy, D. 2008. ICICI in More Trouble? http://capitalmind.in/2008/07/icici-in-more-trouble/ (accessed 10 May 2012).

    Google Scholar 

  • State Bank of India. 2012. Press Release FY 2011–2012. www.sbi.co.in/webfiles/uploads/files/1337351124424_PRESS_RELEASE_FY_12.pdf (accessed 25 May 2012).

    Google Scholar 

  • Sturzenegger, F. and Zettelmeyer, J. 2007. Debt Defaults and Lessons from a Decade of Crises. Boston: MIT Press.

    Google Scholar 

Download references

Authors

Editor information

Editors and Affiliations

Copyright information

© 2013 Rituparna Das

About this chapter

Cite this chapter

Das, R. (2013). Why Should All the Eurobonds Issued by Indian Banks Carry Uniform Regulatory Credit Risk Charge?. In: Wong, M.C.S., Chan, W.F.C. (eds) Investing in Asian Offshore Currency Markets. Global Financial Markets. Palgrave Macmillan, London. https://doi.org/10.1057/9781137034649_2

Download citation