ICICI Bank : Basel III - Pillar 3 disclosures at December 31, 2020

Basel - Pillar 3 Disclosures

(Consolidated)

December 31, 2020

BASEL - PILLAR 3 DISCLOSURES (CONSOLIDATED) AT DECEMBER 31, 2020

Reserve Bank of India (RBI) issued Basel III guidelines applicable with effect from April 1, 2013. The guidelines provide a transition schedule for Basel III implementation till March 31, 2020. On March 27, 2020, the RBI has extended the transition period for implementing the last tranche of 0.625% under capital conservation buffer (CCB) by six months i.e. from March 31, 2020 to September 30, 2020 and on September 29, 2020, it has been further extended to April 1, 2021. Upon full implementation of Basel III guidelines, the minimum capital to risk-weighted assets ratio (CRAR) would be 11.70%, minimum Common Equity Tier-1 (CET1) CRAR ratio would be 8.20% and minimum Tier- 1 CRAR ratio would be 9.70%. This includes capital conservation buffer (CCB) and additional CET1 capital surcharge on account of the Bank being designated as a Domestic Systemically Important Bank (D-SIB).

As per the transitional arrangement, at December 31, 2020, ICICI Bank (the Bank) is required to maintain minimum CET1 CRAR of 7.575%, minimum Tier-1 CRAR of 9.075% and minimum total CRAR of 11.075%. The minimum capital requirement includes capital conservation buffer (CCB) of 1.875% and additional CET1 capital surcharge of 0.20% on account of the Bank being designated as a Domestic Systemically Important Bank (D- SIB).

The Basel III framework consists of three-mutually reinforcing pillars:

1. Pillar 1: Minimum capital requirements for credit risk, market risk and operational risk
2. Pillar 2: Supervisory review of capital adequacy
3. Pillar 3: Market discipline

Market discipline (Pillar 3) comprises set of disclosures on the capital adequacy and risk management framework of the Bank. These disclosures have been set out in the following sections.

Table DF-2: CAPITAL ADEQUACY

Qualitative disclosures

a. Capital management

Objective

The Bank actively manages its capital to meet regulatory norms and current and future business needs considering the risks in its businesses, expectation of rating agencies, shareholders and investors, and the available options of raising capital.

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Basel - Pillar 3 Disclosures

(Consolidated)

December 31, 2020

Organisational set-up

The capital management framework of the Bank is administered by the Finance Group and the Risk Management Group (RMG) under the supervision of the Board and the Risk Committee.

Regulatory capital

ICICI Bank

RBI issued Basel III guidelines applicable with effect from April 1, 2013. The guidelines provide a transition schedule for Basel III implementation till March 31, 2020. On March 27, 2020, the RBI has extended the transition period for implementing the last tranche of 0.625% under capital conservation buffer (CCB) by six months i.e. from March 31, 2020 to September 30, 2020 and on September 29, 2020, it has been further extended to April 1, 2021. Upon full implementation of Basel III guidelines, the minimum CRAR would be 11.70%, minimum CET1 CRAR ratio would be 8.20% and minimum Tier-1 CRAR ratio would be 9.70%. This includes CCB and additional CET1 capital surcharge on account of the Bank being designated as a D-SIB.

As per the transitional arrangement, at December 31, 2020, the Bank is required to maintain minimum CET1 CRAR of 7.575%, minimum Tier-1 CRAR of 9.075% and minimum total CRAR of 11.075%. The minimum capital requirement includes capital conservation buffer (CCB) of 1.875% and additional CET1 capital surcharge of 0.20% on account of the Bank being designated as a D-SIB.

Subsidiaries

Each subsidiary in the Group assesses the adequate level of capitalisation required to meet its respective host regulatory requirements and business needs. The Board of each subsidiary maintains oversight over the capital adequacy framework for the subsidiary either directly or through separately constituted committees.

Internal assessment of capital

The Bank's capital management framework includes a comprehensive internal capital adequacy assessment process (ICAAP) conducted annually which determines the adequate level of capitalisation for the Bank to meet regulatory norms and current and future business needs, including under stress scenarios. The ICAAP is formulated at both standalone bank level and the consolidated group level. The ICAAP encompasses capital

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Basel - Pillar 3 Disclosures

(Consolidated)

December 31, 2020

planning for a four-year time horizon, identification and measurement of material risks and the relationship between risk and capital.

The capital management framework is complemented by the risk management framework, which covers the policies, processes, methodologies and frameworks established for the management of material risks.

Stress testing, which is a key aspect of the ICAAP and the risk management framework, provides an insight on the impact of extreme but plausible scenarios on the Bank's risk profile and capital position. Based on the stress testing framework, the Bank conducts stress tests on its various portfolios and assesses the impact on its capital adequacy ratio and the adequacy of capital buffers for current and future periods. The Bank periodically assesses and refines its stress testing framework in an effort to ensure that the stress scenarios capture material risks as well as reflect market conditions and operating environment. The business and capital plans and the stress testing results of certain key group entities are integrated into the ICAAP.

Based on the ICAAP, the Bank determines the level of capital that needs to be maintained by considering the following in an integrated manner:

• Bank's strategic focus, business plan and growth objectives;
• regulatory capital requirements as per the RBI guidelines;
• assessment of material risks and impact of stress testing;
• perception of shareholders and investors;
• future strategy with regard to investments or divestments in subsidiaries; and
• evaluation of options to raise capital from domestic and overseas markets, as permitted by RBI from time to time.

Monitoring and reporting

The Board of Directors of the Bank maintains an active oversight over the Bank's capital adequacy levels. On a quarterly basis, an analysis of the capital adequacy position and the risk weighted assets and an assessment of the various aspects of Basel III on capital and risk management as stipulated by RBI, are reported to the Board. Further, the capital adequacy position of the banking subsidiaries and the non-banking subsidiaries based on the respective host regulatory requirements is also reported to the Board on a periodic basis. In line with RBI requirements for consolidated prudential report, the capital adequacy position of the Group (consolidated) is reported to the Board on a quarterly basis.

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Basel - Pillar 3 Disclosures

(Consolidated)

December 31, 2020

Further, the ICAAP which is an annual process also serves as a mechanism for the Board to assess and monitor the Bank's and the Group's capital adequacy position over a four- year time horizon.

Quantitative disclosures

Capital requirements for various risk areas (December 31, 2020)

The Bank is subject to the capital adequacy norms stipulated by the RBI guidelines on Basel III. The total capital adequacy ratio of the Bank at a standalone level at December 31, 2020 as per the RBI guidelines on Basel III is 18.04% with a Tier-1 capital adequacy ratio of 16.65%. The total capital adequacy ratio of the Group (consolidated) at December 31, 2020 as per the RBI guidelines on Basel III is 17.61% with a Tier-1 capital adequacy ratio of 16.24%.

As required by RBI guidelines on Basel III, the Bank's capital requirements (at Group level) have been computed using the Standardised approach for credit risk, Standardised Measurement method for market risk and Basic Indicator approach for operational risk. Capital required for credit, market and operational risks given below is arrived at after multiplying the risk weighted assets by 11.075%.

	` in million
	Amount
b. Capital required for credit risk	747,384.1
- for portfolio subject to standardised approach	743,995.8
- for securitisation exposure	3,388.3
c. Capital required for market risk	83,181.8
- for interest rate risk1	51,579.6
- for foreign exchange (including gold) risk	2,416.9
- for equity position risk	29,185.3
d. Capital required for operational risk	97,301.7
Total capital requirement (b+c+d)	927,867.6
Total capital funds of the Group2,3,4	1,475,767.9
Total risk weighted assets	8,378,036.3
Capital adequacy ratio	17.61%

1. Includes capital required of ` 9,641.7 million for securitisation exposure.
2. Includes all entities considered for Basel III capital adequacy computation.
3. Includes revaluation reserve except revaluation reserve on leasehold property at December 31, 2020.
4. Excludes retained earnings for 9M-2021.

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