Linguistics in Opera and Libretto

Introduction Opera is performed using theatrical scenes where the art involves a combination of singing and dramatization. This kind of text is referred to as the libretto. It was a very popular form of art in early Europe. Opera remains popular today in some quarters of the society. The art brings together singing, speaking as well as acting. All these activities are performed in an opera house which is specifically designed for such purposes (Kennedy 62).Advertising We will write a custom essay sample on Linguistics in Opera and Libretto specifically for you for only $16.05 $11/page Learn More Linguistic on the other hand is the exploration of human language and its origin, revolution as well as application of the language. The application encompasses the use of morphology, syntax as well as the phonology in the composition of words. The meaning of language has been explored by analyzing the meaning of other forms of art in the real world. This is with the view of understanding the origin of opera from different backgrounds. This means that opera can be analyzed from a linguistic perspective. The opera is characterized by features such as the stage, orchestra pit and an audience area among others. Some operas are designed to accommodate various aspects of linguistic analysis. This is especially so considering the fact that operas were very popular in England and other countries during the early centuries. A comprehensive analysis of linguistics in opera can be achieved by looking at the origins of this form of art. This is given the fact that linguistics in opera is influenced a great deal by the origins of this art. It is noted that the art originated in Italy towards the end of the 16th century. It later spread to other parts of the world especially in Europe. To date, the operatic terminologies in these countries are referred to as the libretto (MacNutt 101). This is an indication of linguistics in opera. The origins of opera are evident in today’s compositions where aspects of Italian language are incorporated. This is given the fact that most of them have retained the original Italian characteristics such as accent and others. Such aspects help in tracing the common origin of today’s opera performances as far as linguistics is concerned.Advertising Looking for essay on art and design? Let's see if we can help you! Get your first paper with 15% OFF Learn More In this paper, the author is going to look at the use of linguistics in opera. The author will make reference to librettos from operas in English from England and the United States of America. Examples of linguistic operas will be put into perspective in a chronological sequence. The aim here is to depict the link between the two fields of linguistics and opera. History and Origin of Opera from a Linguistic Perspective Before embarking on the critical analysis of the link between opera and linguistics, it is important to look at the history and origins of opera as a form of art. This will give the reader an idea of what opera is all about. It will also give the reader an idea of how contemporary opera differs from classical compositions and performances. The word opera is an Italian word implying â€Å"work† when translated. When loosely translated, opera involves the combination of â€Å"†¦Ã¢â‚¬ ¦.works from acting declamation in opera house stage† (Kennedy 75). Jacopo Peri is considered as the pioneer of this form of art. Dafne is actually a piece of work that was originally produced by Peri and it remains one of his most popular compositions. A group of Camerata found out that the entire opera was performed by the Greek dramas. So far the idea was to conceive and restore the traditional art. On a sad note, Dafne was lost and Peri was forced to come up with a new composition, the Euridice. This is the only opera that is still performed to date. It is to be noted that singing wa s an important aspect of opera (Warrack Ewan 25). Libretto Libretto is an elongated piece in form of music found in many categories of performances such as opera and cantanta. The word in some cases is associated with liturgical works such as the requiem as well as the expression of a story in ballet. Like opera, libretto also has an Italian origin, creating a link between it and linguistics. It literally translates into a book as already indicated in this paper. Libretto is different when compared to other forms of art like synopsis. In libretto, the distinction is evidenced by the fact that it contains words (linguistics) as well as stage directions. Synopsis on the other hand is used to give a summary of the plot (Smith 31). Historically, the ballet users have described libretto in different ways. For instance, libretto was recorded in a book of between 15 and 40 pages that contained ballets describing one scene or another.Advertising We will write a custom essay sample on Linguistics in Opera and Libretto specifically for you for only $16.05 $11/page Learn More This was in Paris in the 19th century. To this end, it is noted that the relationship between the composer and the writer of a given piece of music varies from one case to the other. This has varied the outcomes of such compositions for centuries. This is given that the writing criteria adopted as well as the sources used also varied (Simon 23). The language used in the composition varies from one case to the other. Metastasio is an example of well known librettists in Europe. It was used by a composer and a writer in a practice commonly known as poetry. Poetry is part of linguistics, and at this juncture, the author notes that it is also part of opera. In some cases, libretto has been written before music. Some composers used this idea in their creations. This is composers such as Mikhali Glinka and Alexander Serov who wrote down passages without accompanying texts. T his was later to be modified by composers when vocalizing the lines (Smith 43). Linguistics in opera is also evident in opera of the 20th century. It is to be noted that opera was widely used in America in the 20th century. Richard Rodgers is an example of a great composer who used this art in collaboration with other librettists. In other relationships as far as libretto and linguistics are concerned, composers designed their own libretti. Other librettos established a close relationship with composers so that all works of opera could reflect a common origin. The common origin could be deduced from the language that was used. Ingredients from other traditions were also effective in composition. But the efficiency improved when they were â€Å"combined under one work as far as composing and writing is concerned† (MacNutt 20). In this case, the opera will not clash with the play in attempts to accommodate other linguistics works with different origins. In cases where there was a need to combine works with different origins, it was necessary to put the script down in the presence of all the composers and the writer (Warrack Ewan 43).Advertising Looking for essay on art and design? Let's see if we can help you! Get your first paper with 15% OFF Learn More English Language Opera and Linguistics Opera was first used in England in the 17th century. The piece was performed towards the end of a play. It was frequently characterized by scandalous scenes which depicted a consistence use of the popular tunes phrased in a dialogue. In the same period, French operas were gaining roots in English courts. They had â€Å"†¦Ã¢â‚¬ ¦..favorite splendors with scenes that were realistic† (Smith 22) in the plays. England had to use this kind of opera on the stage. Inigo Jones is credited as the pioneer of this art. He later became a quintessential specialist in all the productions (MacMurray Franzetti 26). The opera contained both songs and dances. Linguistic aspects were borrowed from different backgrounds for instance Italian and French which was taking hold in England. Opera revolution instigated the rise of linguistic elements from different artists. One such artist was Henry Purcell who also incorporated aspects of Italian language in his compositions. This is for example in his first work Dido and Aeneas. He centered his work on the semi opera type of format. The Fairy Queen is also one of the most famous works produced by Purcell. In this text, he was targeting the use of English in all versions of opera as an art. Dido and Aeneas Opera This is one of the English opera composed by Purcell. It was a libretto from Nahum Tate in the 17th century. This was the only work that had started to use English traditions after the inception of the Shakespearian linguistics. It is noted that the desire to use the English language in opera was common among emerging artists during the century (Apel 47). Opera Seria Long English compositions emerged later and the first English composer to venture here was Thomas Arne (Smith 24). He did this by experimenting with the Italian style, a process known as comic opera. This art became a huge success with many other pieces incorporated into the opera seria in Italian and English (MacM urray Franzetti 51). Opera seria dominated the stages till late 1830s and by then he was the only English composer to have gone beyond the Italian composition to produce a unique English composition with aspects of the Italian language. Linguistics was also evident in Balla opera where the composers incorporated some aspects of the English language. This is for example in The Love In Village (MacMurray Franzetti 58). As a result of this many native operas developed by incorporating aspects of the Italian language. Linguistics here was evident as the composers combined aspects of two different languages. The Yeomen of the Guard The 19th century English opera has been greatly influenced by linguistics elements. Many operatic conventions dominated London stages with emerging English composers taking the center stage. One English opera of this time was The Yeomen Of The Guard which was greatly recognized. It is a savoy opera that originated in Victorian England. The contributors to th is art included Gilbert and Sullivan who came up with compositions from scratch. Punch and Judy In the 20th century English opera was characterized by independent works from contributors such as Ralph Williams and Benjamin Britten. The two have greatly influenced contemporary theatre operas. This is after it emerged that English opera was being used in many parts of the world. For example the work of Sir Harrison The Punch and the Judy is not only Britain’s important opera art but also globally recognized (Silke 24). This work was evident in the 20th century and was performed in the American theatres. It was an indication that linguistics in opera was a common phenomenon across the globe. Using of puppets was an indication of how human behavior is linguistically transformed from one discipline to another (Silke 43) In the early 21st century, Harrison concentrated with the composition of other popular pieces such as â€Å"Facing the Goya†. English opera has therefore be come a significant ingredient of today’s opera world. For example, the National Lyric Stage involves the use of operas composed in the English language (Cooke 15). American Opera American opera became profound during the 20th century. The pioneers in American opera include Leonard Bernstein and Douglas Moor among others. Their works include The Porgy and Bess. They greatly influenced English opera as they performed music encrypted in English. It was characterized by folklores and American music comedies. They are the ones who popularized this form of art in America. On their part, they were influenced by composers and performers in operas found in other parts of the world (Kennedy 28). An American in Paris This is one of the compositions from America done by George Gershwin. It is a well defined opera incorporating aspects of the French language in 1922. In this art, French was used together with American English with the aim of using linguistics to depict the experience of a n American visitor in Paris (Smith 39). Other Contributions Still in the 20th century, other prominent opera arts include the Dead Man Walking which was successfully delivered through movie theaters. Another aspect of linguistics in opera can be discerned from the works of Italian opera composer Gian Carlo. The composer produced several librettos from America and became a great figure in American operas in this century. One of his works includes The Medium and The Consul. Some of his works featured in television performances (Kennedy 49). Conclusion In this paper, the author sought to look at the application of linguistics in opera. The aim was to study the link between linguistics and opera. All these involve the use of different languages hence linguistics in opera. The author used librettos from operas in English from England and the United States of America in identifying the link between the two fields. To this end, the researcher identified the link or the relationship between opera and linguistics. The author also looked at some of the key figures in English opera both in England and the United States of America. The origin of opera was also looked at. The paper found that the origin of opera can be used to analyze the link between opera and linguistics. This is given that there are some aspects of the original opera language that are evident in today’s opera. For example, some aspects of the Italian language are evident in today’s works of opera. Works Cited Apel, William. Harvard Dictionary of Music, Cambridge: The Belknap Press of Harvard University Press, 2011. Print. Cooke, Mervyn. The Cambridge Companion to Twentieth-Century Opera, Cambridge: Cambridge University Press, 2009. Print. Kennedy, Michael. The Oxford Dictionary of Music, Melbourne: Oxford University Press, 2006. Print. MacMurray, Jessica, and A. Franzetti. The Book of 101 Opera Librettos: Complete Original Language Texts with English Translations, London: Black Dog Levent hal Publishers, 2009. Print. MacNutt, Richard. The New Grove Dictionary of Opera, London: Prentice Hall Publishers, 2009. Print. Silke, Leopold. The Idea of National Opera c. 1800: United and Diversity in European Culture c. 1800, New York: Oxford University Press, 2006. Print. Simon, Henry. A Treasury of Grand Opera, New York: MacGrill Publishers, 2008. Print. Smith, Marian. Ballet and Opera in the Middle Age, Boston: Princeton University Press, 2009. Print. Warrack, John, and W. Ewan.The Oxford Dictionary of Opera, London: Oxford University Press, 2010. Print. This essay on Linguistics in Opera and Libretto was written and submitted by user Ishaan T. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

The Judging Mindset Professor Ramos Blog

The Judging Mindset Who are we to judge? Nobody is perfect. People are judged all the time for the color of their skin, race, and beliefs why is this the case? So many times are minds become fixed for that split second and you realize what you did the second you start feeling guilty. Many times it’s a single perspective parents teach and spreads to their kids impacting many generations to have that fixed mindset (where people believe their basic qualities are everything and there’s no room for improve whatever skills you have at that point are all you have) (Dweck). Unlike in a growth mindset (where people believe they can improve their skills by putting forth the effort to improve.) (Dweck). In the movie Blindside telling a true story about a football player Michael Oher many scenes show case how fixed mindsets play a huge role in Michael’s struggles. Multiple people judge Michael as â€Å"a huge black man† when they know nothing about him just his skin color and appearance. Michael Oher goes through multiple challenges so he can try to better his life when the Tuohy family found him walking on the side of the rode one night so he could be warm because he’s been bouncing around foster homes and usually sleeps on peoples couches. Michael comes from a family of eleven, a father who was in and out of jail, and a mother that was addicted to drugs but this didn’t stop the Tuohys from helping Michael even though both sides have extremely different backgrounds and mindsets. The Tuohys have money and are able to get things that Michael has never had for example in the movie Blindside Michael was poor in poverty so he didn’t have essentials to live so when Leigh Anne Tuohy got him his own room in their house the scene shows them both in his new room with a fresh new bed, dresser, nightstands you name it. Leigh Anne starts talking about what she got for him in his new room explaining how difficult it was to get a bed frame for him and Michael says â€Å"I’ve never had one before† with Leigh Anne’s quick reply being â€Å"What? A room to yourself† then with Michael replying â€Å"No. A Bed.† Leigh Anne lost for words for a moment finds a smile and says â€Å"well you have one now† then rushing out of the room into hers to sit down and take in what she just heard. This scene shows the difference in lifestyles these two have Leigh having everything she has ever needed and Michael not having basic living essentials because Michael grew up so poor he wasn’t able to have something as simple as a bed. The pure emotions this scene attacks it makes you feel for Michael that up to that point he’s never had a bed making you want to see him succeed even more even though he had a terrible up bringing you want to see the best for him. Nobody has a fixed mindset about Michael anymore he’s accomplished so much after having so little and becoming an idol for kids that grew up the same way he did and help them realize the mindset that they aren’t stuck have a growth mindset and fight through all the bad in your life to earn a life that is better for yourself. In another scene when Michael starts attending school at Briarcrest Christian School he has to attend classes to catch up on his credits to graduate (he had a .06 GPA when he started at Briarcrest) as he struggled in his classes the scene shows the teacher talking about his performance in each of their classes when one of them pulls a piece of paper that Michael crumbled up and threw away on it titled â€Å"White Walls† where he wrote â€Å"I look and I see white everywhere. White walls, white floors and a lot of white people. The teachers do not know, I have no idea of anything they are talking about. I do not want to listen to anyone especially the teachers. They are giving homeworks and expecting me to do the problems on my own. I have never done homework in my life. I go to the bathroom and look in the mirror and say â€Å"this is not Michael Oher.† As the teachers react to their colleague’s reading of Michaels writing they all start to put their heads down in shame and pity. The thought they should’ve done more to help him and hearing he’s never done homework shows he needs their help and guidance more than other students. The teachers mindset towards Michael was different then they had on other students they knew he has struggled before that’s why he’s in these classes in the first place they should’ve been helping him more so he could be more comfortable I this new environment for him. Throughout the rest of the movie it shows Michael studying more with his teachers and it’s helping him. Michael then has his GPA increase to a 2.5 from his original 0.06 just enough to graduate. The scene shows the teachers now with smiles on their faces because grew to like Michael and now graduating they realized they had fixed mindsets toward Michael then learning to be happy for his successes which gave them a better understanding of who Michael and not just the black kid that nobody knows how to talk to also they grew as teachers teaching someone such as Michael from a drastically different lifestyle then the rest of the students attending Briarcrest so the teachers have to change what they’ve always done to try to help Michael. In this scene in shows how differently Michael was being portrayed nobody was helping him and setting him up for failure but after the teachers and coaches starting seeing him improve his skills they started to adore him for conquering all his challenges to get his high school diploma also a football scholarship to Ole Miss (University of Mississippi) watching Michael grow from the black kid that nobody wanted to be around to a being loved around the country as an elite athlete. This movie shows a much bigger issue Michael was given a chance to make a huge difference in his life and with hard work, dedication, and support from his new family the Tuohys who took him in as one of their own. Michael went through so many struggles through the film from the racism, gangs, violence, drugs and still overcame all of it to become a professional football player. So who are we to judge? https://www.npr.org/2011/02/08/133590180/beyond-the-blind-side-michael-oher-rewrites-his-own-story Fixed Mindset vs. Growth Mindset (What Characteristics Are Critical to Success) historyvshollywood.com/reelfaces/blindside.php

Turabian Format

Turabian Format The Turabian format has been used for citation for decades. In fact, Turabian footnotes and bibliographies have become standard at some universities. By embracing the principles and guidelines that Kate Turabian put forth, you can be sure to create crisp and correct language for your term papers, each time. The Ease of the Turabian Format Perhaps the best part of using the Turabian format for citation is its sheer common sense. There are few quirks and tricky spots involved. Furthermore, each instruction is peppered with examples for clear comparison and comprehension. The Turabian format includes two separate types of citations from which you can choose. Whether youre interested in formal footnotes, or gravitate towards parenthetical citations, the Turabian format can accommodate your writing needs. Because the Turabian method was developed by a dissertation secretary, this style appeals to lower and higher education levels alike. If you are looking to create notations in Turabian format, you might consider investing in Turabian Style software. Using this software, you can create citations in Turabian format in a matter of moments. With easy to use interface, these programs can often streamline your writing process, and make citations a snap.

Hamlet, why is this an optimistic play Essay Example | Topics and Well Written Essays - 750 words

Hamlet, why is this an optimistic play - Essay Example All the schemers and morally corrupt persons are dead. Fortinbras, the king of Norway will now reign over Denmark, and its people can expect peace and prosperity, after the unstable period of palace intrigues. Hamlet, himself, though being an upright young man, was not politically inclined, and would not have made a good king for Denmark. So, though his untimely death is a personal tragedy, it seems inevitable that this had to happen in the larger interests of political stability. Amidst the death and destruction, it is also heartening that Horatio is alive-he lives to relate the story of Hamlet to the new king, Fortinbras, and to the world. There is a sense of poetic justice when the denouement of the play is unraveled. The schemers have got what they deserved, especially King Claudius who has killed his brother, Hamlet (Father of the protagonist-the young Hamlet) and married the Queen Gertrude for political gain, and the Queen herself, who for personal security and power married her brother-in-law so readily, just weeks after her husband was slain. If we narrow the spotlight to examine Hamlet's personal actions in the play, there is reason for optimism too. ... rude for political gain, and the Queen herself, who for personal security and power married her brother-in-law so readily, just weeks after her husband was slain.If we narrow the spotlight to examine Hamlet's personal actions in the play, there is reason for optimism too. Hamlet has generally been seen as an indecisive person, who, though he knew that his father had been killed by his uncle, Claudius, did not take action to avenge his death. This, however, is a simplistic interpretation. Think of this. Hamlet is generous enough in giving Claudius the benefit of doubt. The crime that he has committed has no living witnesses. Yes, the ghost of Hamlet's father does inform him of the dastardly deed. But how can he believe in this without any other evidence How can he be sure that this ghost is not some evil spirit come down to merely confuse and mislead him The message that we get is the one that is enshrined in the judicial systems of most democracies in the world today: Presume that a person is innocent unless he is proved guilty. The play, therefore, is not a typical 'revenge' play. (Eliot, 1922) We must understand that the play deals with the complexity of human action, and the difficulty in ascertaining the correctness of an action. To the extent that the play acknowledges that we cannot simplistically classify an action as black and white, and that a vast gray exists, it is more realistic; and to the extent that it is more realistic, it may be considered optimistic, as it believes in the innate goodness of a person, and the mistake we could make in sitting in judgment on anyone-however wicked he may appear to be.This play contains some of the most optimistic lines ever written-asserting belief in the innate goodness of

Documentations strategy document Essay Example | Topics and Well Written Essays - 1000 words

Documentations strategy document - Essay Example It is without doubt that paper documents are simple to understand, move, and make use of. Also the use of a lot of documents on paper can considerably decrease efficiency and boost overheads in several ways. The Hurricanes Rita and Katrina radically demonstrated the perils for businesses that uphold records totally on the paper. Loads of businesses, together with dentist’s office, lawyer offices, colleges and schools, lost almost all their paper accounts. Comparable losses can take place during the event of thunderstorms, fires and blasts plus further natural calamities. Let’s suppose if a business would keep as backup paper copies of each document inside a different location, still, it would face the extra test of keeping a track of the exact description of the documents. For instance, the IRS calls on lots of industries to preserve paper documents for seven years and then annals or raze them. It is sometimes impossible to physically trail the age of the paper documents to fulfill these policies and their obligations. The documents are effortless to lose or misplace. These Paper documents are complex to get your hands on in a suitable manner when the client is over the phone, which implies that the Accounting department has got to suspend up, move towards the filing cabinet, recover the invoice, and then call the client back. The mislaid documents effect in longer searches. When a corporation is located in numerous locations, the admission becomes even more flexible. As an effect, the paper storeroom and recovery becomes the source of extensive manual labor and overheads, which increase as the amount of invoices amplifies. The investigation conducted by the Delphi Group (Delphi.com) denotes the extent of the test and outlay: Almost all corporations tend to use up a typical of $25,000 to fill up a classic four-drawer file cabinet; $2,000 to uphold it every year. And, over the due time line of the

Red Bull Energy Drink Essay Example for Free

Red Bull Energy Drink Essay * Red Bull can be called as a pioneer in the energy drink category worldwide. In India too, Red Bull was the brand that created the energy drink category. * The brand came into existence in 1984. * The brand came to India in 2003. Although the brand has been keeping a low profile compared to the Cola majors , Red Bull has created a category of energy drinks in the Indian market. 4. Contd. * According to Economic Times ( 30. 05. 08) the energy drink market in India is estimated to be around 100 crores. * The market now has two main players Red Bull and Power Horse. * RB has an assessed market share of 29% of the global market of energy Drinks. * In the U. S. , Red Bull enjoys a 47% share of the energy drink market, and now has a 50% share of the German energy drink market. 5. SWOT Analysis * Market leadership- Within the energy drinks market Red Bull is the industry leader throughout the world. Marketing Efforts- a lot of promotions and well targeted campaigns and sponsorship e. g. formula 1 helps to expand Red bull brand and increase consumer brand awareness. * Strong , fresh fashionable brand identity. * Strengths 6. Weaknesses * Above-average prices. * Lack of innovation- there are a lot of competitors in the market and they have their own USP which leaves Red Bull behind. * Reliant on small product base- The company only markets one branded product, Red Bull Energy Drink (along with a sugar free variety). * Inexperience: is only 6 years old in India. * Lack of patent on RB ‘s recipe means anyone can copy it. 7. Opportunities * Extension of product line- this will help to retain market share. * Hardcore Advertising and Promotions. * Consumer recognition through sponsorship of sports events. * New ventures like partnership with Facebook. 8. Threats * Health concerns- tougher rules from government on high caffeine content. * Consumer awareness of health and well being- people may start to drink other alternatives as it is associated with healthier life style. * Drinks might not be accepted in the new markets. * Organic energy drinks might steal RB’s market share. 9. Promotion Opportunity Analysis * Competitive Analysis * Opportunity Analysis * Target Market Analysis * Customer Analysis * Market Segmentation Strategy 10. Competitive Analysis 11. Share of Energy Drink Market Red Bull 42. 6 Monster 14. 4 Rockstar 11. 4 Full Throttle 6. 9 Sobe No Fear 5. 4 Amp 3. 6 Sobe Adrenaline Rush 2. 9 Tab Energy 2. 3 Monster XXL 0. 9 Private Label 0. 9 Rip It 0. 8 Sobe Lean 0. 7 BooKoo 0. 5 Sobe Superman 0. 4 Von Dutch 0. 4 12. Real Competition * Redbull’s real competitors are the market leaders of cola companies such as : Pepsi Coca Cola, who have created their brand leadership since several years in the Indian market. 13. Opportunity Analysis * RB has a niche market is yet to percolate in the mass market. 14. Target Market Analysis * Core target market segments for RB consists of the core age group of 15 to 60. * Energy drinks with high sugar levels are more popular among children and women, while energy drinks with strong taste and flavor are more preferred by male consumers. * Recent studies also indicated that 65% of the energy drinks market consists of male consumers. 15. Customer Analysis * Young people are especially open to determined exhaustion and insufficient energy. * More specifically male teenagers people in their 20s, are also most likely to believe in the authenticity of the energy drinks’. * As a result, the majority of energy drinks are developed for and advertised to this younger generation. * Appeal to very specialized groups, such as gamers, extreme sports enthusiasts, and the hip-hop crowd. 16. Target Consumer Demographics Psychographics Usage Behavior Consumption collection Age: 15- 60 Content Image Conscious Influenced Spending Power Youth trends Physically Active Eat Out 25% of Indians 17. Market Segmentation Strategy * RedBull avoided usual methods of marketing, relying more on what is called buzz marketing or word-of-mouth. * Red Bull advertised directly to Generation Y , the so-called millennial: people born after 1981. * ‘ Student brand managers who would be used to promote Red Bull on university campuses. These students would be encouraged to throw parties at which cases of Red Bull would be distributed. 18. Corporate Strategies * Mission Statement * Our mission is to be the premier marketer and supplier of * RedBull in Asia, Europe and other parts of the globe. We will * achieve this mission by building long-term relationships with the * people who can make it become a reality. * Vision Statement: * People: Be a great place to work where people are inspired to be the best they can be. * Portfolio: Bring to the world a portfolio of quality beverage that anticipate and satisfy peoples desires and needs. * Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value. * Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities. * Productivity: Be a highly effective, lean and fast-moving organization. 19. Brand Development Strategy * Great Strategy Begins with Great Research. * Once the brand’s core values have been identified, the road towards effective brand proposition development begins. * Development of the brand statement- commencing a Brand development strategy. 20. 21. Brand Positioning Strategy * Clear, Engaging, Unique, Relevant to the target audience. * Able to incorporate an element of positive emotional attachment that is better than just quot;good†. * Echoed within business, internally and externally. * Consistent across multiple marketing advertising mediums (print, online presence, etc). * Continually toughened within the organization so that employees consistently deliver what is promised. * Able to adapt to a changing marketplace. 22. Distribution Strategy. * Intensive distribution aims to provide saturation coverage of the market by using all available outlets such as: * Super markets, * Gyms, * Coffee Houses: Subway, Barista, Costa Coffee, Cafe Coffee Day * In n Out Convenience Stores. * Pizza Outlets. * Media Relations * Use Technology * Monitor the Web * Create Public Awareness 23. Integrated Marketing Communications Management * Sales Promotion: * Must encourage the 1 st purchase of the product in a store. * Make them aware of the product its advantages. 24. IMC Objectives * RedBull’s IMC objective is: Sales Promotions. * Create new target markets. * Large display in the Departmental stores. * Bull Hoof stickers on the floors of departmental stores promoting RB. 25. IMC Budget 26. Internet Web site * Promotions through social networking sites such as: facebook, twitter, Hi5. * Also, Ad promos on websites such as NDTV, zoom India. 27. Media * Ad Campaigns on Prime TV channels such as NDTV good times, MTV, Channel V, Zoom, VH1, Star World a few more. 28. Budget * Magazine: * Femina, People, Rolling Stones. * 15k per page * 12 mnths- 180,000 * Newspapers: * HT City Delhi Times. * 1lac per page * 4 weeks * 12 mnths- 4800000 * Radio: * 10k per mnth * 12 – 120000 * TV: * 5 lacs * 4 weeks * 12 2400000 * Total Expense: 31,80,000 29. 30. Integrated Marketing Communication Methodologies * How do we communicate? How do customers process information? * There are many models theories. * Thorough understanding of the audiences needs, emotions * activities is essential to ensure accuracy relevance of the * message. 31. Advertising * What target market do you want to reach? * What image do you want to portray? * What product or service do you want to emphasize? * How much money can you spend? * When is the right time to advertise? * Red Bull has an aggressive marketing campaign. * Red Bull uses all the available media channels, meaning cinema, TV, radio, press and the internet. * In other words the company focuses on the media through which it reaches its primary target market-young people. * RB allows the consumers to interpret the product the moments of use themselves. * Red Bull achieves this by a humorous and witty cartoon campaign, transferring the message that this energy drink helps you to escape by `giving you wings ?. 32. Consumer Promotions * Red Bull sponsors the motorsports or fun sports, but always where Red Bull is needed. * Red Bull does event sponsoring. * Event sponsoring attracts people’s attention towards the product and connects them. 33. Personal Selling * Sampling is another very important part of the three pillar marketing system. * As the major purpose of Red Bull is to energize the company samples at the right place at the right time, where it finds its exact target market. * Examples of usage are driving, studying, working night shifts and sports. 34. 35. Media Plan * TV: * Still a staple medium of advertising. * Allows to demonstrate the advantages of RB. * Good Reach. * Magazines: * Economical. * Provides higher brand awareness. 36. Evaluation Control Metrics Campaign Element Metrics News Media No. of viewers of the articles Social Media No. of people using the Blogs such as Twitter, Facebook Internet TV No. of people viewing particularly when the Ad is being aired. Print Advertisement No. Of Subscribers of those magazines, Newspapers Product Placement No.of comments (+ or ) mentioned on social networking sites. 37. Timelines IMC/ Month Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 RedBull on the Web Print Media Blogs Radio TV Other Misc. * DARE TO BE DISCOVERED!!! 38. 39. Sources * http://www. rediff. com/money/2006/may/24drink. htm * http://www. thestudentroom. co. uk/showthread. php? t=986602 * http://www. trcb. com/business/marketing/redbull-marketing-strategy-7375. htm * http://www. drawert. com/red_bull_2. php http://energydrinks. factexpert. com/882-energy-drink-industry. php.

Process of Floor Maintenance Essay -- Process Essays

PREFACE Floor maintenance is a vital activity in any building which has tile flooring, whether it be a hospital, university or office building. Floors can either reflect a positive or negative image of an institution, depending on how they appear. This paper discusses the proper procedures for the three main steps in floor maintenance: stripping the floor, applying the finish and maintaining the finish. Everyone that is associated with the field of janitorial supplies and maintenance should have at least a general understanding of the correct procedures in floor care. Examples of such people would include janitorial workers, supervisors, and suppliers. The more informed everybody involved in the process is, the more efficient it becomes. Consequently, time and money will be saved. ii INTRODUCTION First impressions may play a role in whether a company gets a government contract or wins a bid. For an individual, it may determine if he/she gets a raise, promotion or even a second date! There is no doubt that making a good first impression is very important. Therefore, for a company, hospital or university, the way its floors look is highly important. Floor maintenance may be thought of as sinkhole of money to some, but to others, it is an investment in the future of the organization. A beautiful plant or building with bright shiny floors can be an advertisement reflecting that company's pride and commitment to excellence. A building that has dull dirty floors may reflect a lack of attention to detail or that the company is second rate. THis paper will discuss the three main steps in the floor maintenance process: stripping the floor, applying ... ...more uniform throughout. The liquid is emulsified so that the different components do not separate. plasticizer: a factory finish on new tile that must be removed in order for the floor finish to adhere. sealer: an undercoating that is applied before waxing to fill in the tile's pores so the finish does not soak into the tile. stripping: the fist process in floor maintenance. This is the process by which all the finish is removed from the tile using a stripping solution, mop and/or floor machine. 12 WORKS CITED Dixon, M. February 1988. Resilient floor care: Presenting a high quality image. Maintenance Supplies. 36-40, 58, 62. R******, Edward, janitorial sales man for 27 years. Personal interview. Techniques of Floor Maintenance. 1988. Baltimore: Grow Professional Products.

Monday Morning Leadership: 8 Mentoring Sessions You Can’t Afford to Miss Essay

Monday Morning Leadership Introduction   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   For any business to thrive there ought to be a stable management. Jeff, a business manager is experiencing numerous problems at his institution since things seem to be falling apart; hence, the company is at the brink of collapsing (Cottrell 9). In order to maintain his business, Jeff decides to seek the assistance of Tony who not only a mentor but also a speaker who is sought by many people. Tony agrees to help him but only after agreeing with certain conditions. Apart from spending a period of eight weeks with him, Tony also asks Jeff to share the information he will acquire in the problem. This is because Jeff’s problems are not tailor-made, hence, other people can also learn from these insights. For instance, in the first Monday, Jeff was asked to always tell the truth in addition to trying something different as well as starting and finishing all tasks on time (Cottrell 17). The study intends to address Tony’s Monday Mor ning Leadership skills in addition to lessons learnt and how they benefit me individually. The First Monday   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   On this day, Jeff starts by lamenting some of the problems he is undergoing in his place of work. According to Jeff, business was getting tougher every single day. Although most of his team was intact, there are many issues being ignored and this is directly affecting performance. After hearing this lament, Tony states that challenges are inevitable. However, in order to overcome challenges, it is essential that one seek the assistance from third parties. According to Tony, advice from professionals is essential since they â€Å"†¦help us look at situations from a different perspective†¦ (Cottrell 19)† On this particular day, Tony comes up with a number of lessons for Jeff. For instance, managers need to create good relation with their teams not by free dinners and drinks but through maintaining fairness, consistency and empathy. Similarly, in order to maintain good leadership skills, it is essential that one takes the lea d by being the driver and not a passenger. According to Tony, by taking the role of a driver, managers have no option but to lose some of the freedoms that they used to enjoy in the past (Cottrell 21).   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   According to Jeff, although he was spending many hours working, business indicators were always showing signs of collapse. This resulted to lots of frustrations for not only the business but also his team members who were always looking up to him for guidance and moral support. These lessons have been quite beneficial to Jeff and his role as a manager. This is because they have enabled him change the manner in which he treats his employees. For instance, instead of free dinners, he ought to maintain fairness and consistency. These lessons have been quite influential to me since they have enabled me reevaluate myself on the manner in which I ought to conduct myself in order to a achieve business success. Just like, Jeff, my business was at the brink of collapsing. However, through Tony’s insights, I have been able to reevaluate the manner in which to manage my business. Conclusion   Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚  Ã‚   In the first lesson, Tony starts by claiming that challenges are inevitable in any business. However, the only way to embrace these challenges is by seeking the assistance of third parties. These third parties ought to be professionals who are skilled with issues related to business management. Advice from professionals is important since it results to business improvement. This is because professionals help us in observing situations from different perspectives. These lessons have been beneficial to me as well since through them I have been able to improve my business management skills. These skills are essential not only at present time but also in the future. References Cottrell, David. Monday Morning Leadership: 8 Mentoring Sessions You Can’t Afford to Miss. Dallas, Tex: CornerStone Leadership Institute, 2002. Print. Source document

Survey: ask 5 drivers about their knowledge

What would you consider are outside and inside distractions while driving? Brian: inside is cellphone, radio, food, conversations, and kids. The outside distractions are, an accident on the road, construction, and any thing that catches interest. Ben: outside would be weather, advertisements, nice cars. Inside would be passengers, radio or phones or anything that involves music, also changing car settings like heat and AC. Meg: cell phone, conversations, food, makeup.Out side there are ads, other people, and the weather. Alexandra: In: cell phone, kids, dogs, food, Out: ads, other drivers, pedestrians, and animals Henry: outside there is advertisements, cars, really nice cars, homeless people, working people, running women, but inside there is the radio, heat, the dials, and passengers. Question #2: What would you do when approaching a traffic light that is flashing amber? Brian: slow down, and proceed with caution. Ben: slow down, proceed with cation and be alter for things out of t he ordinary or onstruction.Meg: proceed with caution. Alexandra:slow down as much as possible, and proceed with caution. Henry: slow down, look around for any dangers, and continue with caution If one does not slow down, they may cause an accident with others that have, proceeding with caution is best advised, due to possible risks that may lay ahead. Question #3: When driving on a highway at 80 km/h the safe following distance is _. When would you increase this distance? Brian: two car lengths, at least.The space should be increased when the weather onditions are abnormal Ben: I would stay 3 seconds behind the car I front of my and increase that distance if I see anything a head that could be problematic like a merge lane, accident, construction Meg: three seconds approximately, but if the weather is bad, construction, or if there is traffic the space is increased. Alexandra: three seconds when the weather allows such. The time should be increased during rain, snow, ice and fog. He nry: 3-4 seconds, but increased when roads are slippery and/or wet, there is fog, and when it is snowing.If the following distance is not increased on highways when required, an accident may occur. The driver is putting him/her self in danger by not considering the adverse weather conditions, construction, and accidents. Question #4: What would you say are things that other drivers do that annoy you? Brian: tailgating, driving with your high beams on, texting, wearing headphones, not shoulder checking, and no signal usage. Ben: my number one most annoying thing that other cars do is not signal. Meg: when people cut me ott, or when they dont signal.It also bugs me when they're to busy talking on their blue tooth to pay attention to what is happening around them. Alexandra: not signalling and cutting me off really gets me angry. Henry: women thinking that they can apply makeup while driving, tailgating, texting and not signalling, I believe that in order from most dangerous to least d angerous, these annoying actions are as listed: not signalling 2 texting 3 cutting off 4 tailgating 5 high beams 6 not shoulder-checking 7 talking on phone/blue tooth 8 make up

Free Essays on Changing Up Our Act

A boy and his father were stopped at a red light. The boy out his window and notices a bright neon sign, ands asks his father â€Å"What dose XXX mean?† The father quickly changes the subject and drives away. This is just one of the questions and controversy that a strip club could bring to a community. It seems that in the past decade strip clubs have been sprouting up all across the country, sometimes in small communities. Strip clubs are detrimental in that they show that sexual acts are acceptable in today’s society, they only provide enjoyable entertainment to a particular audience, and problems that occur in the club can lead to problems in the community. One major concern that strip clubs bring to a community is that they show the younger generation that sexual acts are acceptable in today’s society. This can be proven in a number of ways. One way that they show unacceptable behavior is by placing advertisements in newspapers with coupons attached or over the radio and television announcing a wet T-shirt contest or amateur night to name a few. Another way that strip clubs show sexual acceptance is by how well it pays. Since you don’t need a degree to get up on stage and dance to music while removing articles of clothing many young adults think of this as an easy way to make money with out having to get an education. Even some movies and television shows present the idea that strip clubs are acceptable. For instance, Porkeys, a movie made in the seventies which portrays a group of high school kids from a small town sneaking into a strip club and having the time of their lives until being throw out. This alone gives young viewers the belief the sexual acts like stripping are a good thing. It is now at the point where television shows are also encouraging it. One show that makes strip clubs seem acceptable is Married With Children. In this show Al Bundy makes strip clubs out to be the greatest place on earth,... Free Essays on Changing Up Our Act Free Essays on Changing Up Our Act A boy and his father were stopped at a red light. The boy out his window and notices a bright neon sign, ands asks his father â€Å"What dose XXX mean?† The father quickly changes the subject and drives away. This is just one of the questions and controversy that a strip club could bring to a community. It seems that in the past decade strip clubs have been sprouting up all across the country, sometimes in small communities. Strip clubs are detrimental in that they show that sexual acts are acceptable in today’s society, they only provide enjoyable entertainment to a particular audience, and problems that occur in the club can lead to problems in the community. One major concern that strip clubs bring to a community is that they show the younger generation that sexual acts are acceptable in today’s society. This can be proven in a number of ways. One way that they show unacceptable behavior is by placing advertisements in newspapers with coupons attached or over the radio and television announcing a wet T-shirt contest or amateur night to name a few. Another way that strip clubs show sexual acceptance is by how well it pays. Since you don’t need a degree to get up on stage and dance to music while removing articles of clothing many young adults think of this as an easy way to make money with out having to get an education. Even some movies and television shows present the idea that strip clubs are acceptable. For instance, Porkeys, a movie made in the seventies which portrays a group of high school kids from a small town sneaking into a strip club and having the time of their lives until being throw out. This alone gives young viewers the belief the sexual acts like stripping are a good thing. It is now at the point where television shows are also encouraging it. One show that makes strip clubs seem acceptable is Married With Children. In this show Al Bundy makes strip clubs out to be the greatest place on earth,...

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