Stress testing scenario design and gap analysis for the implementation of A-IRB approach in India branch of HSBC

Abstract

Banks take adequate measure to make sure that they have enough regulatory capital with them in order to cover their exposure in case of crisis. One of the tools which makes sure of this requirement is stress testing. Stress testing helps banks to analyze that the capital which they have kept aside to cover their risk in extreme but plausible scenario is sufficient. Various central banks across world have also laid down certain guidelines based on the Basel Accords for regulatory capital requirement. The guidelines gives direction to bank as how much regulatory capital is required to cover their exposures which will help in making them robust during crisis. Currently in India, banks are following the standardized approach for regulatory capital requirement calculation. RBI has given the permission to banks, to implement the Advanced Internal Rating Based Approach, if they can demonstrate that they meet all requirements to do so. The two projects which I dealt with during my summer internship at HSBC were A) Stress testing scenario design. B) Gap Analysis for the implementation of A-IRB Approach in India branch of HSBC.