Capital Management and

Internal Capital Adequacy

Assessment Process (ICAAP)
April 2018 Risk Advisory
Capital Management and Internal Capital Adequacy Assessment Process (ICAAP)

The regulators introduced capital planning and specifically ICAAP as an opportunity for banks to improve the risk management
culture and systems within the organization. The key reason for its introduction was to overcome the shortcomings of Basel I by
forcing financial institutions to develop tailor- made risk management system as a component of Pillar 2. Recent crisis has also
reinforced the importance of a robust ICAAP at the root of sound risk management programme.

Regulators understand and expect capital plans to evolve over time and change based on circumstances such as changes in
economic conditions, changes in the competitive environment and changes in the material factors facing the business.

Key challenges

Difficulty in identification of all material risks faced

by financial institutions
Complexities in assessing the materiality of the
identified risks
Quantifying risks and use of appropriate models

Implementation of the reporting and monitoring

processes, procedures and systems
Reconciliation of ICAAP with regulatory capital
requirements
Developing an appropriate stress testing
framework
Lack of internal resources and subject matter
expertise
Dealing with numerous complex and diverse
regulatory regimes globally

Our service offerings under ICAAP:

We help clients assess, design and implement governance, processes, models, data and technology, and reporting related to capital
management. We also advise our clients on many areas of capital planning and stress testing, including Capital Plan and supporting
documentation.

Risk Systematic process to identify, measure and / or estimate risks through quantitative and qualitative
identification, assessment
measurement
Consistent reporting of material risks to appropriate stakeholders including regulatory reporting
and assessment
Calculation and measurement of Economic Capital

Documentation of Risk ratings and other measurement methodologies

Infrastructure building including data accuracy, warehousing, aggregation and modeling to support
identification and measurement of material risks

Translating risk Development of an effective loss- estimation methodology

measures into
Development of Sensitivity analysis and Alternative estimation approaches, e.g. Challenger models
estimates of loss
Validation models used for capital forecasting under CCAR, across multiple lines of business and model
types

Develop and use internal data to estimate losses, revenues and expenses

Preparation of documentation to clearly record key methodologies and assumptions used in estimating
losses, revenues and expenses

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 Capital Management and Internal Capital Adequacy Assessment Process (ICAAP)

Optimizing Evaluation of the Quality of Capital over the planning horizon

available capital
Estimation and consolidation of impact to capital and liquidity by scenario
resources
Assist in assessment of the potential impact of liquidity effects relating to the stress scenarios (e.g. higher
debt cost) and access to capital markets

Assessment of the most relevant strengths and weaknesses of modeling approaches and ensure that they
are clearly identified, well documented, and appropriately communicated to the Board of Directors and
Senior Management

Impact of loss Preparation of a well-documented process for generating projections of the size and composition of the
& resource client’s balance sheet, taking into account on- and off-balance sheet positions and risk –weighted assets
estimation (RWAs)

Documentation of the assumptions used along with an independent review and validation of balance sheet
and RWA projection methodologies and resulting estimates

Capital policy Preparation of a Capital Policy that supports process using impact of loss and resources to make key capital
support process decisions and maintain capital contingency plans

Development of a comprehensive written document that addresses the major components of the client’s
capital planning process; links it to and is supported by other policies (e.g., risk management, stress testing,
model governance, and audit, among others).

Internal controls Assess policies and procedures that describe the capital adequacy process
& governance
Robust and independent model review and validation practices to evaluate model’s conceptual soundness
and Ongoing monitoring including verification of processes and benchmarking

Review of committee structures, roles, various control functions, and validation processes and data/
process controls.

Review the integrity of reported results

Effective Assess appropriateness of the idiosyncratic scenarios incorporated into the stress tests
board & senior
Assist management in educating and training the Board of Directors and Senior Management on the key
management
principles based on any observations from the ICAAP review
oversight of
the CAP

Deloitte also provides a host of customized solutions on the basis of the need of clients.

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Capital Management and Internal Capital Adequacy Assessment Process (ICAAP)

The Deloitte Difference:

Industry Experience & Specialized Knowledge: Value Beyond Scope of Work:

Deloitte’s professionals have extensive Assist in periodic review of processes; provide
experience in managing large-scale risk issue repositories and insights based on multi-
transformation projects and are supported by dimensional trend analysis
a team of Subject Matter Experts (SMEs) with
extensive experience in risk and regulatory
compliance engagements

Centralized Quality Management: Effective Delivery Model:

Dedicated central quality review and Robust delivery model with effective
management team prior to issuance of reports, combination of execution, supervisor and quality
conduct risk transformations review capabilities with global delivery model
approach for project execution with seamless
integration across global teams

Pan India Presence: Capability to support increasing volumes:

Dedicated multi-locational Financial Services Our capability to support our clients in
Team across locations to effectively service all conducting timely reviews with adequate
client locations resourcing support on need basis

Our Experience and Specialization:

Deloitte named the global leader in

Risk Consulting, based strategy and
capability by IDC MarketScape

Dedicated multi-locational Financial

Services Team of over 175 members

Experience of working with more than

10 large banks and the banking
regulator in India and Middle East

Deloitte has delivered multiple multi- year

risk and finance transformation projects
(Basel and other regulatory programs)

Deloitte has rich experience in India and

across the globe, including the regulatory
bodies, including working with the largest
banks across the areas of Enterprise
Risk Management (ERM), Risk & Capital Experience of providing services
Management and technology implementation to the in-house departments and
captive units of more than 30 financial
institutions, supporting them in
finance, credit risk , market risk &
Provided model validation, risk
system initiatives
advisory and system automation
services to more than 20 financial
institutions for delivering on multi-year
risk transformation initiatives Worked with largest public sector,
private sector and foreign banks in
India, providing credit risk, market
risk, Basel II reporting and model
development / validation services.

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Contact Us:
Abhay Gupte Asif Lakhani Aruna Pannala
Partner Partner Partner
Risk Advisory Risk Advisory Risk Advisory
agupte@[Link] asiflakhani@[Link] apannala@[Link]

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