IBM Corporation: Competing Globally Essay

1.Do you agree with IBM’s employment response to competition from software development contractors in India like Wipro that are expanding into IT consulting services? Why or why not? In order for IBM to continue its growth it will have to expand into areas like India. They need consulting groups who can personalize their product and keep the costs low in markets like Mexico which not only makes their product more readily available and affordable it create a type of familiarity among customers that keeps them buying the same products from the same marketers. 2.Will IBM’s plan to give away some of its IT assets and intellectual property and increase its support of open-source software products like Linux be a successful growth strategy in the â€Å"brutally competitive marketplace† in which it operates? Why or why not? To keep up with the growing demand for new software and product solutions it is imperative that IBM embrace and support open solution software products like Linux. As the saying goes, â€Å"If you can’t beat them, join them.† Linux is growing by leaps and bound and is quickly surpassing the software maker like Microsoft who at this point does not specialize in open source software. If they do not adapt to the new way that software is being used they will be just another software company that has been left behind. 3.Do you agree with IBM researchers’ assumption that IT will remain â€Å"hard to use, expensive, and labor-intensive, and with customers continuing to need help solving business problems† for a long time to come? Should IBM bet its business on that assumption? Defend your answers to both questions. IT will absolutely remain labor intensive hard to use and expensive because technology changes by the nano-second. As soon as one form of technology is mastered it is what I call â€Å"current history† meaning that it may be the technology this is used currently but there is a newer, more efficient, responsive and interactive solution already available.

Reaction to Dante’s Inferno Essay

Reading Dante’s Inferno has been a challenge for me, especially at first when I didn’t understand some of the main themes Dante was trying to get across. My values are so different than those of Dante when it comes to the afterlife, it can be hard to read something that is so contradictory of my own beliefs. Once I understood that Dante was not being literal about the things he wrote in the Inferno it became a lot clearer to me that his main theme was that of controlling our own fate based on the choice we make to do the right thing or wrong thing. After I knew this, I realized that we really weren’t that different after all, because that idea appeals to me greatly. I first had to struggle to get past some of the obvious differences I feel about the afterlife, like the fact that I don’t believe in hell, in order for me to really appreciate the Inferno. Probably the main thing that happened to me that shaped my views about Christianity in general was when my cousin tried to scare me into becoming a Christian when I was about 8 years old. He convinced me that unless I started being an obedient Christian who prayed and went to church and read the bible regulary, I was going to be sentenced to a existence of burning in hell for eternity by God. That’s a lot to try deal with as a kid, especially if the person telling you this is someone that you look up to and have love and respect for. The older I got the more I resented not only my cousin for this, but that spread to all Christians in general. His approach was to make me believe in God as a sort of insurance policy so that I wouldn’t go to hell. After this experience I decided for myself that hell was quite possibly something that was made up by people to scare other people into believing what they wanted them to believe. I could not imagine that God would really want people to practice a religion out of fear, the idea just seemed a little out there for me. All my cousin accomplished in the end with me was to make me suspicious of any person who is Christian and anything that has to do with hell, and I don’t think that was his intention at all. I have since learned that not all Christians are like my cousin in their views and I’m generally quite accepting of anyone and their faith, as long  as they don’t try to pressure me into believing what they do. But to this day I still feel a little uneasy about anything that has to do with being punished by hell, so you can perhaps understand why it may have been a little hard for me to look past that in the Inferno. At first glance, the Inferno can just look like its just about people being punished cruely for the sins they have commited. But after a deeper look, it can be said that there is much more to it than just that. What really helped me be able to understand the Inferno a lot better was to understand that what Dante wrote about was not meant to be a literal interpretation of how he felt the afterlife was. He understood that it would be quite presumptuous of him to think that he could really know that. Whats important is to realize that Dante uses hell in this poem as a vehicle for expressing his views about the choices people make to either do good or do bad, and being liable for those choices. I definitely feel it is healthy to read things that vary from one’s own personal beliefs because it may bring up issues and ideas you hadn’t thought of before, possibly expanding your understanding of what you know thought you knew. It can help you learn and grow and not be stuck with certain views. Even if your values are not some how changed, I think it is still important to beable to go into something with an open mind and respect the difference of opinion. I do feel that after reading Dante’s Inferno that I have been given a new way to look at the decisions we make for ourselves in this life. Whether I believe in hell or not, I can completely appreciate this new perspective, and it makes me grateful that I was given the opportunity to read Dante’s Inferno.

There is an ongoing debate on the use of capital punishment. Discuss Essay

There is an ongoing debate on the use of capital punishment. Discuss the social, moral and historical aspects of this controversial topic - Essay Example The reason that capital punishment represents the social problem is due to the fact that it is both something that is potentially morally wrong and a reaction to crime that has statistically been proven to be ineffective in reducing criminal activity with regards to the specific crimes that incurred the death penalty. As a function of this two-pronged approach, the following analysis will seek to provide the reader with a more profound understanding with regards to the determinants of morality and efficacy that the death penalty ultimately portends. It is the hope of this author that such an analysis will be useful in seeking to understand some of the sociological changes with respect to the death penalty which had been instituted within the past several decades around the globe. Firstly, activists that oppose the death penalty promote the understanding that the death penalty is merely a form of empty retribution. What is meant by this is the fact that compelling statistics, compiled by a litany of different researchers, indicate that the death penalty is entirely ineffective with regards to deterring capital crime (Worthen et al., 2014). An analysis of states within the United States that employ the death penalty as compared to those that do not, do not exhibit a market differentiation between the overall level and numbers of these crimes committed. On the other hand, activists on the far right of the political spectrum oftentimes promote the belief that the death penalty is morally commanded and should be employed as a means of providing a degree of restitution and closure to the family members who have had others taken from them in such gruesome a manner (Asai & Maki, 2011). Although there is a degree of psychological evidence that closure can be achieved through the application of the death penalty, such a construct does not justify the taking of life; at least in the view of this author

Peter Josephs Where are we going. Culture lag Essay

Peter Josephs Where are we going. Culture lag - Essay Example The main quest of this movement is to find a new way that leads to transition by promoting a social design, namely, â€Å"Resource Based Economy† (What is The Zeitgeist Movement?). Zeitgeist movement proposes certain observations and identifies that the present world is kept away from the physical world, with techniques and new innovations separated from the environment. Peter Joseph, in his speech makes a right judgment about this movement, their observations about society, government, monetary system, free-market capitalization, and so on. In the first part of his speech Joseph is specifically focusing on â€Å"Culture lag† and â€Å"Pluralistic ignorance,† the two grave issues affecting the modern society. Joseph begins his tremendous speech by describing the transitions occurred to social life during the past centuries. The speaker has identified that history has marked the evolution of human life all through these years. Thus, he identifies the ten thousand years old Neolithic Age, Agricultural Age, Bronze Age and Iron Age which paved the way for gradual development in society. The speaker has presented various study reports in order to prove the immense growth of technological inventions and the amazing growth of the evolution of technology. However, the speaker observes technological development as the primary factor promoting the development of human civilization, belief system, philosophy, friends, references and the like. Anyhow, for the speaker, the society is diffident in fully accepting these technological developments. This reticence is what the speaker calls as â€Å"culture lag.† â€Å"Culture lag† is the phenomenon where culture takes time to catch up with technological inventions, and that social problems and conflicts are caused by this lag (Joseph). To make it clear, one can see that it is the difficulty of any traditional establishment in adjusting with the technological invention. The speaker provides var ious examples in order to prove the culture lag. One of the best examples Joseph presents is the severe punishment and threat the Italian physicist and astronomer Galileo faced when he revealed that the earth is revolving round the sun. It is only after 76 years the world acknowledged his discovery. This can aptly be called as culture lag. Culture lag probably leads to â€Å"pluralistic ignorance† the other issue to which the speaker brings one’s attention. ‘Pluralistic ignorance occurs where the majority of individuals in a group assume that most of their others are different in some way, whilst the truth is that they are more similar than they realize’ (Pluralistic Ignorance). Joseph identifies that the present monetary system is defective as it is aiming only the profit and disregarding human labor or emotions. One should note the fact that money is not a natural resource, it is a convention. The Zeitgeists moves away from the general way of thinking an d proposes their own perspectives. This is quite evident when Joseph describing his discovery that problems and scarcity are promoting profit other than the economic principles, demand and supply. The speaker also recognizes the real intension of wars as hoarding money and there is no war for homelessness. Abundance, sustainability and efficiency are the enemies of profit. Free-market capitalism is the economic religion of today, Joseph adds. The pluralistic ignorance can also be explained in terms of ethics and competition, criminal behavior, government and democracy, activism and ethics, and so on. Thus, one can see that Peter Joseph’s speech, â€Å"Where are we going?† clearly exposes certain issues with regard to culture lag and pluralistic ignora

War on terrorism vs. Human Rights Essay Example | Topics and Well Written Essays - 1000 words

War on terrorism vs. Human Rights - Essay Example When the truth was finally revealed by Miliband, questions were raised about the honesty of the government. And because the public already knew that there were two cases of renditions that have happened, there were doubts that maybe out of the 170 stopovers in the United Kingdom, there might have been more than two renditions that have transpired. As Tom Porteous, the Human Rights Watch' London Chief would put it, "We now know that in at least two cases, the U.S. didn't ask permission. How many other times did the U.S. fail to inform the British government" 3 The said confession on the controversial matter thus stained the trust of the people to their leaders in the government. But what was more disturbing on this matter is that there were human rights violated in the said extraordinary renditions done by the CIA. group, both locally and internationally, which firmly believe in the possibilities that there were rights violated in the said measures of renditions. ... about kidnapping and secret detention."4 And even if one views such matter in so many ways and in different perspectives, it will never look all right. Just the thought of detaining and torturing the suspects is already unfair and discriminatory. Though it is given that "Extraordinary rendition violates the universal declaration of human rights,"5 it is still not enough reason to physically abuse the suspects. They are called as suspects because they are not yet convicted to have committed the accused crimes. Now, if justice would always be done in this way- people without even undergoing the proper court proceedings, we might as well disregard the promulgated laws because the reason that the laws exist is for the people to be protected. In this case, these people- the suspects- are not protected. It is stated under Article 6 of the European Convention on Human Rights that there is a "fair trial before an independent tribunal, andsuspects are innocent until proven [sic] guilty." 6 In this light, suspects, no matter what, are still human beings entitled with their own rights. And for that reason, I believe that they too have the claim to exercise their civil liberties and human rights. These norms then that protect people from various places around the world against 4BBC News,"UK Apology Over Rendition Flights"; available from http://www.khilafah.com/kcom/index2.phpoption=com_content&do_pdf=1&id=2005; 5 David Weissbrodt et al., "Extraordinary Rendition: A Human Rights Analysis," Harvard Human Rights Journal 287, Vol. 19 (2006), http://www.law.harvard.edu/students/orgs/hrj/iss19/weissbrodt.shtml. 6Sabina Zaccaro, "Rights: European Parliament Turns Policeman Over Renditions, http://ipsnews.net/news.aspidnews=36499. several forms of abuse, torture, and

The Heiress Essay Example | Topics and Well Written Essays - 250 words

The Heiress - Essay Example By giving the buttons to Morris, I believe she was ending the relationship between her and Morris. I think the button symbolizes greed by Morris, as well as generosity of Catherine. This is a decision she makes with finality. The effect of bringing Catherine as a bold lady who was timid at the beginning of the play creates more realism to the play. I believe the actions of Catherine in the last scene were more definitive on liberation rather than an absolute bitterness reaction. She also appears to have begun to resemble her father through understanding the reality of what she went through. From the body language, voice and attitude, it becomes apparent that Catherine completely transformed at the end of the play. This play empowers women. It highlights on liberation from stifling relationships. Catherine appears strong enough to lead her own life without Morris as she ascends with a dreamy smile. The desertion of Morris and Catherine’s father’s rejection of him makes it conclusive that Catherine’s father was

Socail processes and practices on identity development Essay

Socail processes and practices on identity development - Essay Example 2002, pp. 359-378). Social processes and practices consider disability to result from disabled persons as an oppressed group and restrictions. This paper critically evaluates and examines social processes and practices on the development of identity. Impairment encompasses a functional limitation produced by deficiency. On the other hand, disability includes all exclusions due to social or physical barriers and it incorporates persons in other socially excluded groups such as ethnic minorities, poor persons, and women. Individual and collective identities remain determined by motivational, cognitive, and social processes and practices. The orientation of social dominance centers on the degree to which a group or person would wish and support a group’s hierarchy, along with the dominance of superior social groups over inferior groups. In addition, the impact of social processes and practices would be moderated by identity. Contextual practices or situational processes would not affect gender differences in orientation of social dominance (Guimond et al. 2003, pp. 697-712). The orientation of social dominance mediates the relationship between attitudes towards identity and social processes or practices in the framework of a subjective classification system set or self-selection. In addition to self-selection, the impact of the social processes and practices causes significant changes in beliefs and attitudes in several ways conditional on the situational context of the personality model. On the other hand, the outcomes of a social group model indicate that the acquisition of dominant identity remains significant to the socialization process. This change could also be attributed to cognitive psychology, as individuals would want to justify their identity in social activities. Hence, in establishing the identity of a disabled person, it would be

Information Systems and Software Applications Essay - 1

Information Systems and Software Applications - Essay Example Utilizing information systems and software applications in human resource, however, assists in management and effective data collection that will contribute towards developing creative business decisions. Information systems and software applications are used in human resource departments to manage employees working in a company. Human resource makes use of different software applications in its operations, for instance, employee turnover can be monitored using one application while a different application is used to screen job applicants. Use of software applications in operations within human resource department makes work easier and this will improve productivity and effectiveness of the entire company. These applications will enable human resource to employ qualified candidates and they will also be able to manage company information in an effective manner (Cashman, et.al, 2009). Management department uses information systems and software applications to analyze and facilitate organizational activities. Companies are able to design, evaluate and implement information through the use of information systems and software applications to generate information as well as to improve effectiveness and efficiency of making organizational decisions (Cashman, et.al, 2009). Software applications provide large hardware storage capacities therefore making it possible for managers to store and link large volumes of data. Information systems applications also provided managers with useful data about inventories, sales and other information that would be used in management of a company. Successful applications enable a business to achieve its long-term objectives as the company can highlight its weaknesses and strengths due to the availability of records regarding employee performance as well as revenue reports. These aspects will assist a company to improve its business

A Response to a Historical Essay Based on the US Civil War Essay Example for Free

A Response to a Historical Essay Based on the US Civil War Essay The war as people have known and understood it, has inculcated nothing but violence. Over the history, the remnants of different wars became distinct because of the horrors that it caused and imbibed within the innocent lives of people not involved with it. In addition, those who have actually participated in wars, battleworn and inflicted with such violence can only remember the dreadful effects that it left. However, recent studies and approaches to war histories suggest otherwise. Indeed, there have been numerous horrors inflicted by the war towards innocent victims – women, children, elderly, and the soldiers themselves. But on a different light, the article by Drew Gilpin Faust shows that these wars, although violent and bloody, have brought numerous lessons that only the battlefield can best teach the people. In contrast to the usual and common notion perceiving war as evil and violent, some historians view the war as an enlightening period in the history. Francis Parkman believed that the Americans, who have for so long been vilified by their pursuit for success, will be purified and strengthened after a season of war wherein they shall call out for new ideals and they shall learn to appreciate emotions and sentiments relevant for them to destroy selfishness and greed (Faust, 2004, pp. 369-370). In a distinct manner, the Americans have been dominating the international arena due to their indespensable strength and the supremacy that they hold before less developed and weaker countries. And as such, this rendered the Americans the incapability to become keen of other nations sentiments towards their leadership. And with this, the outcomes of the war can be the only way to bring about worthy realizations towards the Americans. Although no one can deny that in reality, the wars that people have bravely fought caused numerous of lives gone to waste. However, despite the horrors of losing loved ones, comrades and brothers became a necessary sacrifice in order to purify a nation that has been subjected to ill doings and a means to cleanse the people out of their sins committed against their own nation and other nations. It may seem morbid to other people, but more civilians became largely interested in understanding the experiences of the fighters firsthand. Civilians became more willing to feel the sensation because for them, these experiences will render them the ability to become more humane – feeling different sensations and privilege of having emotions for them to grasp (Faust, 2004, p. 372). Those who served the military to cure the wounded became immensely satisfied of their tasks. For them, the patients that they attended to and the wounds that they had to cure introduced them to richer and new insights. And though these may have connoted a great level of violence, nonetheless these experiences explored a great deal out of their humanity. And for those who have endured the battle themselves as soldiers, a number treated such experience with rejoice despite the destruction and chaos that it caused them (Faust, 2004, p. 372). With all these perceptions about wars, Civil War in particular, most of the historians developed greater interests in tackling the horrors and lessons that come with it. The fondness of most of Americans in the wars that they have fought became distinct that most of the historians have dedicated a large amount of their time and career to discover the truth behind the Civil War and the lessons that it has ought to teach the people. As such, over the history, numerous books and studies have been developed that were dedicated to the Civil War. James McPhersons book entitled â€Å"Battle Cry of Freedom† was one of the most celebrated composition and a direct beneficiary of the Civil Wars fame. It turned out to become one of the most respected and famous books that tackled the experiences behind the war. Consequently, the â€Å"Journal of Southern History† also became one of the best compositions that broadly represented the different aspects of the conflicts during the Civil War. Given the significant increase of peoples interest in the war, it is logical to wonder what has triggered the peoples desire to study more about it. Ken Burn explained that the issues confronted during the Civil War era is continously reflecting the contemporary issues that Americans still face today (Faust, 2004, pp. 374-375). In addition to Burns explanation, several writers have also come to the conclusion that people are still interested with the cause and outcome of the Civil War because it has shaped modern Americas society and culture. They believe that the horrors and lessons behind the war, though they are considerably dreaded, are keys to discover Americas roots and origin. The whole point of the article really does make sense. The turnout and effects of the war that it bestowed upon the country, the fighters involved in it, and the greater number of innocent lives who had to bear with the war experiences created a huge impact that is impossible to forget in a lifetime. The different aspects and different angles given to the study of Civil War offered a great amount of help in understanding the fruits and losses behind the incident. As such, such wars and battles mirror the history of America. During the present era, the war that America has fought and is still fighting presents the same outcome – numerous lives lost and land and property devastation. Same with Americas previous war engagement, they invented the war â€Å"in order to control violence† (Faust, 2004, p. 381). Equipped with weak evidences behind Americas attack against Iraq, America has acted in order to create for their country a â€Å"sense of meaning, intention and goal-directedness† (Faust, 2004, p. 381). Again, America was pushed into a war in order to regain superiority and control. Indeed, the wars that America has fought came with distinct lessons despite the unwanted memories and experiences that the wars have unleashed. But despite these horrors, the American government still pushed their nations onto a different battle regardless of what the world has to say about it. It is true, the Civil War taught Americans a great deal of lessons which were learned the hardest and most painful way. But now, they stand the war again – and numerous studies about the wars may not have helped at all. War, from the dawn of the history until the present generation, is still yet a battle that has not been won. Reference Faust, D. G. (2004). We Should Grow Too Fond of It: Why We Love the Civil War. Civil War History. (pp. 368-383). The Kent State University Press.

William Burroughs’s Fiction Essay Example for Free

William Burroughs’s Fiction Essay This paper will argue that William Burroughs’s fiction is directed at subverting and deconstructing the dominant social order and mainstream conventions and social practices. In such novels as The Western Lands (1987), The Soft Machine (1961), The Ticket that Exploded (1962) or The Nova Express (1964) the author constructs full-fledged literary outlaws – gangsters, conmen, etc. – in order to epitomize the forceful and illegitimate ways in which ideas, opinions or the entire reality can be imposed on the ostracized other. Therefore, William Burroughs’ novels also offer a reflection of American capitalist society and its unorthodox power relations. This theme will be investigated in the novel in light of Guy Debord’s The Society of the Spectacle which discusses the specular character of the capital society and the gaps between reality and representation. In his article on Burroughs, Frederick M. Dolan argues that   in the writer’s novels, all the rogue figures â€Å"control others by mastering the art of producing vivid and convincing representations, exploiting the naà ¯ve, metaphysical urge to believe that when language appears most meaningful, it has because it has established a referential relationship to the world† (Dolan, p. 536). This is precisely what the â€Å"society of the spectacle† is attempting to achieve by superimposing the show of capitalist order on everyday reality. Burroughs was also very interested in showing the distorting power of language and the ways in which reality can be manipulated because of this. From this perspective, Jacques Derrida’s book, Of Grammatology, will be particularly useful in the analysis of Burroughs’s language treatment and of the ways in which the writer’s deliberate foregrounding of the gaps between signifier and signified undermine the capitalist social order and ingrained thought-mechanisms. Burroughs denounces contemporary man as automaton, as passive receiver of ideology. Works Consulted: Burroughs, William S. The ticket that exploded. Grove Press, 1987. Dolan, Frederick M.   Ã¢â‚¬Å"The Poetics of Postmodern Subversion: The Politics of Writing in William S. Burroughss The Western Lands†, pp. 534-551. Contemporary Literature  © 1991 University of Wisconsin Press. Debord, Guy. The Society of the Spectacle. New York: Zone Books, 1994. Derrida, Jacques: Of Grammatology. Johns Hopkins University Press, 1998. Harris, Oliver (Oliver C. G.). William Burroughs and the secret of fascination.   Southern Illinois University Press, c2003. Lee, Witness. Word virus : the William S. Burroughs reader. Grove Press, 1998. -. Nova express. Grove Press, 1965. -. The soft machine ; Nova express ; The wild boys : three novels. Grove Press, 1988. Lydenberg, Robin. Word cultures : radical theory and practice in William S. Burroughs fiction. University of Illinois Press, 1987.Johns Hopkins University Press, 1998 New York : Zone Books, 1994. New York : Zone Books, 1994. New York : Zone Books, 1994. Morgan, Ted. Literary outlaw : the life and times of William S. Burroughs. H. Holt, 1988. Pepper, Andrew. â€Å"State Power Matters: Power, the State, and Political Struggle in the Post-War American Novel†. Textual Practice, vol. 19, no. 4, pp. 467-91, December 2005. Philips, James. â€Å"Life in Space: William Burroughs and the Limits of the Society of Control†. Literature and Aesthetics: The Journal of the Sydney Society of Literature and Aesthetics, vol. 16, no. 1, pp. 95-112, June 2006. Schneiderman, Davis. Retaking the universe : William S. Burroughs in the age of globalization. Pluto Press, 2004. Sobieszek, Robert A. Ports of entry : William S. Burroughs and the arts. Los Angeles County Museum of Art ; 1996.

Hierarchy Of Effects Model

Hierarchy Of Effects Model Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. The desired result is usually to drive consumer behavior with respect to an organizational goal commonly to increase awareness or sales. Advertising messages are usually paid for by sponsors and viewed via various media; including traditional media such as newspapers, magazines, television, radio, outdoor or direct mail; or new media such as websites and text messages. In shorter terms, advertising is the non-personal communication of information usually paid for and usually persuasive in nature about products, services or ideas by identified sponsors through the various media. However not all advertising are successful and those that fail are mainly due to the lack of communication or failure to establish the desired messages to the audiences. In order for an advertising campaign to be successful, there are several implementations based on advertising theories which can help communication to occur effectively with the audience. Hierarchy-of-Effects Model Among advertising theories, the hierarchy-of-effects model is predominant. It shows clear steps of how advertising works.Hierarchy of effects Model can be explained with the help of a pyramid. First the lower level objectives such as awareness, knowledge or comprehension are accomplished. Subsequent objectives may focus on moving prospects to higher levels in the pyramid to elicit desired behavioral responses such as associating feelings with the brand, trial, or regular use etc. it is easier to accomplish ad objectives located at the base of the pyramid than the ones towards the top. The percentage of prospective customers will decline as they move up the pyramid towards more action oriented objectives, such as regular brand use. Awareness: If most of the target audience is unaware of the object, the communicators task is to build awareness, perhaps just name recognition, with simple messages repeating the product name. Consumers must become aware of the brand. This isnt as straightforward as it seems. Capturing someones attention doesnt mean they will notice the brand name. Thus, the brand name needs to be made focal to get consumers to become aware. Magazines are full of ads that will capture your attention, but youll have trouble easily seeing the brand name. Knowledge: The target audience might have product awareness but not know much more; hence this stage involves creating brand knowledge. This is where comprehension of the brand name and what it stands for become important. What are the brands specific appeals, its benefits? In what way is it different than competitors brands? Who is the target market? These are the types of questions that must be answered if consumers are to achieve the step of brand knowledge. Liking: If target members know the product, how do they feel about it? If the audience looks unfavourably towards the product to communicator has to find out why. If the unfavorable view is based on real problems, a communication campaigns alone cannot do the job. For product problem it is necessary to first fix the problem and only then can you communicate its renewed quality. Preference: The target audience might like the product but not prefer it to others. In this case, the communicator must try to build consumer preference by promoting quality, value, performance and other features. The communicator can check the campaigns success by measuring audience preference before and after the campaign. Conviction: A target audience might prefer a particular product but not develop a conviction about buying it. The communicators job is to build conviction among the target audience. Purchase: Finally, some members of the target audience might have conviction but not quite get around to making the purchase. They may wait for more information or plan to act later. The communicator must need these consumers to take the final step, perhaps by offering the product at a low price, offering a premium, or letting consumers tried out. This is where consumers make a move to actually search out information or purchase. Thus advertising is thought to work and follow a certain sequence whereby the prospect is moved through a series of stages in succession from unawareness to the purchase of the product. Advertising cannot induce immediate behavioural response, rather a series of mental effects must occur with the fulfillment at each stage before progress to the next stage is possible. 3ALIENCE IN OUR SENSE IS ABOUT THE BRAND COMING TO MIND IN PERSONALLY RELEVANT CHOICE SITUATIONS 2OMANIUK AND 3HARP B 4HE BRAND HAS BECOME PART OF ONE S BROAD CONSIDERATION SET A BRAND THAT ONE MIGHT BUY OR USE n EITHER NOW OR IN YEARS AHEAD 4HIS GOES WELL BEYOND TRADITIONAL AWARENESS OR EVEN THE strength OF SUCH AWARENESS E G lRST RECALL 3ALIENCE CONCERNS THE @SIZE OF THE BRAND IN ONE S MIND 2OMANIUK AND 3HARP B I E ALL THE MEMORY STRUC TURES WHICH CAN ALLOW THE BRAND TO COME FORWARD FOR THE WIDE RANGE OF RECALL CUES THAT CAN OCCUR IN PURCHASE OCCASIONS 7ITH THIS @SHARE OF MIND COME FEELINGS OF BEING FAMILIAR AND FEELINGS OF ASSUR ANCE h9ES ) VE HEARD OF IT )T SHOULD BE ALL RIGHT v 4HAT IS OUR BROAD DESIGNATION OF h3ALIENCEv n AWARENESS AND MEMORY TRACES PLUS FAMILIARITY PLUS ASSURANCE -ORAN IN HIS SEMINAL PAPER AL READY STRESSED THE ROLE OF A BRAND S h0RES ENCEv 3IMILARLY BULLMORES fAME(2002) IS A COLOURFUL WAY OF REmECTING SA LIENCE UT IT OVERSTATES THE ROLE OF BIG BRANDS n SUCCESSFUL SMALL BRANDS CAN STILL BE SALIENT FOR THOSE WHO USE OR CONSIDER THEM BUT HARDLY famous Digital advertising Television advertising / Music in advertising The TV commercial is generally considered the most effective mass-market advertising format, as is reflected by the high prices TV networks charge for commercial airtime during popular TV events. The annual Super Bowl football game in the United States is known as the most prominent advertising event on television. The average cost of a single thirty-second TV spot during this game has reached US$3 million (as of 2009). The majority of television commercials feature a song or jingle that listeners soon relate to the product. Virtual advertisements may be inserted into regular television programming through computer graphics. It is typically inserted into otherwise blank backdrops[9] or used to replace local billboards that are not relevant to the remote broadcast audience.[10] More controversially, virtual billboards may be inserted into the background[11] where none exist in real-life. This technique is especially used in televised sporting events.[12][13] Virtual product placement is also possible.[14][15] Infomercials: An infomercial is a long-format television commercial, typically five minutes or longer. The word infomercial combining the words information commercial. The main objective in an infomercial is to create an impulse purchase, so that the consumer sees the presentation and then immediately buys the product through the advertised toll-free telephone number or website. Infomercials describe, display, and often demonstrate products and their features, and commonly have testimonials from consumers and industry professionals. Radio advertising Radio advertising is a form of advertising via the medium of radio. Radio advertisements are broadcast as radio waves to the air from a transmitter to an antenna and a thus to a receiving device. Airtime is purchased from a station or network in exchange for airing the commercials. While radio has the limitation of being restricted to sound, proponents of radio advertising often cite this as an advantage. Radio is an expanding medium that can be found not only on air, but also online. According to Arbitron, radio has approximately 241.6 million weekly listeners, or more than 93 percent of the U.S. population. Online advertising Online advertising is a form of promotion that uses the Internet and World Wide Web for the expressed purpose of delivering marketing messages to attract customers. Examples of online advertising include contextual ads that appear on search engine results pages, banner ads, in text ads, Rich Media Ads, Social network advertising, online classified advertising, advertising networks and e-mail marketing, including e-mail spam. Product placements Covert advertising, also known as guerrilla advertising, is when a product or brand is embedded in entertainment and media. For example, in a film, the main character can use an item or other of a definite brand, as in the movie Minority Report, where Tom Cruises character John Anderton owns a phone with the Nokia logo clearly written in the top corner, or his watch engraved with the Bulgari logo. Another example of advertising in film is in I, Robot, where main character played by Will Smith mentions his Converse shoes several times, calling them classics, because the film is set far in the future. I, Robot and Spaceballs also showcase futuristic cars with the Audi and Mercedes-Benz logos clearly displayed on the front of the vehicles. Cadillac chose to advertise in the movie The Matrix Reloaded, which as a result contained many scenes in which Cadillac cars were used. Similarly, product placement for Omega Watches, Ford, VAIO, BMW and Aston Martin cars are featured in recent James Bond films, most notably Casino Royale. In Fantastic Four: Rise of the Silver Surfer, the main transport vehicle shows a large Dodge logo on the front. Blade Runner includes some of the most obvious product placement; the whole film stops to show a Coca-Cola billboard. Physical advertising Press advertising Press advertising describes advertising in a printed medium such as a newspaper, magazine, or trade journal. This encompasses everything from media with a very broad readership base, such as a major national newspaper or magazine, to more narrowly targeted media such as local newspapers and trade journals on very specialized topics. A form of press advertising is classified advertising, which allows private individuals or companies to purchase a small, narrowly targeted ad for a low fee advertising a product or service. Another form of press advertising is the Display Ad, which is a larger ad (can include art) that typically run in an article section of a newspaper. Billboard advertising: Billboards are large structures located in public places which display advertisements to passing pedestrians and motorists. Most often, they are located on main roads with a large amount of passing motor and pedestrian traffic; however, they can be placed in any location with large amounts of viewers, such as on mass transit vehicles and in stations, in shopping malls or office buildings, and in stadiums. The RedEye newspaper advertised to its target market at North Avenue Beach with a sailboat billboard on Lake Michigan. Mobile billboard advertising Mobile billboards are generally vehicle mounted billboards or digital screens. These can be on dedicated vehicles built solely for carrying advertisements along routes preselected by clients, they can also be specially equipped cargo trucks or, in some cases, large banners strewn from planes. The billboards are often lighted; some being backlit, and others employing spotlights. Some billboard displays are static, while others change; for example, continuously or periodically rotating among a set of advertisements. Mobile displays are used for various situations in metropolitan areas throughout the world, including: Target advertising, One-day, and long-term campaigns, Conventions, Sporting events, Store openings and similar promotional events, and Big advertisements from smaller companies. In-store advertising In-store advertising is any advertisement placed in a retail store. It includes placement of a product in visible locations in a store, such as at eye level, at the ends of aisles and near checkout counters, eye-catching displays promoting a specific product, and advertisements in such places as shopping carts and in-store video displays. Coffee cup advertising Coffee cup advertising is any advertisement placed upon a coffee cup that is distributed out of an office, cafà ©, or drive-through coffee shop. This form of advertising was first popularized in Australia, and has begun growing in popularity in the United States, India, and parts of the Middle East.[citation needed] Street advertising This type of advertising first came to prominence in the UK by Street Advertising Services to create outdoor advertising on street furniture and pavements. Working with products such as Reverse Graffiti and 3d pavement advertising, the media became an affordable and effective tool for getting brand messages out into public spaces. Celebrity branding This type of advertising focuses upon using celebrity power, fame, money, popularity to gain recognition for their products and promote specific stores or products. Advertisers often advertise their products, for example, when celebrities share their favorite products or wear clothes by specific brands or designers. Celebrities are often involved in advertising campaigns such as television or print adverts to advertise specific or general products. The use of celebrities to endorse a brand can have its downsides, however. One mistake by a celebrity can be detrimental to the public relations of a brand. For example, following his performance of eight gold medals at the 2008 Olympic Games in Beijing, China, swimmer Michael Phelps contract with Kelloggs was terminated, as Kelloggs did not want to associate with him after he was photographed smoking marijuana.

Essay --

â€Å"â€Å"Ilmu pengetahuan tanpa nilai-nilai yang mulia belum tentu dapat melahirkan masyarakat yang baik dan berjaya. Nilai-nilai yang mulia tanpa ilmu pengetahuan juga tidak akan melahirkan masyarakat yang berjaya†. Begitulah ungkapan kata-kata bestari oleh mantan Perdana Menteri kita, Tun Dr. Mahathir bin Mohamad, Bapa Pemodenan Negara yang merupakan salah satu daripada pencetus kegemilangan dunia pendidikan negara. Selamat pagi dan Salam 1 Malaysia saya ucapkan kepada: Pengerusi Majlis, Yang Amat Berhormat Datuk Johan Ashaari bin Murti, Menteri Pendidikan merangkap Timbalan Perdana Menteri. Yang Berhormat Datuk Romario Ansam anak Rungah, Timbalan Menteri Pendidikan. Yang Amat Berhormat Pehin Sri Maher Zain, Ketua Menteri. Yang Berhormat Freddy Jabu anak Jugah, Timbalan Ketua Menteri. Yang Berhormat Datuk Halimah, Menteri Tugas-tugas Khas Dalam Negeri berkaitan Pendidikan. Yang Berhormat Datuk-datuk dan Datin-datin. Yang Berbahagia Datuk Ariffin Faiq, Ketua Pengarah Pendidikan. Yang Berbahagia Datuk Sabri bin Rahmat, Rektor IPGM. Yang Dihormati Encik Hafiz Azman, Pengarah Pendidikan Negeri. Yang Berusaha Puan Saftuyah binti Safri, Pengarah Institut Pendidikan Guru Tunku Abdul Rahman. Pengarah-pengarah IPGK dan Wakil-wakil Pengarah IPGK. Yang Berusaha Encik Amir bin Jamal, Timbalan Pengarah Institut Pendidikan Guru Tunku Abdul Rahman. Ketua-ketua Jabatan Persekutuan dan Negeri. Ketua-ketua Jabatan dan Ketua-ketua Unit Institut Pendidikan Guru Tunku Abdul Rahman. Pensyarah-pensyarah Kanan. Para Pensyarah. Staf-staf Sokongan. Para Graduan. Para Ibu Bapa. Tuan-tuan dan Puan-puan dekat di hati. Tegak rumah kerana tiangnya, tegak bumi kerana paksinya, tegaknya saya di sini adalah untuk menyampaikan sebuah pidato yang bertajuk â€Å"Kecemerla... ...rutera, peguam dan sebagainya wujud di dunia ini. Setuju atau tidak puan-puan? Dan untuk memacu pertumbuhan pembangunan di negara ini, aspek pendidikan hendaklah ditikberatkan sebab pendidikan jugalah yang berperanan dalam mengangkat nilai budaya, tamadun dan peradaban bangsa ke suatu peringkat yang lebih tinggi dan global. Oleh itu, kelengkapan dan prasarana pendidikan perlulah disediakan untuk mencapai hasrat murni kerajaan yang menggunung tinggi. Seperti apa yang telah diperkatakan oleh ahli falsafah Yunani iaitu Plato, beliau menyatakan pendidikan ialah asas pembangunan dan untuk mempertahankan keharmonian sesuatu bangsa seseorang itu sendiri. Hadirin yang dihormati, pada hemat saya, falsafah yang telah dinyatakan oleh Plato tersebut tidak jauh dengan falsafah pendidikan yang telah digariskan oleh Kementerian Pelajaran dan Kementerian Pengajian Tinggi Malaysia.

A Case for Open Borders Essay -- Human Right Argumentative Persuasive

A Case for Open Borders In his address to a joint session of Congress on January 8, 1918, President Woodrow Wilson declared freedom of the seas in times of peace and war. Looking back, it seems ridiculous to think that anyone could challenge the right of individuals to navigate the oceans freely. However, fast-forward to the twenty-first century and we can see an analogous debate over the issue of immigration rights, with territorial borders being the main topic of discussion. The system of immigration in the United States is complex and oftentimes restrictive, and while revisions to the system usually include increasing quotas or other solutions to let in certain groups of people who deserve special consideration (such as those whose skills are needed in a particular field), they are still very limited solutions. The obvious question that arises from letting in some people but not others is that of fairness. Is the accident of birth or luck of being in the right place at the right time enough to justi fy restrictive citizenship to a select few? I would argue not. I intend to argue that a commitment to human rights entails the position that borders ought to be open in order to guarantee other human rights, especially the right to migrate. In order to understand why a commitment to human rights includes a commitment to open borders, we must understand why the right to migrate is a human right. This can be proven with a simple logical syllogism. We must first assume that all individuals have equal natural rights in the state of natural law, or the very primitive sense of man before government was formed. Locke defines the state of natural law as â€Å"a state of equality†¦ all the power and jurisdiction is reciprocal, no one h... ...of his statement, however, Walzer is claiming that fulfilling this urgent need (or right) should only be done if it is convenient to the other party. This is a contradiction to human rights, as they should be inherent and not â€Å"granted† but demanded â€Å"without embarrassment or shame† . Indeed, restricting borders is the act of convenience and if it is done for reasons other than emergencies (such as possible spread of infectious diseases) is a violation of a human being’s right to migrate. Giving rights to citizens for the sole reason of being citizens and denying citizenship to some effectively denies rights to that group. Human rights belong to individuals, not citizens. Humanity has faced so many obstacles to human rights that it will surely transcend lines on maps, because we are committed to human rights and this entails a commitment to a position of open borders.

Rewards and Challenges Essay

I know that in today’s society there will be many challenges one will face when choosing to become a teacher. I believe that learning how to maintain a classroom’s balance might prove to be difficult to a first year teacher. I know it will take a lot of patience and critique from peers to get into a â€Å"flow†. Teachers make literally hundreds of decisions every day, and many of them must be made with nearly spilt-second timing. There may be an issue of an electronic failure that prevents a teacher from following a prepared lesson plan. He/she will have to decide on how to teach the curriculum without the use of that aid. There may be an instance where behavior is an issue and the teacher needs to decide if the entire classroom should be effected or just a few students. Another challenge for a first year teacher might be how to identify bullying. I’m sure that as students gather on the playground or in the lunchroom where there is limited supervision in all areas, there may be some bullying happening that may appear to the teacher as play. It is proven that people who bully take advantage of imbalances in power, such as greater size or strength, higher status, or the support of a peer group. I feel it is vital that a teacher needs to get to know her students early in the year to recognize behaviors that might lead to bullying or those who may become targets. The student’s socioeconomic status will strongly affect learning. Some students may have parents with well paying jobs and are able to travel and perhaps wear more expensive clothing. Other students may barely have enough to eat and live in less than  adequate housing. I also feel that due to this status, some students may not have a strong support system at home to assist in their daily learning making it difficult for a student to be successful. As there will be many challenges, there are many rewards as well. The rewards in teaching can either be intrinsic or extrinsic. Many people decide on the teaching profession due to the intrinsic rewards. I feel for myself, the most rewarding aspect would be seeing a student grow throughout the  year. They may begin with little knowledge on a subject and as the year progresses, a teacher may witness the day when â€Å"the light bulb goes on.† When I was in school, I found it very difficult to maintain an interest in my History courses. I found the information very boring and felt at the time had no impact on my current life. I can’t remember one single teacher that I had in this subject that was able to teach the curriculum in a way that I could maintain it. As I got older and became interested in the History channels on television and watching documentaries, I became extremely interested in this area, especially on the Civil War. I feel that if given the opportunity, I would teach in a way that would capture student’s interest. This would be a great reward to know that I was known a teacher that helped a student understand and appreciate our nation’s background. Another reward would be on the extrinsic side. I have a large family, so as the mother of four children, I look forward to summer vacations. Also, when there are snow days, I’m not trying to find daycare. I am able to have the same hours as my children so that we  may have plenty of family time together. This is very important to me personally. Also, other economic factors have influenced my attractiveness to teach. The annual salaries have been virtually guaranteed to increase. The benefits such as medical, dental and retirement are usually provided and the job is secure. In today’s economy, knowing that one has a profession that has this type of security is vital to families. If given the opportunity, I would love to be able to make a difference in the life of a child. I would take the kind of personal interest on an individual basis to ensure the success of all students that give an honest effort. I feel that with proper home support and a teacher that is committed to their position, every student has an opportunity for a successful future. APA Citations Teachers make literally hundreds of decisions every day and many of them must be made with split-second timing. ( Kennedy 2006) â€Å"Introduction to Teaching† (2011) p.10 People who bully take advantage of imbalances in power, such as greater size or strength, higher status, or the support of a peer group. (2011) â€Å"Introduction to Teaching† (p. 86) Introduction to Teaching (2011 Kauchak and Eggan) â€Å"Diversity: The Changing face of American Classrooms† (p. 20) Introduction to Teaching (2011) â€Å"Rewards and Challenges in Teaching† (p. 5) Introduction to Teaching (2011) â€Å"Extrinsic Rewards† (p. 8)

Hiroshima Paper

The book begins with the telling of what the main six characters were doing before, during, and shortly after the bomb was dropped on Hiroshima. The book goes on to show how the people believed that it only affected the general area, and how they realized that it affected the entire city. Many people were injured and scorn. Some people were even trapped under buildings. It continues to show when the Japanese Emperor announced on the radio that Japan was going to surrender to the U. S.In the few days, survivors, Japanese scientists, and government leaders discovered that the weapon was actually a new type of bomb. The government was very careful and indistinct in reporting details to the public. The fates of the main characters were described, and they all suffered from some form of radiation sickness. The Japanese were able to figure out from analyzing the people and the remains of the bomb what is was made of. The last chapters tell you about the atom bomb victims a year to forty ye ars after the bomb. It also tells how the city rebuilt itself and recovered from being attacked by a nuclear weapon.Even though the six main characters went through the same situation in a different way they all fought to overcome the damage left behind y the bombing. Through reading this booking two characters that stood out to me were Father Wilhelm Kleinsorge and Dr. Terufumi Sasaki. These two stood out because I felt they helped a lot of people even when they could not help themselves. I have much admiration for Dr. Sasaki because he when called stood up to the plate, and was able to go on with his life. Father Wilhelm is a thirty-eight year old German priest.Father Wilhelm was in his room reading and got scared when he saw the flash. He somehow ended up outside in vegetable garden pacing around. The only physical marks he had were cuts. He helped a man escaped, but the man ended up running back into the fire. He went to a park called Asano Park where he helped assisting in help ing people. Father Wilhelm was able to help the people in the park until he was taken to a Catholic Novitiate outside of the city. He took two children with him by the name of Kataoka who he able to reunite with their mother.In the book it says that Father Kleinsorge may have had the worst sickness of all the main characters. He was sent to a hospital in Tokyo for over three months. He suffered from symptoms such as: high fever, low white blood cell count, and anemia. When he was finally allowed to return to Hiroshima the doctor told him that every day he should take at least a two hour nap. Even though the doctors told him to do this he did not follow instructions. He seemed to always put his work before his own health. When August came he was so sick he had to return to the hospital for a month's recovery process.Since his exposure to radiation and constant working habits on behalf of others he ended up repeating the cycle of getting better and ending back up in the hospital. He d id not slow down until his body gave out on him. He wanted o bad to help the people that he got Japanese citizenship and changed his name to Father Makoto Takakura. After some really bad sicknesses in the 1950s, he was finally transferred to a small church in Mukaihara, the same town as Dr. Sasaki. He ended up getting a cook by the name of Yoshiki-san, who in the end is there to take of him in came to thank him for the wonderful things he had done.In 1976 he slipped on some ice and became bed-ridden for the rest of his life. Yoshiki-san was there by his side to take of him, and a year later he fell into a coma and never woke up. Dr. Terufumi Sasaki was a surgeon working at the Hiroshima Red Cross center. At the time of the bombing he was bringing blood to the laboratory. Dr. Sasaki was thankfully left undamaged because when the bomb hit he was lucky enough to have taken a step beyond the window and crouched down. He ended up being one of the six doctors left that was not hurt so he had to treat a lot of people.At one point in time he had to work three days only having one hour of sleep. From working so much and not getting but six hours of sleep he ended up losing twenty pounds. The medical equipment he had to work with was not the best, and he was only working off of onations that people were making. He gained some since of his old self and ended up getting married to Dr. FuJii. They to live in a summer house, but a flood destroyed the house and he was forced to leave. He then opened a clinic in the suburb of Hiroshima, and rebuilt a successful practice.He had to travel to Yokohama for training, and here is where he finally came to a realization Atomic bomb survivor. He soon found that he had to get his whole left lung removed, which almost resulted in his death. This occurrence made him appreciate life and he vow to treat his patients ore compassionately, and to spend more time with his wife and four children. Dr. Sasaki's only regret was that he had not bee n able to more carefully record the identities of all the Red Cross Hospital corpses so that they would not be wandering in the afterlife, upset at not being properly remembered. Dr.Sasaki was the person who distanced himself from his Hiroshima experience through making a life somewhere else, while Father Wilhelm could not separate his self from Hiroshima resulting in his death. All six characters in this book were lucky because after the bombing unlike many people they still had their lives. Some were able to go on with their lives, while others let the situation take over them. The sickness was something that they all suffered from and was a negative that they all faced. Some of them dedicated and were obligated into helping the other people who were not as fortunate as them.It had to be hard seeing people around you dying and there not being too much you can do. Father Kleinsorge passage was basically saying that was it right that people had no say so in their lives being taken. Kind of like saying should the people suffer for the decisions made by one person, when they do not even know what is going on around them. The people who consider it Just an attack that affected the civilian do not look at the broader aspect. The bomb was the ending result of something much bigger.The people Just so happen to be a sacrifice in the situation. It was like the leaders of Japan were so caught up in evil that they did not realize that they were hurting the people of Japan. The bombing was like a realization to the government that they had been killing the people so much spiritually, and this was the physical outcome. It to me was kind of like they could not appreciate the good that they received after the bombing until they went through the bad. The good was that the initial war ended, but so many lives were lost in the process.These lives being loosed I think had to happen because if it were smaller the people would have wanted to retaliate instead of come together and stop the violence. Reading this but the movie seemed to focus more on the American side of the bombing rather than side from the people in Hiroshima. The movie makes it seem as if the bomb had to be dropped, while reading the book you see that Japan could have been overtaken without the drastic measures. The book does not go into detail about the attack Japan has before, which was the cause of the bombing.The movie and the book both focus on making one side seem more Justifiable or victims than the other. I think John Hersey book Hiroshima is a great book for college students to read because it gives them an outlook on the other side of the spectrum. This will allow them to decide for themselves who was wrong and right in the situation. It also even Just gives them a more detailed event of what actually happen August 1945. The book also gives students an outlook of how something major can happen to so many people and affect everyone in different ways. So the book should be read bec ause either way it will be some type of learning experience.

Organizational Culture at Krispy Kreme Essay

Organizational culture is defined as â€Å"a system of shared meaning held by members† of an organization which effectively sets it apart from other groups or organizations (Robbins, 2005). The system referred to in the definition is in reality a group of characteristics which are valued by the members of an organization, in particular, and the entire organization, in general. These characteristics, which are found to be predominant in an organization, are actually advocated and promoted by the founders of the organization. By and large, organizational culture has seven general characteristics which generally describe a certain organization. These are: â€Å"innovation and risk taking, attention to detail, outcome orientation, people orientation, team orientation, aggressiveness, and stability† (Robbins, 2005). Innovation and risk taking refers to the tendency of management to adopt a policy which permits or encourages its workforce to seek out and introduce new methods and approaches even if some amount or risk-taking is involved. Aggressive companies are aptly described by this characteristic. Attention to detail, on the other hand, means that management insists that employees exhibit absolute accuracy in every facet of operation. This is prevalent among companies engaged in the production of precision instruments and devices. Outcome orientation is an organizational characteristic which simply means that the owners of the business are willing to sacrifice adherence to prescribed rules, regulations, and procedures if by doing so optimal results are achieved. Concern for the safety and well-being of its workers are the primary objectives of an organization which is characterized as being people oriented. For this type of an organization, outcome or even profit take secondary position to the welfare of workers. This means that no matter how profitable a decision could be for the company, it could get sidelined if evidence suggests that the safety of the employees would be compromised. Meanwhile, team orientation should be interpreted as the inclination of an organization to organize work activities around work teams rather than individual workers. In other words, the organization believes that teams perform better than individuals. Aggressiveness refers to the management policy of not only tolerating an aggressive attitude among its workers but also encouraging competition. This characteristic also implies that the organization has the tendency to resort to expansion without waiting for stability to be firmly established. Finally, stability is the opposite characteristic of aggressiveness. The company prefers the stable, profitable status quo over hasty expansion plans. An organization characterized by stability is not in a hurry to strive for growth and expansion and is usually contented with the present so long as its desired profit is realized. In the case of Krispy Kreme, its statement of objective clearly made known its aggressiveness, i. . : â€Å"As we enter the 21st Century, Krispy Kreme is not slowing down† (Krispy Kreme Doughnuts, Inc. , n. d. ). This statement depicts a company in a hurry – a characteristic which is very admirable as far as an aggressive individual is concerned. Data available in the company website support this declaration. After the initial public offering of its stock in the year 2000, the first international outlet near Toronto in Canada was inaugurated in December 2001. The Canadian expansion started the company’s thrust towards international growth. Today, barely eight years later, Krispy Kreme products are already available in Mexico, Puerto Rico, the United Kingdom, Kuwait, Dubai, Hongkong, Korea, Japan, the Philippines, Indonesia, and Australia (Krispy Kreme Doughnuts, Inc. , n. d. ). The other appealing characteristics of the company are: innovation and risk taking, and team orientation. The company took its first calculated risk as early as 1950 when it decided to be innovative and sought to improve its doughnut-making process by designing its own doughnut-making equipment. Their objective was achieved through the efforts of a team of equipment engineers that it organized, thereby putting emphasis on the importance of team orientation. The collaboration of the engineers allowed Krispy Kreme to become the first company to serve hot doughnuts to their customers. Their engineering team is also continuously improving their hot doughnut technology to preserve the company’s leadership status in the hot doughnut business (Krispy Kreme Doughnuts, Inc. , n. d. ) The culture at Krispy Kreme could also be characterized as people oriented because the organization is customer-responsive. The workforce is composed of employees who are recruited because of their innate friendliness and service-oriented tendency. Moreover, employees are not bound by hard and fast rules in their dealing with customers. There exists a rather low level of formalization in the company and in its stores that allows employees to make the necessary adjustments that would enable them to deal satisfactorily with different kinds of people who come from all walks of life. Management refers to this policy as empowerment because it allows Krispy Kreme employees to do what they think is necessary in order to make their customers happy and satisfied. Being people oriented (particularly customer-responsive), Krispy Kreme has made it clear that employees should be painstaking in their efforts to please their customers and ensure that they keep coming back (Krispy Kreme Doughnuts, n. d. ). By cultivating and sustaining a strong culture, the management has effectively informed its employees exactly what the company expects of them. Foremost among these is for the engineering team to keep on discovering new technologies that would improve their doughnut-making capability and preserve company leadership in the industry. Then its army of chefs should assume adequate vigilance in the preparation of their products so that customers are always satisfied with Krispy Kreme doughnuts and coffee, among others. Finally, store front-liners are expected to go out of their way to satisfy customer needs – to be sincerely friendly, helpful, and accommodating, thereby generating customer loyalty (Krispy Kreme Doughnuts, Inc. n. d. ). As Robbins (2005) has specifically prescribed, a strong culture should have a â€Å"high degree of sharedness and intensity [which] creates an internal climate of high behavioral control. † At Krispy Kreme, only applicants who are perceived to fit the bill are hired. Then the culture of the company is drilled into them from day one, thereby effectively shaping the organizational behav ior of every worker.

Automobile and Tucker Essay

The movie, Tucker: The Man and His Dream, is the story of a man named Preston Tucker and takes place in the 1940’s. Preston Tucker’s dream was to design and build the greatest automobile ever made. At first, he began by bringing home drawings of his dream car, which was to be called the Tucker Torpedo. He showed the drawings to a man who would eventually become his partner, Abe. Initially, Abe doesn’t like the idea of building a car, but he didn’t know anything about cars. Tucker placed an advertisement in a magazine about his car, and the public became excited. The car would have an engine in the rear, a middle headlight that turned with the car, and a windshield that would pop out when the car was in a wreck. In the meantime, Robert Bennington, who was the CEO of Ford, became worried that the Tucker Torpedo may put Ford out of business, so Bennington made a deal with him to allow him to buy a plant to build the car in. This also gave Ford a reason to be involved in building the car. The deal stated that Tucker must make at least fifty cars in one year in order to keep the plant, and the first car needed to be presented to the public within sixty days. Abe invested $6,000 to help Tucker build the first car. On the day of the presentation, the car was built but had no engine. Therefore, they had some problems getting it on stage, but once it was on stage, the thousands of people who attended the presentation cheered. After that, Bennington announced to Tucker that he wanted to change the car. He didn’t want the engine in the rear of the car, and since the ? Big 3†², the three largest automobile makers in the US, were buying all of the steel, there was not enough for Tucker to buy to build his cars. Tucker protested the ? Big 3†². A man named Howard Hughes, who owned a steel company, told Tucker about a helicopter company who needed to sell steel. So Tucker bought a helicopter engine and converted it to a car engine, and the car worked. After Tucker protested the ? Big 3†², he was spied on by people who worked for the ? Big 3†² companies. They accused him of not running his business properly, but it was not true. Abe got scared because he had already served three years in prison for bank fraud and did not want to get caught up in another mess, so he resigned. Then, there were commercials out that told the public that Tucker’s car was built piece by piece from a junkyard. Eventually, the government started a full investigation on Tucker and charged him with fraud. Tucker lost most of his investors from this, and had already spent too much money trying to build the car. He did make all the cars, but he did not make the fifty car minimum in time and lost his plant. He was found not guilty of fraud, but after all the bad publicity, people no longer wanted the cars, and Tucker had lost a lot of money, so no more cars were ever made. Today, some of Tucker’s Torpedo’s are still around; some are in museums, and some of them even still run. After watching the movie, I researched the Tucker Tornado on the Internet. One source, The History of the Tucker 48, at www. gizmohighway. com, says that the car actually had additional features not mentioned in the movie. In addition to the turning headlight, rear engine and the windshield that would pop out, the Tucker Torpedo also had more room inside the car and padded steering wheels and dashboards. Another source, 1946 Tucker Torpedo, at www.cybersteering. com, also says that Tucker applied for a $30 million loan before he was accused of fraud and that in 1956, Tucker died of lung cancer in Brazil while trying to build another car, the Carioca. I also found in the open letter from Preston Tucker, at www. tuckerclub. org, that this is a letter that Preston Tucker wrote to protest the other automobile companies and the investigations that eventually killed his company. In it he says that he actually had 1,872 Tucker dealers and almost 50,000 investors that put $25 million into his company. The definition of an entrepreneurship is a person who organizes and manages a business, assuming the risk for the sake of a profit. Preston Tucker started a company and wanted to build a car for Americans knowing that it would take a lot of money that he did not have. He organized and managed the business and assumed the risk of losing a lot of money for a lot of people. I think that Tucker was not treated fairly by his competition. New entrepreneurs like Preston Tucker should be given the same fair chance to build a business just like the others had to build theirs.

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