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Credit Risk Management

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  • 1. CREDIT RISK MANAGEMENT
    By :
    Ankan Debbarma
  • 2. ROADMAP
    Introduction.
    Credit Risk Mgt Framework.
    Credit Risk Mgt through LRM.
    Securitization.
    Credit Derivatives(CDs) and Scope in India.
    Basel accord I & need for new framework.
    Computing capital charge for Credit Risk.
    Is India ready for Basel II??
  • 3. INTRODUCTION
    Introduction to Basle accord(Revised capital framework) & Types of Risks.
    What is Credit Risk?
    The inability or unwillingness of the customer to meet contractual obligations/commitments.
    Need for risk management.
  • 4. CREDIT RISK MANAGEMENT FRAMEWORK
    Credit risk identification.
    Credit Risk Measurement.
    Credit Risk Monitoring and Control.
    Credit Risk Mitigation.
  • 5. CREDIT RISK MGT THROUGH LRM
    Effective tool for constantly evaluating the quality of loan book & to bring about qualitative improvements in credit admin.
    Objectives of LRM.
    Importance of Credit Grading process.
    Qualification & independence of Loan review officers.
    Frequency & scope of Reviews.
  • 6. SECURITIZATION
    Refers to a transaction where financial securities are issued against the cash flow generated from a pool of assets.
    Creation of SPV for this purpose.
    Traditional and Synthetic securitization.
    Securitization exposures.
  • 7. CREDIT DERIVATIVES
    CDs transfer risks in a credit asset without transferring the underlying asset themselves from the books of the originator.
    Off balance sheet financial exposure.
    Mechanism of CDs.
    Credit Default Swaps & Credit linked Notes.
    Scope in India.
  • 8. BASEL ACCORD I(1988)
    Portfolio Approach – It focused primarily on credit risk and assets of the banks were categorized into risk buckets with risk weights ranging from 0% to 150%.
    Minimum Capital Requirement – 8% of risk weighted assets only for credit risk (9% by RBI)
    Based on 1988 accord, RBI initiated various actions for the banks like classification of assets, provision norms, classification of asset class etc.
    Need for a new framework.
  • 9. COMPUTATION OF CAP CHARGE FOR CREDIT RISK
    Under pillar I the framework offers three distinct options for computing capital requirement for credit risk.
    Approaches available for computing credit risk are :
    Standardized Approach.
    Foundation IRB approach.
    Advanced IRB Approach.
  • 10. IS INDIA READY FOR BASEL II FRAMEWORK?
    First set of banks has successfully implemented Basel II within March 31 2008.
    19 banks reported CAR as per Basel I & II,11 banks reported lower CAR as per Basel II and rest 8 reported higher CAR(CARE ratings).
    Training sessions for employees & information for customers are being provided regarding Basel II framework and rating systems.
    Banks are moving towards Advanced approaches for determining credit Risk.