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Credit Risk

The risk that a party to a contractual agreement or transaction will be unable to meet its obligations or will default on commitments. Credit risk can be associated with almost any financial transaction. BASEL-II provides two options for measurement of capital charge for credit risk
1.standardised approach (SA) - Under the SA, the banks use a risk-weighting schedule for measuring the credit risk of its assets by assigning risk weights based on the rating assigned by the external credit rating agencies.
2. Internal rating based approach (IRB) - The IRB approach, on the other hand, allows banks to use their own internal ratings of counterparties and exposures, which permit a finer differentiation of risk for various exposures and hence delivers capital requirements that are better aligned to the degree of risks. The IRB approaches are of two types:
a) Foundation IRB (FIRB): The bank estimates the Probability of Default (PD) associated with each borrower, and the supervisor supplies other inputs such as Loss Given Default (LGD) and Exposure At Default (EAD).
b) Advanced IRB (AIRB): In addition to Probability of Default (PD), the bank estimates other inputs such as EAD and LGD. The requirements for this approach are more exacting. The adoption of advanced approaches would require the banks to meet minimum requirements relating to internal ratings at the outset and on an ongoing basis such as those relating to the design of the rating system, operations, controls, corporate governance, and estimation and validation of credit risk components, viz., PD for both FIRB and AIRB and LGD and EAD for AIRB. The banks should have, at the minimum, PD data for five years and LGD and EAD data for seven years. In India, banks have been advised to compute capital requirements for credit risk adopting the SA.

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News On Credit Risk
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12-01-2017| Source:Moneycontrol.com

Speaking at the Gujarat Vibrant Summit, Patel said that steep interest rate subventions decreases safeguard against risks, especially when protection is given to people.

Expect earnings downgrade, underweight on India: Experts

11-01-2017| Source:CNBC-TV18

Ajay Kapur of Bank of America Merrill Lynch remains underweight on India, a view he has had since December 2015 although he acknowledges the recent drop in Risk-Love there.

Sebi bids for enhanced NCDs disclosure; Risk-o-Meter

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-o-Meter' to better explain low to high-risk credit ratings given to such bonds.

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Controlling risks has been a constant refrain in recent months as the focus of policymakers switches to taming asset bubbles and checking unbalanced growth stemming from efforts to fuel the economy

Asset quality, cyber risk perceived as high risk: RBI survey

30-12-2016| Source:Moneycontrol.com

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