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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.


Fixed Income

News On Credit Risk
Rating on Bhushan Steel was cut in March 2014: CARE Ratings  

27-08-2014| Source:CNBC-TV18

Analysts believe widening gap between companys financial ratio and credit rating raises questions over accuracy. However, rating agencies look at many parameters such as industry risk, financial risk

Risks to market remain global, not local: Credit Suisse

26-08-2014| Source:CNBC-TV18

According to Neelkanth Mishra, Credit Suisse, index EPS growth could pick up to 11-12 percent from 7-8 percent, and a 30 percent return for the index over two years is quite likely even

China's credit slowdown: A default risk?

14-08-2014| Source:CNBC

China`s sharp credit growth slowdown in July may signal rising default risks in some parts of the economy, analysts said."The phase of unchecked shadow banking growth is over, while the housing

Bad days over for OMCs? How to trade BPCL, IOC post Q1


Credit Suisse estimates core Q1 RoE for IOC, BPCL, HPCL at 14, 26, 5 percent respectively. According to the brokerage, the largest risk to actual, sustained delivery of these 'core RoE' for the OMC

Weekly wrap: Market yawns but geopolitical risks eyed

08-08-2014| Source:CNBC-TV18

RBIs credit policy sprung no surprises while geopolitical concerns and rupee fall spark sell-off in equities this week

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