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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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09-12-2016| Source:PTI

An India Ratings report has warned that if China gets market economy status (MES), which is likely soon under the WTO rules, it will prove to be credit negative for the commodity-driven sectors

RBI cuts FY17 GDP growth 50 bps to 7.1% on demonetisation blow

07-12-2016| Source:Moneycontrol.com

The central bank sees near term downside risks travelling through two major channels: (a) disruptions in economic activity in cash-intensive sectors such as retail trade, hotels & restaurants

Stay cautious, says Credit Suisse

06-12-2016| Source:CNBC-TV18

We would advise investors to be cautious now. In addition to the difficulties in distribution and the informal sector benefitting from formalisation, there is the risk of an economic slowdown, says

Recent rally indicates better US growth on Trump's tax cut: Siva

02-12-2016| Source:CNBC-TV18

Current rally reflects expectations of better US growth given Trump's tax cuts and infrastructure spending rather than just risk aversion or inflation accelerating, says Sakthi Siva of Credit Suisse.

Moody's lowers RCom's credit rating

30-11-2016| Source:PTI

Moody's has downgraded creditrating of Reliance Communications from substantial credit riskscale to high credit risk scale on account of "weakperformance" of the company.

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