Professional Documents
Culture Documents
Session- 4
Shyam Ji Mehrotra
What is risk?
Uncertainty about rains, flight delayed, income
not genrated
loss.
2 Shyam Ji Mehrotra February 14, 2013
Risk Management-dimensions
Not an insurance against fire- put out fire and
risk is mitigated How historian talk about AC and BC ( after Christ and before Christ), risk managers talk about Pre Lehman and Post Lehman Risk is Vedic recitation; every one talks but no one really understands Dynamic vs static dimensions Understand and appreciate risk in banking business
Thursday, February 14, 2013
Risk Type
Counter party failing to repay loan Counter party failing to service a loan
Market Risk
Interest Exchange rate Commodity risk Equity price Liquidity risk Failed system, Process & People Legal risk
Credit
Operational Risk
Credit risk
Defined as the potential that a bank borrower or
counterparty will fail to meet its obligations in accordance with agreed terms Either failing to repay the loan or service as per loan agreement
Credit risk-examples
Direct lending- repayment is not made Non fund- funds not forthcoming on crystallization
of LC/BG Series of payment due from bonds are not forthcoming on due dates Security trading- settlement not forthcoming Cross border exposure- currency movement not taking place
Market risk
Losses in on and off balance sheet items
Operational Risk
Direct or indirect loss due to failed
Internal process or People or System or External events
Measure Risk
Assess vulnerability of critical assets Quantify the likely loss because of exposure
Monitor Risk
Communicate risk tolerance
Mitigate Risk
Avoid or reduce Share or retain
1 0 Prof. shyam Ji Mehrotra Thursday, February 14, 2013
by RBI Risk Based supervision guidelines Setting of ALCO in each bank Integrated Risk Management Committee Capital Adequacy guidelines
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