Banking

RISK MATRICES AND OPERATIONAL RISK MANAGEMENT
- A PRACTICAL BANKERS PERSPECTIVE

Dilip Dasgupta

Banks face three major types of adventures: Credit insecurity, Market Risk and Operational Risk.

1.Credit Risk (CR)

Banks are in the business of judge deposits and lending: they operate mainly with depositors funds. Unfortunately, not all the monies lent, and the enliven due on it, is recovered. The borrower may default in his obligations to pay semiannual liaison or the principal sum or both as per the terms and conditions governing the loanword due to circumstance of one or more of commendation loss events e.g. he may suffer loss in business and run short bankrupt or he may simply wane to pay. The banks actual returns on their average outstandings in the loan book, virtually always, turn out to be lower than the contractual grade applicable thereon. Banks are also required to periodically indite off loss assets or accept less than deoxycytidine monophosphate% of the money lent or interest accrued thereon as part of a compromise deal. The interest in truth collected is thus required to be adjusted to bring in losses incurred in the shape of loan write offs to guide Risk Adjusted Return on Capital (RAROC).



free to mention, if a banks portfolio of loan assets contains a juicy percentage of NPAs, it cannot earn enough interest to meet its be of operations including write offs; it may also not be in a position to meet its obligation to its depositors. Hence, overmuch attention is being given to management of Credit Risk. The ideal of RAROC, i.e. Risk Adjusted Return on Capital laid-backlights this scene and helps bankers price their loan products appropriately, based on past loan loss data, so that they can earn enough interest to take care of the expected delinquencies.

Apart from transaction risk or the risk of default as described above, credit risk may also arise due to high exposure levels or concentration of a...If you want to get a full essay, order it on our website: Orderessay



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