COMB-X07

COMB-X07
PGDM(PT) 2007-2010

Commercial Banking

Prof. Asit Mohanty

Introduction

The preparedness for implementation of Basel II has sensitised the banks that the maintenance of capital is emerged as dynamic concept reflecting the various risk banks undertakes during the course of their business. The objective of this course is to provide insight to the students an in-depth understanding and hands on exposure with Risk Management techniques in order to estimate the capital requirements for the Banks with the application of Basel II Approach.

Risk Management in commercial Banks ,as a discipline has got immense significance especially in the light of the current global financial crisis. In the evolving financial environment, Banks & Financial Services Industries (BFSI) are exposed to different types of risks. The management of risk has become very important matter of concern for efficient use of Capital across business lines and, also for strengthening the soundness and stability of the banking system and efficient use of Capital across business lines. The building blocks for management of risks are broadly divided into:

Risk Identification

Risk Measurement

Risk Pricing

Risk Monitoring and control

Risk Mitigation

The implementation of Basel II accord to provide capital cushion against the unexpected losses is the major challenge for the Banks.

In this context, this course has been designed to address the concerned issues with the purpose of providing increasing knowledge and capacity to the BFSI sectors in order to estimate, mitigate and manage the risks. This course covers an in-depth analysis of capital computation for Credit, Market and Operational Risk. It also provides critical inputs for estimation of Economic Capital (EC) for credit risk and Risk Based Pricing (RBP) which is the ultimate goal of managing the risk. In this context, we analyse how the better managemenr ao Asset and liability of the Banks leads to the soundness and tability in the Baking Sector in Particular and Financial Sector in General.

The purpose of the course, in short is to give the students the overview of Commercial Banking and it’s Risk Management Policies.

Recommended Text:

Term Book

· Management of Financial Institutions : Meera Sharma
· Asset Liability Management : T.Ravi.kumar, Vision Books

· Reference Material

· Fundamentals of Risk Measurement : Marrison Chris, Tata McGRAW-Edition 2005

· Bank Asset Liability Management : Moorad Choudhry, Willey Finanace

· Asset Liability Management Tools: A Hand Book of Best Practice by Bernd Scherer , Risk Books

· Guidelines for Implementation of the New Capital Adequacy Framework(NCAF) April 2006: Reserve Bank of India Publication 

Evaluation

Components	Weights (%)
Two Quizzes	20%
Tem paper	45%
End Term	35%

The students will assign themselves into groups of maximum three and work on the term paper. The repetition of the Topics for the Term Paper among different groups is allowed. The group names and the selected topics should be routed through your Class Representative (CR).

Class Participation (CP)

Class-participation is an integral component of the learning process. CP includes the attendance & discipline in the classroom. The weight from is up to 10% will be given depending upon the above criteria. The weight assigned in the CP will be reflected in the overall rating of the Term Paper.

Pedagogy

The course will be delivered through a scintillating series of case studies comprising the biggest challenges faced by the financial world. Each failure is analyzed in terms of the circumstances that led to the debacle, risks involved and potential mitigation techniques.

Snapshot of Course Learnings

Analysis of Banking Products

Analysis of NPA

Major Failures in Banks in Different Countries

Identification of various risks and mitigation strategies under various circumstances

Best Practices in Risk Management

Effective Derivatives management strategies

Effective Asset Liability Management

Contents

The details of the content of the course are given below.

Module 1: Introduction to Risk Management in Banks – 2 Sessions
Module 2: Standardised Approach to Credit Risk & Credit Risk Mitigation – 4 Sessions
Module 3: Internal Rating Based Approach (IRB) to Credit Risk– 8 Sessions
Module 4: Market Risk & Operational Risk – 4 Sessions
Module 5 : Capital Structure & Computation of Economic Capital – 2 Sessions
Module 1 : Introduction to Risk Management in Banks

Session 1: Roles & Function of Banks, Asset & Liability Products of the Banks and their Functions , The Building Blocks of Credit Risk Management , Bank Failures

Readings Material: Class Notes & Slides Presented in the Class

Session 2: The Building Blocks of Credit Risk Management, The Objective behind the Basel II, Comparison of Basel I & Basel II Accord

Readings Material: Class Notes & Slides Presented in the Class

Module 2: Standardised Approach to Credit Risk & Credit Risk Mitigation

Session 3 & 4: Standardised Approach to Credit Risk Covering following Asset Classes :

Domestic Sovereign, Foreign Sovereign, Public Sector Enterprises, Banks, Corporate, Regulatory Retail Portfolio, Secured Residential Property, Secured commercial Real Estate, Past Due Loan, OTC Products, Repo Style Transactions, Non Market Related off Balance Sheet Product, Long Settlement Transaction, Failed Trades & Issues in Credit Rating in Standardised Approach

Readings Material: Class Notes & Slides Presented in the Class

Session 5 & 6: Techniques of Credit Risk Mitigation, Simple Approach, Comprehensive Approach covering volatility Haircut, Maturity Mismatch, Currency Mismatch & Test Cases

Module 3 :

Goals of ALM and ALM Process Flow

Session 1: Goals of ALM & ALM Roles and Responsibilities

Module 4 : Liquidity Risk Management

Session 7 to 8:

· ALM Products
· Contractual Computations
· Tolerance & Coverage Ratio Analysis
· Static Liquidity Ratios

Module 5: Interest Risk Management & Economic Capital on account of Interest Rate Risk
Session 9 to 12:
· Weighted Average Yield & Weighted Average Cost Distribution
· Tolerance Analysis
· Behavioral Analysis for Interest Rate Sensitivity Position of SB Account
· Break Even Rate
· Different Approaches to Value at Risk
· Mean Reversion Model
· Computation of Economic Capital

Module 6 : Earning Analysis in ALM
Session 12 to 15:
· Earning at Risk (EaR) Analysis
· Duration Gap Analysis
· Market Value of Equity ( NPV & MDuration Approach)

Module 7: Capital Structure & Computation of Economic Capital

· Readings Material: Class Notes & Slides Presented in the Class
· Session 16-20: Capital Structure and Computation of Capital to Risk Weighted Asset Ratio (CRAR) with Test Cases , Computation of Economic Capital & RAROC
· Readings Material: Class Notes & Slides Presented in the Class

Feedback

I would also request you to give me continuous feedback. I would be in the class room for one hour after the class is over to take up your doubts and feed back. You may form a “focus group” (consisting of 6-7 students from the class with diverse backgrounds including the CR) that continuously interacts with the students and informs me about their problems, if any, with the course.

Contact Details

Though I am usually available in my office till late in the evening, it is better to check beforehand. I also come to office on weekends and would try to give you a weekend appointment if you need one. You can, of course, always reach me by e-mail at asit.mohanty@ximbac.in . My Ext – 995 and Cell no is 94386 69607.

Created By: Lingaraj Pattanaik on 12/08/2009 at 11:40 AM
Category: ExPGP-III Doctype: Document

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