RMCMB-P10

RMCMB-P10
PGDM 2010-12: Term IV

Risk Management & Capital Measurement in Banks
(Faculty: Prof. Asit Ranjan Mohanty)
Email: Asit.Mohanty@ximb.ac.in

COURSE OUTLINE

Introduction

The preparedness for implementation of Basel II & III 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.

The course would provide understanding of theoretical concepts in the field of Risk Management and how these theories are applied into practices in Banks. Students would learn how to use the concepts they have already learned in Accounting, Financial Management, Fixed Income Securities, Econometrics, and Derivatives courses in Measurement and Management of Risk in Banks.

Background

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.

Recommended Text:

· Basel III Capital Framework : BCBS, BIS, Nov 2010
· International Convergence of Capital Measurement and Capital Standards: A Revised Framework Comprehensive Version, June 2006, Bank of International Settlement Publication
· Guidelines for Implementation of the New Capital Adequacy Framework(NCAF) April 200: Reserve Bank of India Publication
· Credit Risk Management & Basel II , An Implementation Guide: Bhatia Mohan, Risk Books Publication,2006

· Credit Risk Measurement : Saunders Anthony, John Wiley & Sons, 1999

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

· Discussion Papers on Implementation of the Basel II Capital Framework: Australian Prudential Regulation Authority (APRA), http://www.apra.gov.au/ADI/Basel-II-implementation-in-Australia.cfm

· Collection of Reading Materials : Sources – Bank of International Settlement(BIS) & Reserve Bank of India(RBI)

Evaluation

Components	Weights (%)
Two Quizzes	20%
Tem paper	50%
End Term	30%

The students will assign themselves into groups of five and work on the term paper. The understanding of the concepts and the Proof of the Concepts (POC) by using dummy data / actual data (if available) along with the findings and conclusions are to be reflected in the term paper.

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

(Contd)

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

Readings Material: Class Notes & Slides Presented in the Class

Session 19:

Capital Structure and Computation of Capital to Risk Weighted Asset Ratio (CRAR) with Test Cases

Module 3 : Internal Rating Based Approach(IRB) to Credit Risk

Session 7 & 8

: Internal Rating Based Approach to Credit Risk covering following asset classes:

Bank, Sovereign & Corporate, Retail, Equity, OTC Products, Failed Trades, long Settlement Transactions

Readings Material: Class Notes & Slides Presented in the Class

· Session 9 & 10: Explanation of IRB Risk Weight Function, Techniques of Credit Risk Mitigation in IRB Approach with Test Cases

Readings Material: Class Notes & Slides Presented in the Class

· Session 11 & 12: Internal Credit Risk Rating Model for Corporate

Readings Material: Class Notes & Slides Presented in the Class

· Session 13 & 14: Designing Model for Credit Risk Index for Banks (CRIB) using CAMELS

Readings Material: Class Notes & Slides Presented in the Class

Module 4 : Market Risk & Operational Risk
· Session 15 & 16: Approaches to Market Risk covering Interest Rate Risk in Trading Book, Forex Risk, Equity Risk & Market Related Off Balance Sheet Items

Readings Material: Class Notes & Slides Presented in the Class

· Session 17 & 18: Approaches to Operational Risk : Building Blocks for Operational Risk, Basic & Standarsised Approach with Test Cases, Module 5 : Capital Structure & Computation of Economic Capital

Readings Material: Class Notes & Slides Presented in the Class

Session 19 Recent Issues in Basel III

Session 20

Computation of Economic Capital & RAROC

Created By: Debasis Mohanty on 11/29/2010 at 05:28 PM
Category: PGDM-II Doctype: Document

...........................