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Introduction

The preparedness for implementation of Basel II has sensitized the banks that the maintenance of capital is emerging as a dynamic concept reflecting the various risks banks undertake 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) is 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 preparing Rating Model for Borrowers and Credit Risk Index of Banks (CRIB).

If you need briefing of this course before registration, Please inform me.

Recommended Text:

Term Book

· MANAGEMENT OF FINANCIAL INSTITUTIONS (with emphasis on Bank and Risk Management) – Sharma, Meera ( will be issued by Library)
.
· RISK MANAGEMENT AND FINANCIAL INSTITUTIONS HULL, John C: ( will be issued by Library)
· Guidelines for Implementation of the New Capital Adequacy Framework(NCAF) July 1 2009: Reserve Bank of India Publication ( Soft copy will be provided)

· The Collection of some important articles / speeches relating to the Risk management & Basel II will be distributed at the beginning of the class.



Reference Material


· International Convergence of Capital Measurement and Capital Standards: A Revised Framework Comprehensive Version, June 2006, Bank of International Settlement 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-Edition 2005

· Risk Management : Indian Institute of Banking and Finance, Macmillan Publication

· 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%
Assignment Relating to Credit Risk Rating Model (Borrower or Bank)	15%
Mid Term	25%
End Term	40%



The students will assign themselves into groups of maximum two to work on the Assignmement. The Assignment will be on how to quantify the credit risk of the Borrower / Bank using the Rating Model taught in the class the group names and the selected topics should be routed through your Class Representative (CR). The Quizes, Mid term and End Term will based upon mostly Numerical Problems and some conceptual questions.


Class Participation (CP)

Class-participation is an integral component of the learning process. CP includes the attendance & discipline in the classroom and to raise interesting issues for discussion. The weight for CP will be reflected in the over all grade.

Contents

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

Module 1: Introduction to Risk Management in Banks – 1 Session
Module 2: Capital Structure & Eligible Capital Computation - 1 Sessions
Module 3: Credit Rating Model of Borrowers – 2 sessions
Module 4: Credit Rating Index of Banks (CRIB) and Bank Exposure Model (BEL) – 1 session
Module 5: Standardised Approach to Credit Risk & Credit Risk Mitigation – 4 Sessions
Module 6: Internal Rating Based Approach (IRB) to Credit Risk– 6 Sessions
Module 7: Market Risk & Operational Risk – 4 Sessions
Model 8: Economics of Securitization and Risk Management – 1


The relevant chapters for the following modules from the TERM BOOK will be intimated before starting of each Module.


Module 1: Introduction to Risk Management in Banks- 1 Session

Session 1: The Building Blocks of Integration of Risk Categories, the Objective behind the Basel II, Comparison of Basel I & Basel II Accord

Module 2: Capital Structure & Eligible Capital Computation - 2 Sessions
Session 2 & 3: Elements of Tier 1 Capital, Tier 2 Capital, Tier 3 Capital and Eligible Capital Structure

Module 3: Credit Rating Model of Borrowers – 1 session

Session 4 & 5 : Different Risk Categories, Risk parameters and Risk Factors will quantified in order to build Credit Rating Model for the borrower & Case Study, Issues in Credit Rating

Module 4: Credit Rating Index of Banks (CRIB) and Bank Exposure Model (BEL) – 1 session

Session 6 & 7: Preparation of Risk Index for Banks (Rating of Bank) Using “CAMELS” and the use of Rating Index to compute Inter Bank Exposure (BEL) with case study

Module 5: Standardised Approach to Credit Risk & Credit Risk Mitigation- 4 sessions
Session 8 & 9: Standardized 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
Session 10 & 11: Techniques of Credit Risk Mitigation, Simple Approach, Comprehensive Approach covering volatility Haircut, Maturity Mismatch, Currency Mismatch & Proof of Concept(POC)

Module 6: Internal Rating Based Approach (IRB) to Credit Risk- 6 sessions
Session 12, 13 & 14: Internal Rating Based Approach to Credit Risk covering following asset classes:
Bank, Sovereign & Corporate, Retail, Equity, OTC Products, Failed Trades, long Settlement Transactions

· Session 15, 16 & 17: Internal Credit Risk Rating Model Different Credit Risk Modeling i.e. KMV Modeling, McKinsey Model, KPMG Loan Analysis System
Module 7: Market Risk & Operational Risk - 2 sessions
· Session 18 : Approaches to Market Risk covering Interest Rate Risk in Trading Book, Fore Risk, Equity Risk & Market Related Off Balance Sheet Items
· Session 19: Approaches to Operational Risk : Building Blocks for Operational Risk, Basic & Standardized Approach with Test Cases,
Model 8: Economics of Securitization and Risk Management – 1
Session 20: Securitization Fundamentals. Securitization and Capital Management, Securitization Process, the Waterfall of Cash Flows and Losses, CDO, (CDO Square& Cube, Treatment of Securitisation in Basel II

Code of Ethics
Discussions among individuals either in class-room or in the examination hall are completely forbidden.

Feedback
I would also request you to give me continuous feedback. I would be in the class room after the class is over to take up your doubts and feed back. You may form a “focus group” (consisting of 3-4 students from the class with diverse backgrounds including the CR) so 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. You can, of course, always reach me by e-mail at asitmohanty@ximb.ac.in. My Ext – 995 and Cell no is 94386 69607.


Wish all of you the best of the learning Process and also for your placement.