In the context of banking and regulatory capital management, it is essential to distinguish between the banking book and the trading book, as each carries distinct types of risk and is subject to different regulatory treatments under the Basel framework. Interest Rate Risk in the Banking Book (IRRBB) IRRBB refers to the current or anticipated…
IntroductionThe banking business is inherently exposed to a wide range of risks that can adversely affect its financial health, operational integrity, and reputation. These risks—if not properly identified and managed—can lead to substantial losses and systemic instability. Risk identification is the foundational step in a bank’s risk management process, serving as the basis for proactive…
IntroductionRisk management is an essential discipline that enables organizations to systematically identify, assess, and address potential threats and uncertainties. By doing so, it safeguards organizational assets, supports strategic decision-making, and enhances resilience. Far from being merely a defensive mechanism, effective risk management serves as a proactive tool for achieving sustainable growth, maintaining regulatory compliance, and…
IntroductionIn the realm of finance and investment, the interrelationship among risk, capital, and return forms the cornerstone of strategic decision-making. The risk–return spectrum—also referred to as the risk–return trade-off or risk–reward relationship—highlights the principle that the potential for higher returns is intrinsically linked to a higher level of risk. Conversely, investments with lower risk profiles…
IntroductionRisk, in the context of business and organizational operations, refers to the potential for loss, damage, or adverse consequences resulting from uncertain events or conditions. It signifies the possibility that undesirable outcomes may impact various facets of an organization, including its financial performance, operational continuity, regulatory compliance, and reputation. To address these uncertainties effectively, organizations…
In order to protect depositors from the risk of a bank becoming insolvent, the banking regulator has prescribed banks and other authorised financial institutions to fund themselves with a minimum amount of capital (CAR) in terms of Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure…
In this article, we’ll explain what credit migration risk and credit metrics are, and how to incorporate them into the financial analysis of companies by lenders and investors. Credit Migration risks: Credit ratings for public companies or Governments are similar to credit scores for individuals. These ratings for the long-term and short-term are provided by…
Interest rate risk is the potential for investment losses that can be prompted by a move upward in the prevailing rates for new debt instruments. Interest rate changes can affect many investments, but it impacts the value of bonds and other fixed-income securities most directly. As interest rates rise bond prices fall, and vice versa.…
RBI on Monday July 21, 2025 through notification announced that “it has been decided to permit banks to reckon Government securities as Level 1 HQLA* under FALLCR** within the mandatory SLR requirement up to 16 percent of their NDTL, under Basel III Framework on Liquidity Standards. Consequently, the total HQLA carve-out from the mandatory SLR,…
The Reserve Bank of India has today (June 26, 2023) issued the Master Direction on Minimum Capital Requirements for Operational Risk. The Central Bank said that the circular is issued after appropriately considering the feedback received from stakeholders. According to the Directions require all specified Commercial Banks (excluding Local Area Banks, Payments Banks, Regional Rural…
