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…
The difference between Credit rating agencies and credit information bureaus lies in their meaning and functions. Credit information bureaus in India (CIB): Credit Information bureaus maintain a repository of credit information of individual borrowers, offer comprehensive risk management tools, and provide lenders with portfolio reviews of borrowers that help them study a borrower’s behaviour and…
Updated on November 17, 2023 RBI on Thursday (November 17, 2023) increased risk weights on consumer credit exposure of banks, and NBFCs to 125% from 100%. Measures announced to contain the risk emanating from a sharp rise in unsecured loans – mostly personal loans and credit cards. It has been also decided to increase the…
In the Statement on Developmental and Regulatory Policies announced by RBI on Friday, RBI said that as a step towards converging with globally accepted prudential norms, it will issue a discussion paper on the proposed transition for stakeholder comments. Banks currently follow the incurred loss approach for provisioning on their loan assets, whereby provisions on…
In today’s (June 8, 2022) statement of development and regulatory policies the Reserve Bank of India issued guidelines to market participants regarding the exchange of variation margin (VM) for non-centrally cleared derivatives (NCCDs). Derivatives are financial instruments whose value is derived from other underlying assets. There are mainly four types of derivative contracts such as…
RBI on Monday 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, which can be…
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…
The Reserve Bank of India today announced that State Bank of India, HDFC Bank, and ICICI Bank will remain as Domestic Systemically Important Banks (D-SIBs) and therefore will have to maintain additional common equity tier 1 (CET1) capital ratios in the same manner prescribed in 2020. SIBs are considered as banks that are ‘too big…
Capital conservation buffer (CCB) is a concept introduced under the international Basel III norms. According to Basel III norms, during good times, banks must build up a capital buffer that can be drawn from when there is stress. Individual countries are allowed to take their own decision in this matter. In India, to adhere to…
Sufficient capital is required by banks to absorb any losses that arise during the normal course of their banking operations. A capital requirement (also known as regulatory capital or capital adequacy) of each bank is decided by the banking regulators (Central Banks) to prevent commercial banks from taking excess leverage and becoming insolvent in the…