Credit risk measurement: Credit risk arises when a bank borrower or counter- party fails to meet his obligations according to specified schedule in terms of predetermined agreement either due to genuine problems or willful default. Banks are using two broad methodologies for computing their capital requirements for credit risk as per Basel II guidelines. First…
Adequate capital is required by banks to absorb any losses that arise during the normal course of the bank’s operations. Each Capital contribution/Equity contribution is a contribution of capital, in the form of money or property, to a business by an owner, partner, or shareholder. The capital adequacy frame work in banking business emphasizes adequate…
The key difference between the Basel II and Basel III are that in comparison to Basel II framework, the Basel III framework prescribes more of common equity, creation of capital buffer, introduction of Leverage Ratio, Introduction of Liquidity coverage Ratio(LCR) and Net Stable Funding Ratio (NSFR). Leverage Ratio: The leverage ratio is calculated by dividing…
In banking lexicon, provisioning means to set aside or provide some funds to cover up losses if things go wrong and some of their loans turn into bad assets. Provisioning Coverage Ratio (PCR) refers to the prescribed percentage of funds to be set aside by the banks for covering the prospective losses due to bad…
At present, the Asset Reconstruction companies viz. the Securitization Companies / Reconstruction Companies (SC/RCs) are permitted to convert a portion of debt into shares of the borrower company as a measure of asset reconstruction subject to a condition that their shareholding does not exceed 26% of the post converted equity of the company under reconstruction.…
Banks provide a number of credit facilities to customers engaged in activities related to agriculture. Many a time banks take the brunt when unforeseen disaster strikes the farmers in the form of ‘on-farm loss’ and or ‘off-farm losses. These types of losses caused mainly due to production risk and price risk. The risk management in…
The farmers in India have been inherently facing with on-farm risks like famine; flood, extreme weather etc. Though these types of natural risks cannot be totally avoided, there are many new on-field techniques developed in India to minimize the loss. However, the most important strategy to mitigate the risk is agriculture insurance. The insurance company…
Loan to value ratio means Loan amount disbursed by the bank proportionate to the property value.LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property, expressed as a percentage. For example, if you buy a home appraised at Rs.1 Crore for its appraised value and make a Rs.20 lac…
The meaning of credit risk in the business of lending is easy enough to understand and explain. Credit risk arises when a bank borrower or counter- party fails to meet his obligations according to specified schedule in terms of predetermined agreement either due to genuine problems or willful default. Credit risk mitigation strategies in a…
Liquidity risk arises when a bank fails to meet its contractual obligation in its daily operations due to non-receipt of adequate inflow of funds. If you call a bank is having adequate liquidity, it means that bank is in a position to efficiently discharge its financial obligations both at expected and unexpected short term financial…