Regulatory Capital Adequacy (CRAR) requirements for banks
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…
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Asset Liability Management as Coordinated Balance Sheet Management
Asset Liability Management (ALM) is a comprehensive and coordinated approach to managing a financial institution’s balance sheet, with the dual aim of optimizing profitability and minimizing financial risks. Rather than focusing on individual asset or liability components in isolation, ALM emphasizes the integrated management of the entire balance sheet, taking into account factors such as…
Read article Purpose and Objectives of Asset Liability Management in Financial Institutions
Asset Liability Management (ALM) serves as a strategic framework within financial institutions for managing risks that arise from mismatches between assets and liabilities. The primary purpose of ALM is to ensure the institution’s long-term financial health and operational viability by aligning the maturities, cash flows, and risk profiles of assets and liabilities. This alignment enables…
Read article The Strategic Significance of Asset Liability Management in Financial Institutions
Asset Liability Management (ALM) is a fundamental risk management practice for financial institutions, aimed at addressing mismatches between assets and liabilities. It involves aligning the timing, structure, and risk characteristics of cash inflows and outflows to ensure liquidity, mitigate interest rate risk, and maintain financial stability. A robust ALM framework is essential not only for…
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Derivative Transfer Pricing Policy Environment in Indian Banks: Regulatory Framework and Market Practices
Introduction In India, the derivative transfer pricing policy environment for banks is shaped by a combination of regulatory mandates, market practices, and institutional risk management frameworks. Banks engage in derivative transactions for purposes such as hedging, proprietary trading, and balance sheet management. These transactions must be governed by prudent transfer pricing policies to ensure regulatory…
Credit Risk and Credit Derivatives: Concepts, Controls, and Developments in India
Understanding Credit Risk Credit risk refers to the potential for financial loss resulting from a counterparty’s failure to fulfill its contractual obligations. In the context of derivatives, this risk is particularly significant due to the potential cost of replacing a defaulted transaction, especially when market conditions have changed unfavorably between the time of default and…
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