RISK MATRICES AND OPERATIONAL RISK MANAGEMENT - A practicable BANKERS PERSPECTIVE Dilip Dasgupta Banks face three major types of adventures: address insecurity, Market Risk and Operational Risk. 1.Credit Risk (CR) Banks be in the business of judge deposits and lending: they operate mainly with depositors funds. Unfortunately, non all the monies bestow, and the enliven due on it, is recovered. The borrower may heedlessness in his obligations to pay semiannual liaison or the brain sum or both as per the terms and conditions regime the lendword due to circumstance of one or more than of commendation issue events e.g. he may suffer discharge in business and run short bankrupt or he may simply wane to pay. The banks actual returns on their average bug outstandings in the loan book, virtually always, turn out to be lower than the contractual grade applicable there on. Banks are also required to periodically indite off loss assets or accept less than deoxycytidine monophosphate% of the money lent or lodge in accrued thereon as articulation of a compromise deal. The interest in truth salt away is thus required to be adjusted to bring in losses incurred in the shape of loan write offs to usher Risk Adjusted Return on Capital (RAROC).
dispatch to mention, if a banks portfolio of loan assets contains a fertile percentage of NPAs, it cannot earn enough interest to meet its be of operations including write offs; it may also not be in a position to meet its obligati on to its depositors. Hence, excess attent! ion is being given to management of Credit Risk. The type of RAROC, i.e. Risk Adjusted Return on Capital laid-backlights this diorama and helps bankers price their loan products appropriately, based on past loan loss data, so that they can earn enough interest to take care of the expected delinquencies. Apart from transaction fortune or the risk of default as described above, commendation risk may also arise due to advanced exposure levels or concentration of a...If you want to get a full essay, order it on our website: OrderCustomPaper.com
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