Risk Management and Credit Rating
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Advanced Bank Management — CAIIB.
One-liners from this chapter
Free sample — 8 of 65 rapid-fire Q&A cards.
Under the Foundation IRB (F-IRB) approach as per Basel III and RBI guidelines, which credit risk parameter do banks estimate internally?
Banks estimate PD (Probability of Default) internally, while LGD, EAD, and Maturity (M) are prescribed by supervisors.
Under the Advanced IRB (A-IRB) approach, which four credit risk parameters does a bank estimate internally?
PD, LGD, EAD, and Effective Maturity (M) — all four are estimated internally by the bank.
What does PD stand for in the context of the Internal Rating-Based approach to credit risk measurement?
PD stands for Probability of Default, which represents the likelihood that a borrower will fail to meet their debt obligations.
What risk weight does RBI assign to an unrated corporate exposure exceeding Rs 100 crore under the Standardised Approach?
150% risk weight is applied to unrated corporate exposures above Rs 100 crore.
In the IRB framework, what does LGD represent and who prescribes it under the Foundation IRB approach?
LGD stands for Loss Given Default, representing the proportion of exposure lost if a default occurs; under F-IRB it is prescribed by the supervisor.
What risk weight applies to an unrated corporate exposure below Rs 100 crore under RBI's Standardised Approach?
100% risk weight applies to unrated corporate exposures below Rs 100 crore.
What is EAD in the context of Basel III credit risk parameters, and how is it treated under the F-IRB approach?
EAD stands for Exposure at Default, the total value exposed to loss at the time of default; under F-IRB it is supervisor-prescribed rather than bank-estimated.
What risk weight is assigned to a AAA-rated corporate exposure under RBI's Basel III Standardised Approach?
20% risk weight is assigned to AAA-rated corporate exposures.
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