OBLIGOR BORROWER RISK
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Risk Management (Elective) — CAIIB.
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What is obligor risk in the context of credit risk management?
Obligor risk refers to the risk that a borrower (obligor) will fail to meet their contractual obligations, including repayment of principal and interest, due to financial deterioration or default.
What is the meaning of 'obligor' in credit risk terminology?
An entity legally obligated to repay a debt or loan.
How does RBI define a 'borrower' for the purpose of large exposure framework?
RBI defines a borrower as any entity, individual, or group of connected counterparties to whom a bank has a credit exposure, including both on-balance-sheet and off-balance-sheet items.
What is 'Loss Given Default' (LGD) in obligor risk measurement?
Percentage of exposure lost if the obligor defaults.
What is a borrower risk rating (BRR) and why is it important?
Borrower risk rating is an internal assessment of the creditworthiness of a borrower based on financial and non-financial parameters; it is critical for pricing loans, setting exposure limits, and computing regulatory capital.
What is 'Exposure at Default' (EAD) in the context of borrower risk?
Total outstanding exposure at the time borrower defaults.
What does Probability of Default (PD) measure in obligor risk assessment?
Probability of Default measures the likelihood that a borrower will default on their obligations within a given time horizon, typically one year, and is a key input in IRB approaches under Basel II/III.
What is a 'Rating Migration Matrix' used for in obligor risk analysis?
Tracks probability of rating upgrades or downgrades over time.
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