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Credit Risk Notes

The document outlines key concepts related to credit risk, including default risk, credit spread risk, and the expected loss formula. It details the credit risk management process, Basel norms, and definitions of non-performing assets (NPA) along with provisioning rules. Additionally, it provides numerical solutions related to provisions for standard, substandard, and doubtful accounts, along with total NPA provisions and ratios.

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3 views2 pages

Credit Risk Notes

The document outlines key concepts related to credit risk, including default risk, credit spread risk, and the expected loss formula. It details the credit risk management process, Basel norms, and definitions of non-performing assets (NPA) along with provisioning rules. Additionally, it provides numerical solutions related to provisions for standard, substandard, and doubtful accounts, along with total NPA provisions and ratios.

Uploaded by

hasanmohammadmehedi76
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Credit Risk & NPA – Exam Notes + Numerical

Solutions

1. Credit Risk

Credit Risk is the risk that a borrower fails to repay principal and interest.

1 Default Risk – Borrower fails to pay


2 Credit Spread Risk – Credit quality deteriorates

2. Portfolio Risk

1 Systematic Risk – Economy-wide risk


2 Concentration Risk – Lack of diversification

3. Expected Loss Formula

Expected Loss = PD × LGD × EAD

1 PD – Probability of Default
2 LGD – Loss Given Default
3 EAD – Exposure at Default

4. Credit Risk Management Process

1 Identification

2 Measurement

3 Monitoring

4 Control

5. Basel Norms

1 Standardized Approach

2 IRB Approach (Foundation & Advanced)

3 Capital Adequacy Ratio (CAR)

4 Liquidity Coverage Ratio (LCR)

5 Leverage Ratio
6. Non-Performing Assets (NPA)

Loan becomes NPA if overdue for more than 90 days.

1 Substandard Asset
2 Doubtful Asset
3 Loss Asset

7. Provisioning Rules

1 Substandard – 15% (secured), 25% (unsecured)


2 Doubtful – 25% to 100%
3 Loss Asset – 100%

8. Numerical Solutions Summary

1 Provision on Standard Accounts = 137 Cr

2 Provision on Substandard = 140 Cr

3 Provision on Doubtful = 400 Cr

4 Total NPA Provision = 620 Cr

5 Total Provision = 757 Cr

6 PCR = 31%

7 Gross NPA % = 5%

8 Net NPA = 1380 Cr

9 Net NPA % = 3.5%

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