spot_img

IMPORTANT CASE STUDIES ON EXPOSURE ON A BORROWER – PART-2ND | PRACTISE CAIIB CASE STUDIES FOR CAIIB BFM PAPERS

Important Case Studies on exposure on a borrower | BFM Exams 2022 | Preparation material for exposure calculation for CAIIB 2022

This article is the 2nd installment of CAIIB case studies for CAIIB BFM PAPERS written for the CAIIB candidates. who want to sharpen their skills & want to clear the November CAIIB BFM Exams 2022. We hereby are providing the Case studies on the calculation of exposure on a borrower – one of the most important BFM topics & scoring too from the applicable syllabus of BFM Exams 2022. You can also read the CAIIB exam & registration dates of BFM November Attempt 2022 by visit our page.

 

CAIIB ABM - Advanced Bank Management Syllabus Priority
Check Here
————————————————————-
Bank Financial Management - BFM Syllabus Priority
Check Here
————————————————————-
110+ CAIIB Case Study Videos
Check here
————————————————————-
ABM BFM Retail Previous Year Questions
Get Tests Here
————————————————————-
Full Course Videos in Hindi English
Check Here

Well before you go ahead for with the case studies, we would like to take your attention on our CAIIB Study Material 2022 prepared for candidates to help them pass CAIIB 2022. The material follows the latest prescribed syllabus of IIBF CAIIB papers. Here are the highlights of our CAIIB BFM Study Material 2022 full course:

 

  • Conceptual Coverage of topics of BFM paper
  • Case studies as per the syllabus of CAIIB BFM with detailed explanations
  • BFM Mock tests or questions for exams in 2022
  • BFM Notes in soft copies (epdfs – accessible on mobile apps)
  • Accessibility of BFM Video classes via mobile as well as desktops
  • Quick coverage of latest prescribed BFM syllabus 2022
  • Material as per the IIBF’s latest exam pattern & applicable BFM syllabus 2022

 

You can take advantage of our BFM exclusive study material 2022 to pass this November 2022 exams either: 

by visiting our website: www.iibf.info; or 

by downloading our android app or iOS app, whatever your mobile platform maybe: IIBF Learning Center / My institute app. 

 

For any query regarding CAIIB material of any paper, you can even message us with your name & Course at this Number: 8360944207. We would try to resolve any query you have regarding our courses.

 

BFM CASE STUDIES FOR CAIIB EXAM 2022

 

BFM CASE STUDY 3 ON EXPOSURE ON A BORROWER:

 

Naag Bank has – credit exposure = Rs. 80 crore. It is secured by financial collateral security – A+ rated bonds = Rs. 40 crore (issued by a Public Sector Undertaking of Indian Govt. The period of this credit exposure = 4 years and the residual maturity of the financial collateral = 3 years. The financial collateral is an eligible credit risk mitigant. And there is no currency mismatch. 

(As per guidelines of RBI, the haircut applicable to this collateral = 6% while the haircut applicable on account of currency mismatch = 0% provided there is no currency mismatch and the haircut applicable on account of currency mismatch 0.08%, if there is currency mismatch.

 

You are to calculate the following values based on the above information:

 

Q-01: What will be the haircut adjusted collateral value?

  1. Rs. 40.00 crore 
  2. Rs. 37.60 crore 
  3. Rs. 27.57 crore 
  4. Rs. 12.43 crore

 

Q-02: Calculate the value of haircut adjusted collateral when adjusted for maturity mismatch.

  1. Rs. 40.00 crore 
  2. Rs. 37.60 crore 
  3. Rs. 27.57 crore 
  4. Rs. 12.43 crore

 

Q-03: What will be the value of exposure at Risk?

  1. Rs. 40.00 crore 
  2. Rs. 37.60 crore 
  3. Rs. 27.57 crore 
  4. Rs. 12.43 crore

 

Answers of BFM Case study 3:

 

01-I 

02-III 

03-IV

 

Explanation of Answers of BFM Case study 3:

 

  1. In the given case, the residual maturity of collateral < the residual maturity of the loan, therefore, there is maturity mismatch. But as stated, there is no currency mismatch in the case. To find calculate the net exposure qualifying for capital adequacy purpose, at the 1st stage, we will calculate the hair cut of the collateral and then we will calculate the value of hair-cut adjusted collateral after taking into account any adjustment on account of maturity mismatch.

 

The calculations are below:

 

Step – 1: 

Haircut adjusted collateral value / C = C x (1 – H, C = 40 x (1 – 6% – 0%) = 40 x 94% = Rs. 37.60 Crore.

 

Whereas,

C = original value of collateral. 

I-lc = haircut appropriate to the collateral-security (according to the RBI guidelines = 6%) and 

Hu = the haircut for currency mismatch = 0% if exposure and collateral are in the same currency and 

Hu = 0.08% if the exposure and collateral are in the different currency).

 

Step – 2:

 

Value of haircut adjusted collateral after adjustment of maturity mismatch:

 

P = C x (t – 0.25) / (T – 0.25) = 37.60 x (3-0.25) / (4-0.25) = 37.60 x 2.75 / 3.75 = Rs. 27.57 crore

 

Whereas,

P = value of credit risk mitigant adjusted for maturity mismatch;

t = minimum of T & residual maturity of credit protection expressed in years;

T = minimum – 5 years and residual maturity of the exposure expressed in years. 

 

The value of exposure at risk i.e E = Max {0, (current value of the exposure – value of the adjusted collateral for any hair cut and maturity mismatch)} = Max {0, (40 – 27.57)} = Rs. 12.43 crore

 

  1. Same as above

 

  1. Same as above

 

BFM CASE STUDY ON EXPOSURE ON A BORROWER 4:

 

‘Outlandish Bank’ has an exposure = Rs. 100 crore with residual maturity 3 years. It is collaterally secured by RBI relief Bonds = Rs. 20 crore with a residual maturity mismatch. 

The applicable haircut according to RBI guidelines for relief bonds = 7% and for Pa rated bonds = 4%. 

 

Q-01: What will be the adjusted collateral value of this security if it’s for the purpose of risk mitigation?

  1. Rs. 100.00 crore 
  2. Rs. 50.00 crore
  3. Rs. 49.20 crore 
  4. Rs. 50.80 crore

 

Q-02: ‘Outlandish Bank’ has an exposure = Rs. 100 crore with residual maturity 3 years. It is collaterally secured by RBI relief Bonds = Rs. 20 crore with a residual maturity of 3 years;

AA rated bonds = Rs. 30 cr. 

There is no maturity mismatch. 

The applicable haircut according to RBI guidelines for relief bonds = 2%; The applicable haircut for AA rated bonds = 4%. 

 

You are to calculate the value of exposure at risk for the purpose of risk mitigation.

  1. Rs. 100.00 crore 
  2. Rs. 50.00 crore
  3. Rs. 49.20 crore 
  4. Rs. 50.80 crore

 

Answers of BFM Case study 4:

1-III 

2-IV

 

Explanations of Answers of BFM Case study 4:

 

  1. The weightage of: 

the collateral for relief bonds = 20% and 

the collateral for AA rated bonds = 30%

The HC = (20% x 2%) + (30% x 4%) = (0.4 + 1.2) = 1.6% 

The value of hair cut adjusted collateral C = C x (1 – 1 – 1, – C = 50 x (1- 1.6% – 0%) = 50 x 98.40% = Rs. 49.20 Crore.

 

  1. The weightage of: 

the collateral for relief bonds = 20% and 

the collateral for AA rated bonds = 30%

The HC = (20% x 2%) + (30% x 4%) = (0.4 + 1.2) = 1.6% 

The value of hair cut adjusted collateral C = C x (1 – 1 – 1, – C = 50 x (1- 1.6% – 0%) = 50 x 98.40% = Rs. 49.20 Crore

 

The value of exposure at risk i.e. E = 

= {0, (current value of the exposure — value of the adjusted collateral for any hair-cut & maturity mismatch)} 

= Max {0, (100 – 49.20)} = Rs. 50.80 crore

 

You can also find the BFM case studies Part-1 on the same topic (covers BFM Case Study 1 & 2) as well as other case studies by visiting our official site. We will soon be publishing the next set of case studies from the BFM syllabus soon. 

 

If you liked this series of case studies, do mention it in the comment box because your appreciation is what keeps us motivated & we are sure the case studies are highly helpful to get you put your knowledge of the course to actual test!

So, here we take our leave & we wish you all the best for your upcoming CAIIB Exams 2022!

Team Learning Sessions

Also Like:

LEAVE A REPLY

Please enter your comment!
Please enter your name here

🤩 🥳 LS NEW OFFER 🥳 🤩spot_img
🤩 🥳 JAIIB CAIIB CLASSES 🥳 🤩spot_img
🤩 🥳 JAIIB NEW BATCH START 🥳 🤩spot_img

POPULAR POST

RELATED ARTICLES

DEMAT ACCOUNT | CAIIB NOV STUDY MATERIAL 2022

DEMAT-ACCOUNT | CAIIB NOV STUDY MATERIAL 2022 | 2022 SHORT NOTES | SHORT NOTES FOR CAIIB NOV 2022 The main focus of this article is...

BANCASSURANCE

BANCASSURANCE | JAIIB NOV STUDY MATERIAL | JAIIB NOV EXAM 2022 This article focuses on an important topic of the LRAB NOV 2022 EXAM  i.e,...

JAIIB AFB STUDY MATERIAL 2022 – Accounting & Finance for Bankers 2022

JAIIB AFB STUDY MATERIAL 2022 - Accounting & Finance for Bankers In this article, we will read about the upcoming JAIIB AFB Exam dates for...

IIBF | JAIIB | PPB NOTES CHAPTER – 4: CAPITAL MARKET

IIBF JAIIB FREE Principles and Practices of Banking Notes Chapter – 4: CAPITAL MARKET   In this PPB short notes for NOV 2022 Exams, we are going to...