CAIIB Risk Management Elective Paper | Syllabus | Study Material

MODULE A: RISK AND RISK MANAGEMENT FRAMEWORK

Chapters

Topics

Why Banks are Special

Functions Banks Perform, Bank’s Role in the Economy, Other Uniqueness of Banks.

Risks and Risk Management in Banks

What is Risk?, Definition of Risk, Risk in Banks, Business Risk vs Control Risk, Financial Risk vs Non-Financial Risk, Interconnectedness Among Banking Risks, Recent Developments Connected with Risk Management, Banking Reforms in India, New Trends in Indian Banking System, Risk Management Going Ahead, Various Types of Risks Faced by a Bank, Non-Financial Risks.

Risk Management Framework

Lessons from Crisis, Benefits of Risk Management, Risk Management Concept, Risk Management Approach, Risk Culture, Risk Management Architecture, Elements of Risk Management Framework, Organisational Structure, Risk Management Policy, Risk Appetite, Risk Limits, Risk Identification Process, Risk Measurement, Risk Mitigation, Risk Monitoring and Risk Control, Management Information System, Enterprise Risk Management, Events-Risk and Opportunity, Enterprise Risk Management Defined, Achievement of Objectives, Components of Enterprise Risk Management, Relationship of Objectives and Components, Effectiveness, Encompasses Internal Control.

Asset Liability Management and Interest Rate Risk in Banking Book

What is ALM?, Objectives of ALM, ALM Process, Interest Rate Risk, Duration GAP Analysis, Measurement System Reports, Stress Testing, Back Testing, Interest Rate Risk Mitigation.

Liquidity Risk Management

What is liquidity?, Liquidity and solvency, Forms of liquidity risk, Liquidity Management, Factors contributing to liquidity risk, Liquidity risk and Balance Sheet, Risk Management Framework for Liquidity Risk, Identification and measurement of liquidity risk.

MODULE B: CREDIT RISK

Chapters

Topics

What is Credit Risk?, Obligor (or) Borrower Level Risk vs Portfolio Risk, Systematic vs Unsystematic Risk, Need for Credit Risk Management Framework, Credit Risk Culture, Building Blocks of Credit Risk Management, Strategy, Financial Goals, Risk Appetite, Portfolio Risk and Reward, Loan Policy, Due Diligence Process, Loan Approval Process, Limits on Aggregate Loans and Commitments., Underwriting Criteria, Exceptions to Credit Policy, Organization Structure.

Obligor/Borrower Risk

Business Risk (or) Operating Risk, Financial Risk, Interaction between Business Risk and Financial Risk, Different Risk Levels, Sources of External Risk, Industry Risk Analysis, Entity Level Risk, Financial Risk

Credit Rating System

What is Credit Rating?, Usefulness of Rating System for Banks, Features of Internal Credit Rating System, Rating Exercise and Rating Assignment, Rating by External Rating Agencies.

Portfolio Credit Risk

Systematic Risk, Unsystematic/ idiosyncratic/Diversifiable Risk, Concentration Risk, and Correlation Risks.

Credit Risk Models

Uses of Credit Models, Types of Models

Measurement of Credit Risk

Probability of Default (PD), Methods for Estimating PD, Exposure at Default, Loss Given Default (LGD), Portfolio Assessment of Credit Risk, Risk Adjusted Return on Capital (RAROC), Application of the Concept of Economic Capital in RAROC Model, Uses of RAROC, Risk Based Pricing, Methods of Risk Based Pricing.

Credit Derivatives

What is a Credit Derivative?, Protection Buyer, Protection Seller, Advantages to the Protection Buyer, Advantages to the Protection Seller, Credit Events, Payout, Credit Default Swap, Total Return Swap (TRS), Credit Options, Credit-Linked Notes

MODULE C: MARKET RISK

Chapters

Topics

Market Risk

What is Market Risk?, Trading Portfolio in a Bank, Interest Rate Risk, Equity Price Risk, Foreign Ex- change Risk, Commodity Price Risk, Liquidity Risk, Credit and Counterparty Risks, Model Risk, Market Risk Management Framework, Organizational Structure to Manage Market Risk, Organizational Structure for Trading Activity, Risk Management Strategy, Policies and Procedures

Fixed Income Securities

What is a Bond?, Government of India in the Bond Market, Bond Market in India, Bond Valuation

Measurement of Interest Rate Risk

Measurement of Interest Rate risk, Sensitivity approach, Price value of a Basis point method, Computation of portfolio PVBP, Hedging using basis point value, Other uses of PVBP, Duration, Definition of duration, Properties of duration, Portfolio duration, Modified Duration and Price elasticity of interest rate, Price volatility characteristics of Bonds, Convexity, Bond portfolio management

Value at Risk

Historical background, Definitions of VaR, Assumptions for calculation of VaR, Building blocks of VaR, VaR methodology, Comparison of different methodologies to compute VaR, Comparative advantages and disadvantages of various methods to compute VaR, Limitations of VaR, Extreme Value Theory, Stress Test, Backtesting of VaR models

MODULE D: OPERATIONAL RISK

Chapters

Topics

Operational Risk and Operational Risk Management Framework

Developments Giving Rise to Increasing Operational Risk, Peculiarity of Operational Risk, Definition of Operational Risk, Operational Risk Culture, Operational Risk Organizational Framework, Policy Guidelines and Strategic Approach, Operational Risk Identification Process, Assessment of Operational Risk

Collection of Internal Loss Data and External Loss Data

Collection of Loss Data, Minimum Loss Data Standard, Specific Criteria on Loss Data Identification, Collection and Treatment, Near-Misses and Opportunity Costs, External Loss Data, Root-Cause Analysis

Risk and Control Self-Assessment (RCSA) & Key Risk Indicator (KRI)

RCSA Process, Defining Inherent Risk, Study of Effectiveness of Control, Computation of Risk Zone, Color-Coded Risk Levels, Key Risk Indicators, Various Forms of KRI, Selecting KRIs, Risk Appetite, Scenario Analysis, Uses of KRIs

Technology Risk

Basic Principles of Information Security, Information Security Governance, Organizational Structure, Roles and Responsibilities, Critical Components of Information Security, Security Measures Against Malware, Patch Management, Change Management, Audit Trails, Information Security Reporting and Metrics, Information Security and Critical Service Providers/Vendors, Network Security, Remote Access, Distributed Denial of Service Attacks (DDoS/DoS), Implementation of ISO 27001 Information Security Management System, Wireless Security, Business Continuity Considerations, Information Security Assurance, General Information Regarding Delivery Channels, Emerging Technologies and Information Security, Implementation of Recommendations of the Working Group on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds

Corporate Governance

Climate Risk and Sustainable Finance

Climate Situation in India, Basel Committee and Climate Risk, Climate Risk, Unique Characteristics of Climate Change and Implication, Financial Risks Emerging from Climate Related Risk, Climate Risk Management Framework, Green Finance for Sustainable Development

MODULE E: BASEL AND RBI GUIDELINES ON RISK MANAGEMENT

Chapters

Topics

Why Do Banks Need Regulation?

Need for Regulation of Banks, Banking Regulation and Supervision, Banking Regulation and Supervision in India, Global Banking Regulation, Basel Committee on Banking Supervision, The Concordat, Basel-I Accord, Basel Committee Amendment 1996, Basel II Accord

Regulatory Capital and Capital Adequacy

Bank Capital: An Accounting Residual, Why Bank Needs Capital, Should Regulator Prescribe Minimum Capital for Banks?, Basel III Capital Regulation, Standardized Approach – Capital Charge for Credit Risk, Off-Balance Sheet Items, Total Counterparty Risk, External Credit Assessments, Applicability of ‘Issue Rating’ to Issuer/Other Claims, Credit Risk Mitigation, Internal Rating Based Approach

Capital Allocation Against Market Risk

Scope and Coverage of Capital Charge for Market Risks, Measurement of Capital Charge for Interest Rate Risk

Capital Charge for Operational Risk

Definition of Operational Risk, The Measurement Methodologies, The Basic Indicator Approach, The Standardized Approach, Advanced Measurement Approach, Shortcomings of Present Approaches for Calculating Capital Requirement for Operational Risk, New Standardized Approach, Business Indicators, Risk-Weighted Assets, Technical Guidance Note on Minimum Capital Requirements for Operational Risk

Supervisory Review Process and Internal Capital Adequacy Assessment Process (ICAAP)

Objective of Pillar 2 Supervisory Process, ICAAP Principles, Definitions, Coverage by ICAAP, The Structural Aspects of the ICAAP, Risk Appetite, Actual and Target Risk Structure, Identifying, Measuring, Monitoring and Reporting of Risk, Internal Control, Submission of the Outcome of the ICAAP to the Board and the RBI, ICAAP to be an integral part of the Management and Decision-Making Culture, The Principle of Proportionality, Regular Independent Review and Validation, ICAAP to be a Forward-Looking Process, ICAAP to Include Stress Tests and Scenario Analyses, Identifying and Measuring Material Risks in ICAAP, Capital Planning, Capital Allocation

Stress Testing

Market Discipline

General, Definition, Achieving Appropriate Disclosure, Interaction with Accounting Disclosures, Validation, Materiality, Proprietary and Confidential Information, General Disclosure Principle, Regulatory Disclosure Section

Basel III Buffers, Liquidity Ratios, Leverage Ratio

Objectives of Capital Buffers, Capital Conservation Buffer Framework, Counter – Cyclical Capital Buffer, Domestic Systemically Important Banks, Leverage Ratio, Liquidity Standards, Net Stable Funding Ratio

Risk-Based Supervision

Background, Reserve Bank of India Initiatives, Bank Supervision Process in India, Supervisory Approach, Features of an Effective bank Supervisory Framework, Benefits of Risk Based Supervision, Supervisory Methods/Tools

Risk-Based Internal Audit

MODULE F: DERIVATIVES AND RISK MANAGEMENT

Chapters

Topics

Derivatives and Risk Management

Forward Contract

Definition and Characteristics, Advantages of Entering a Forward Contract, Problems Associated with a Forward Contract, Pay-off on a Forward Contract, Pricing the Underlying, Benefits and Costs of Holding Assets, The Concept of Price and Value of a Forward Contract, Forward Rate Agreement

Futures

Options

Definition, Option Terminology, Call Option, Put Option, Pricing of Option, Interest Rate Options

SWAP

Definition, Characteristics of SWAP, SWAP Terminology, Types of SWAP, Interest Rate Swap, Calculating Interest Rate Swap Cash Flows, Uses of Interest Rate Swap, Swaptions