PG – 941

*PG941*

IV Semester M.B.A. Degree Examination, July 2016 (CBCS) MANAGEMENT 4.6.3 : Risk Management for Banks and Insurance Companies Time : 3 Hours

Max. Marks : 70

Instruction : Answer all Sections. SECTION – A Answer any five questions from the following :

(5×5=25)

1. What is the importance of managing risk in banking ? What are the various types of risks to which banks are exposed ? 2. What is credit appraisal process and suggest your opinion about betterment of qualitative selection ? 3. Explain how Basel II norms are easing the risks involved in Indian banking System. 4. Discuss briefly the methods of reducing interest rate risk. 5. Elaborate various approaches to VaR computation. 6. Write a brief note on personal risk management. 7. Explain various risk control techniques. SECTION – B Answer any three questions from the following :

(3×10=30)

8. Write about the following : i) Credit derivatives ii) Interest rate derivatives. 9. What do you mean by risk based capital standards ? Explain. 10. Define liquidity risk. Discuss about the sources of liquidity risk. 11. A five year CDS requires semi annual payment at the rate of 60 bps per annum. The national principal in Rs. 30 crore. A credit event occurs after 4 year and 5 months. If the RR is 40 percent and the CDS is settled in cash, list the cash flows and their timing for a) the protection buyer and b) the protection seller P.T.O.

*PG941*

PG – 941 SECTION – C Case Study - Compulsory Section

(1×15=15)

12. To strengthen India’s banking system in an increasingly competitive environment and guard against financial fragility, financial sector reforms were initiated as part of the economic reforms launched in the country since 1991-92. Significant progress has been made in the past few years to bring the Indian Banking system closer to international standards. India has adopted international prudential norms and practices with regard to capital adequacy, income recognition, provisioning requirement and supervision and these norms have been progressively tightened over the years. Risk management in banks has been strengthened and measures put in place to mitigate credit and market risks and efforts are on to measure and control operational risk. Banks have been given greater freedom in investing as also raising funds abroad and managing their external liability, subject to prudential guidelines. In the area of supervision, the Basel core principles for effective banking supervision are being followed. Along with off-site surveillance there is periodic on-site monitoring of the risk profile of banks and their compliance with prudential guidelines. The Reserve Bank of India’s regulatory and supervisory responsibility has been widened to include banking institutions and non-banking financial companies. The end result is that the Indian banking sector has been considerably strengthened, there is greater transparency and closer convergence of Indian financial system with practices prevailing in international financial markets. As banks move closer to international standards, they cannot avoid the realities of increasing risks of the global market. Considering increasing risk in banking system, how Indian banks are ready to face future challenges. Support your answer with steps taken by RBI to mitigate the emerging risks. ______________________