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Credit Risk Capital Estimation Under IRB Approach for Banks in India

Richa Verma Bajaj ()
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Richa Verma Bajaj: National Institute of Bank Management

Journal of Quantitative Economics, 2018, vol. 16, issue 2, 475-500

Abstract: Abstract In this paper, an attempt is made to estimate credit risk capital charge for public sector and private sector banks in India for the period from 2007–2008 to 2013–2014 under advanced internal rating based (AIRB) approach using Basel risk weight formula. The analysis brings out that credit risk capital charges would be higher for the banks with high default risk and recovery risk and vice-versa. The inter-sector comparison indicates that a substantial proportion of the overall additional capital requirement for credit risk would falls on the public sector banks. Hence, banks in this sector requires improvement in appraisal system and loan recovery mechanism to reduce burden of additional credit risk capital charges and for better-quality performance on risk adjusted basis.

Keywords: Basel II; Credit loss estimation; Systematic risk; Credit portfolio risk; Risk based capital (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 O16 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:jqecon:v:16:y:2018:i:2:d:10.1007_s40953-017-0082-7