Course Outline

Course Code: FIN505

Course Title: Risk Management in Commercial Banks

Course Overview, Programme Level Learning Goals

Course Overview: Understanding many roles that banks play in the financial system is one of the
fundamental issues in economics and finance. Banks play critical roles in every economy. They
operate the payment system, they are the major source of credit and they act as a safe haven for
deposits. The business environment is dynamic and the banking sector even more dynamic. As new
technologies develop and new challenges arise, this sector adjusts itself to meet these new
challenges. Since banking sector is the backbone of any economy, a thorough understanding of it
becomes very imperative. For the past three decades, India's banking system has several outstanding
achievements to its credit. The most striking is its extensive reach. It is no longer confined to only
metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the
remote corners of the country. This is one of the main reasons of India's growth process. However,
total financial inclusion is still a concern. The latest guidelines from Reserve Bank of India,
regarding the Basel III norms indicates the promptness of Indian regulator in ensuring the
robustness of the Indian banking sector.
The evolution of banking sector in India can be categorized as:

Early phase: Pre 1969 era

Consolidation phase: 1969 to 1991 era

New phase: Post 1991 era

India has proved itself as one of the fastest growing economies in the world. The Indian banking
sector has been the buffer to the vibrating Indian economy every time a crisis was faced. This is the
reason why banking jobs in India are growing in popularity. The banking sector in India is growing
and serving better to the employees as well as the customers. The strengthening of this sector with
greater budget allocation has opened many opportunities for those who want to be a part of this
sector as a career choice, especially considering the scenario that new banking licenses have been
issued by RBI.

Learning Outcomes
1

After undergoing this course, the students will be able to:

1. Appraise the basic characteristics of banking business.
2. Analyze the performance of commercial banks for effective decision-making.
3. Understand and manage different risks associated with a bank.
List of Topics/ Modules
Topic/ Module
Module I: Bank Financial Management
Module II: Performance Evaluation for Risk
Management in Banks
Module III: Risk Management in Banks

Contents/ Concepts
Basics of banking sector, business environment
and bank capital.
Analysis of performance of a bank to understand
different types of risk and uncertainties involved
in banking business.
Understanding and managing various types of
risk affecting banking business.

Evaluation Criteria
Components
Term Paper

Description
A term paper would be an integral and imperative part of classroom

Weightage %
(15)

discussions and learning. Each student group taking the course is

required to select a commercial bank and thoroughly study it with a focus
on issues discussed in classroom and latest developments in the market.
They are required to submit two assignments as a part of the term paper.
The term paper would be for 100 marks in total with 50 marks for part 1
and 50 marks for part 2, respectively. Assignments would be submitted
periodically as check points to ensure constant and regular devotion of
student on the given task. First part of the assignment should be submitted
by 12th session and second part by 22th session in hard as well as soft
copy. In the first part of the term paper, the students are required to
submit a brief profile of the respective bank and a report on its various
products and services along with a note on the branch visit. They are
required to visit a local branch of the respective bank and interact with the
branch manager/other senior official regarding various activities of that
branch and prepare a note on the same. In the second part of the term
paper, they need to submit a report on the performance evaluation and risk
management aspects of the respective bank.
Case

Few sessions of case analysis have been planned in the course. The cases

15
2

Analysis,Class

would be provided to the students before hand. List of important

Participation

questions for each case is given for reference. The students are given

and

reflective some pre read for a class along with the case. They are expected to come

notes

prepared after reading the case and the pre read. The performance and
contribution of students in classroom discussion would be evaluated and
would be a part of the grading scheme.
Further the students are required to maintain a notebook to write
reflective notes for each session, which would be verified periodically
and used for grading.
There would be two quizzes in the whole course and would be conducted

Quiz

10

unannounced. Both the two quizzes would be considered to award grades

Mid-term

for the quiz component.

A Mid-term examination would be conducted after the first half of the

20

Examination
End-term

course and would be an Open book Examination.

An End-term examination would be conducted at the end of the course

40

Examination

and would include applied questions, case studies and/or some conceptual
questions

Recommended/ Reference Text Books and Resources

Text

Benton Gup and James Kolari, Commercial Banking-The Management of Risk (3rd ed., 2006), New
Delhi: Wiley India publications

References

Bank Financial Management, Indian Institute of Banking & Finance (2010 ed.), New Delhi:
Macmillan Publications, India (BFM)

Internet Resources
1. www.rbi.org.in
This website gives information about the latest developments in the banking sector in India and is the official
website of the banking regulator and the most authentic and comprehensive source of information on banking in
India.
2. www.iba.org.in
This link gives information about the industry trends and expectations of the banking industry. It is the
website of the association of banks in India.

Session Plan
Session

Topic

Readings/ Cases

Learning Outcome

Module I: Bank Financial Management

1
Concept of a bank, Functions of a bank,
Financial Intermediation, Evolution of
Banking, Customer Vs Bank, Introduction to
Risks in Banks, Understanding factors
affecting banking business
2
Capital Management: Capital Structure of
Banks, Perspective of stakeholders, voting
rights
3
Capital Adequacy Ratio-Calculation and
Implication, Risk Weighted Assets Norms
4
5

Understanding Bank Products and Bank

financial statements
Policy rates and their implications on Banks

Text Book: Ch.1 Pp.2-14

BFM: Module 1 Unit1 Pp. 3-9
Handout: Ten
Commandments for a
Successful Banking Career
Text Book: Ch. 12 Pp. 342357

Understand the basics of

banking

Excel based exercises

Calculate and analyze the

capital adequacy ratio of a
bank
Understanding the products
of a bank
Industry perspective on
banking sector

Text Book: Ch.1 Pp. 21-25

BFM: Ch.15 Pp. 325-332
Guest Lecture

Module II: Performance Evaluation for Risk Management in Banks

6
Analyzing performance of a bank using
Text Book: Ch.3, Pp.53-70
banking ratios such as Credit-Deposit ratios,
Net Interest Margin, Provisioning ratios,
Expense ratios
7
Asset Quality: NPA Types and qualifying
Case: My Bank has better
norms, Provisioning norms, management of NPA than your Bank
NPAs
8
Understanding the recovery mechanism for
Handout: Securitization
Assets in Banks, Fundamentals of
SARFAESI Act, Securitization
9

Analyzing performance of a bank using

CAMEL approach

10

Analyzing performance of a bank using

CAMEL approach

Module III: Risk Management in Banks

11
Off Balance sheet activities: Concepts,
importance, types-derivatives, loan sales,
letter of credit

Case: Performance
Assessment of Banks using
CAMELS framework
Excel based Exercise

Understand capital
management in a bank

Understanding the
performance parameters of a
bank.
Understand and manage
asset quality in a bank
Understand the recovery
mechanism and
fundamentals of SARFAESI,
Act
Analyze the performance of
a bank using CAMEL
Analyze the performance of
a bank using CAMEL

Text Book: Ch.14 Pp.402-410

Understand the off balance

sheet activities in a bank

12

Off Balance sheet activities: Currency and

Interest Rate Swaps

Text Book: Ch.14 Pp.413-416

Using swaps for risk

management

13

Off Balance sheet activities: Floor ceiling

agreements, forward rate agreements,
synthetic loans

Text Book: Ch.14 Pp.417-416

Understanding common off

B/S items for risk
management

14

Credit Risk Management I- Fundamentals,

type of lending activities,5C/6C approach,
Sample Loan Covenants

Text Book: Ch.9 Pp. 251-264

Understand credit risk

management in a bank

15

Credit Risk Management II- Credit Rating &

Scoring, CIBIL scores

Learn to use the credit

scoring and credit rating
techniques

16

Credit Risk Management III- Credit Analysis

Case : Assessment of Retail

Credit in Private Bank with the
help of Discriminant
Analysis
Guest Lecture

An industry perspective to
the credit analysis processes
of a bank

17

Liquidity Planning and Management in

Banks, Sources and use of funds method

Text Book: Ch. 11 Pp. 312161

Understand the fundamentals

of liquidity risk in a bank

18

Liquidity Risk: Exercises on Sources and use

of funds method, liquidity ratios

Excel based exercises

Applying the techniques of

managing liquidity risk

19

Interest Rate Risk Management: GAP

Analysis, Duration Gap analysis

Text Book: Ch. 5 Pp. 121-136

Understand the fundamentals

of interest rate risk in a bank

Case : Gap Analysis for City

Bank
20

Use of derivatives in managing interest rate

risk : Forwards, futures and hedging

Text Book: Ch. 6 Pp. 146-161

Using hedging for managing

interest rate risk

21

Use of derivatives in managing interest rate

risk : Swaps

Text Book: Ch. 6 Pp. 162-168

Using Swaps for managing

interest rate risk

22

Operational Risk Management- Internal

Control Architecture and System,
Technology Risk , Corporate Governance
Overview of Basel Accords , Implication of
Basel norms on Banks in future

BFM: Ch.13 Pp.287-295

Understand the fundamentals

of operational risk in a bank

Case-Basel III: Restoring

Resilience in Banking
Reforms

Understand the basics of

banking environment

23

24

Review and Integration

Review and integrate all the

previous sessions

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