COURSE OUTLINE

Management Development Institute Gurgaon

Risk Management in Banks and FIs

BATCH : 2019-2021
TERM :V
COURSE CREDIT :3
NUMBER OF SESSIONS : 20
COURSE INSTRUCTOR : P. C. Biswal

Course Objectives
Continuous reforms in financial markets, rapid information flows, rising volatility, increasing
compliance requirements et cetera require understanding and modelling of financial risks
among the finance professionals. The course is aimed to address the above issue by
developing understanding and measurement of financial risks, among the students, in banks
and other financial institutions.

Pre-Requisites
No pre-requisites for the course. However, to successfully understand and appreciate the
course you should have general understanding of financial markets including derivatives
markets. A basic understanding of MS Excel functionality is also required for the course.

Note: If you do not have a finance background and still wish to enrol for the course, please
contact me two weeks before the course delivery for a reading list to help you.

Pedagogy
The course is planned to be delivered through class room lectures, case studies discussions,
hands-on practices, and guest speakers from banks. Students are advised to carry personal
laptop computers to all the classes in this course.

Textbook
1. John C. Hull, “Risk Management and Financial Institutions, Wiley, 5th Edition, 2019.
2. Joel Bessis, “Risk Management in Banking”, Wiley, 3rd Edition, 2014.
3. Jorion Philippe, “Value at Risk: The New Benchmark for Managing Financial Risk”, 3 rd
Edition, McGraw Hill, 2009.

Evaluation
Component Weight
Class tests/Quiz 20%
Assignments/Case Presentations 20%
Mid-Term Exam 30%
End-Term Exam 30%
No “extra” work above the aforementioned will be accepted or credited.
Makeup Examinations: There will be no make-ups for examinations or homework
assignments.

Assignment

There will be a group assignment. The class would be paired into groups of either Four or
Five which will depend upon the work effort involved in the group assignment. Each group
will have one assignment during the course period which will take the form of a 25 minute
presentation based on an assigned issue/problem. Each group should also circulate a typed
text to the class one day prior to their presentation. The assignment will be graded on the
intellectual coherence and overall quality of the typed text plus the quality of the
presentation which will also include aspects such as presentational innovation and time
management. Group presentations will take place only after getting go ahead signal from
the course facilitator.

Other Notes

 Please arrive on time and do not enter the classroom after we already have taken the
attendance.
 The homework assignments are due at the beginning of the class period. Please note
that no late assignments (no matter how late) will be accepted once the class starts.
 You are encouraged to drop by my office during office hours for questions, concerns, or,
suggestions. Outside the office hours, please make an appointment with me in advance,
before or after the class, via phone or e-mail. For quick questions that you may have,
note that e-mailing is a very efficient means of communicating with me.

Other Information

Recommended to carry calculator (or lap top), and course material to all the sessions. Keep
a personal record of scores on all quizzes, and assignments. The facilitator will distribute a
copy of your grades that have been recorded at a session following each exam. If any error
has been made, it is the student's responsibility to present written proof of the correct
grade within one two days of receiving the grade sheet. The course outline and
accompanying assignment schedule are subject to change. In the event of a change, an
announcement will be made in the classroom or a handout detailing the revised
policy/assignment will be distributed. On any evaluation component if more than 80
percent of the students fail; there will be one more chance given to all the students for
making up their grades

The students opting for this course should have sound knowledge in basic statistics and
mathematics. More so they should be interested in dealing with numbers and equations. No
copying in assignments. No request for postponement of deadlines. No alternative
evaluations. This course is only for the students, who have enrolled for the course. No
students will be allowed under auditing and what so ever form, if not registered.
Course Content

Module I: Risks and Risk Measurement

Topic Introducing Risks in Banks and Financial Institutions
Session 1 Deliverables Business Lines of banks and financial institutions
Credit, market, and operational risks
Review of risk measures in finance and challenges

Topic Risk regulation and compliance requirement

Session 2 Basel Norms and risk regulation
Deliverables Dodd-Frank Act and CCAR
India Specific regulations
Evolution of risk based capital allocation
Module II: Market Risk Modelling
Topic Market Risk: Estimating Market Risk VaR
Historical Simulation Approach
Deliverables Weighted historical simulation approach: exponential and
Sessions 3-6
volatility
Model building / parametric approach
Monte Carlo simulations

Topic VaR: Back Testing and Stress Testing

Key inputs for back testing
Sessions 7-8
Deliverables Actual and hypothetical process
The standard portfolio analysis of risk (SPAN)
Impact of back testing and stress testing on underlying
models

Module III: Credit Risk Modelling

Topic Credit Risk: Estimating Default Probabilities
Standalone credit risk vs. portfolio risk
Sessions 9-11
Deliverables Credit Scoring System: Altman Z-score
Mortality Rate System
Loans as options: The Moody’s KMV Model
Probability of Default (PD) and Loss Given Default (LGD)

Topic Credit Risk: Estimating Credit VaR

Sessions 12-14
Loan portfolio, unexpected loss and Value at Risk (VaR)
Deliverables J. P. Morgan CreditMetrics
Credit ratings and rating migration
CreditMetrics and portfolio VaR
Back testing and stress testing
Module IV: Operational Risk Modelling
Topic Estimating Operational Risks

Sessions 15-18 Deliverables Operational risk in banks and financial institutions

Operational risk and Basel regulation
Operational risk modelling approaches: Basic indicator,
standardized, and advanced measurement approach
Module V: Financial Crises and Risk Management Lessons
Topic Risk Management Lessons from Financial Crises

Session 19 Risk management practices in world and India

Deliverables Risk management and regulatory capital
Classifying banks on risk management performance

Topic Learning from Risk Management

Session 20
Deliverables Project works and presentations on risk modeling