By,Deepa shree

Under the guidance

Prof. Shivaraj B.V MBA , Ph.DB.N.Bahadur Institute of Management Sciences,

Manasagangotri, University of Mysore,

Mysore

An empirical analysis with J.P Morgan to be haunted by change in risk model 2012 concluded Traditional value-at-risk models are not perfect. The possible losses for most days, losses could be even bigger on a few occasions . But even so, they are widely uses as metric by risk managers, traders and investors. Changes in such risk models usually require several layers of approval going up the management.

Muthoot finance 2011 concluded 65% of the market in rural areas, firms need to develop strategies to target this segment effectively and provide better accessibility to borrowers. When expanding , firms need to ensure consonance of services and operations through network

NBFCs profits to be hit marginally by new RBI norms: crisil 2011 concluded reserve banks recent recommendations on the NBFCs will structurally strengthen the players but the increased provisioning norms may affect the profitability as average return on assets will come down by up to 30 basis points

RESERVE BANK OF INDIA (2011) concluded the minimum net owned fund requirement for all new NBFCs wanting to register with the reserve bank could be retained at the present Rs.2 crore till the RBI act is amended. The RBI should however, insist on a minimum asset size of more than Rs.50 crore for registering any new NBFC .Existing NBFCS below this limit may deregister or be asked to seek a fresh certificate of registration at the end two years.

RESERVE BANK OF INDIA (2010) concluded monetary policy stance in India in a structural VAR model with output gap. Inflation gap and policy interest rate. The structural VAR model has been used to calibrate findings emerging from the static models.

A range of estimated models for Taylor rule in India in a historical perspective suggests that while the monetary policy appeared more responsive to the output gap than to the inflation gap during the period 1950-51 to 1987-88 there is a shift in policy response during the period 1988-89-2008-09 with relatively strong reaction to inflation gap than to the output gap.

The estimates from a structural VAR frame work also firmly establish that variations in the short- term interest rates are driven more by inflation gap than output gap.

Sunando Roy (2005) in Indian debt market concluded that liquidity risk is an aspect of market risk that has seen largely neglected by standard value at risk models. This negligence is partly due to the fact that no single measure can effectively capture the various aspects of liquidity financial markets

RBI Department of banking supervision financial institutions division in NBFCs May 2004 Banks enjoy the natural advantage of low cost fund are, therefore, capable of providing long-term finance at lower rates despite higher intermediation cost and can derive at the same time the benefit of risk diversification across a wide spectrum of asset of varying maturities, subject of course, to the limitation imposed by their ALM considerations with the change in the operating environment, the supply of low cost of funds has dried up for the DFIs forcing them to raise resources at market related rates. The DFIs are unable to withstand the competition from banks due to their higher cost of funds. DFIs are also burdened with large NPAs due to exposure to certain sectors which have not performed well due to down turn in the business cycle further adding to their cost of doing business. Further their portfolio is almost entirely composed of long-term high risk project finance & consequently the viability of their business model has come under strain. The rest of the DFIs must convert to either a bank or a regular NBFCs as recommended by the Narasimhan Committee & should be subject to full of RBI regulations as applicable to the respective category. Further, no DFI should be established in future without the central government support.

Risk Measurement in NBFCs Kevindowd (2002) concluded VaR frame work provides an approach to risk measurement that goes beyond earlier approaches in a number of important respects in particular, we can apply a VaR approach using any Profit or Loss or return distribution However, VaR also serious limitations and those who continue to use VaR should take account of these. The VaR also faces a superior rival.

Stress test have three main attraction First and foremost, they can give us a lot of information about what we stand to lose in bad states- &, indeed stress testing in explicity designed to give us information about losses in bad states. The information provided by stress testing is a natural complement to that provided by probabilistic measures, most particularly VaR, Second stress test results can be very useful in risk management decision making---in setting capital requirements and position limits and so on. Finally, stress test can highlight weakness in our risk management systems

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Bank for International settlements (2000); Berkowitz (2000a); Blanco (1999b); Breuer & Krenn (1999,2000)

Committee on the Global Financial System (2009) Report of the working group on capital flows to emerging market economies

Derivatives valuation and risk management-----David A. Dubofsky Federal Reserve bank of Set.louis (2009) Monetary trends, April

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