Estimation of default and asset correlation is crucial for banks to manage and measure portfolio credit risk. This would require studying the risk profile of the banks' entire credit portfolio and developing the appropriate methodology for the estimation of default dependence. Measurement and management of correlation risk in the credit portfolio of banks has also become an important area of concern for bank regulators worldwide. The BCBS (2006) has specifically included an asset correlation factor in the computation of credit risk capital requirement by banks adopting the Internal Ratings Based Approach. We estimate default correlation in the credit portfolio of banks. These correlation estimates will help the regulator in India to understand the linkage between bank's portfolio default risks with the systematic factors. We also derive default and asset correlations of Indian corporate and compare it with global scenario. The work tries to find the relationship of the correlation to the default probability as specified by the Basel committee. The findings of this paper could be used further in estimating portfolio credit risk, economic capital and risk adjusted returns on economic capital for large corporate exposures of banks.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.
hi@scite.ai
10624 S. Eastern Ave., Ste. A-614
Henderson, NV 89052, USA
Copyright © 2024 scite LLC. All rights reserved.
Made with 💙 for researchers
Part of the Research Solutions Family.