MANAGEMENT

Detailed explanation-1: -A risk rating model is a key tool for lending decisions and portfolio management/portfolio construction. They give creditors, analysts, and portfolio managers a rather objective way of ranking borrowers or specific securities based on their creditworthiness and default risk.

Detailed explanation-2: -An obligor rating, based on the risk of borrower default and representing the probability of default by a borrower or group in repaying its obligation in the normal course of business and that can be easily mapped to a default probability bucket.

Detailed explanation-3: -Expected Loss=PD×EAD×LGD ’ And EAD refers to ‘the exposure at default’; the amount that the borrower already repays is excluded in EAD. LGD here, refers to loss given default. It is the net amount lost by a financial institution when a borrower fails to pay EMIs on loans and ultimately becomes a defaulter.

Detailed explanation-4: -Risk control methods include avoidance, loss prevention, loss reduction, separation, duplication, and diversification.