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BANKING OMBUDSMAN AND ITS ROLE

  The Banking Ombudsman is an authority created by the Reserve Bank of India (RBI) to address customer grievances regarding banking services. It provides a cost-free, quick, and impartial resolution process for complaints against banks.  Customers can file complaints if they are dissatisfied with the services of a bank or have not received a satisfactory response from the bank within 30 days of lodging a complaint. Complaints given to Ombudsman Cover  -  Non-payment or delay in payment of cheques, drafts, or bills. Issues related to loans or advances. Non-adherence to fair practices code. Unauthorized debits or service charges. Complaints regarding internet banking or mobile banking. Delay in providing banking services. Unauthorized ATM withdrawals. Wrongful Charges. Ombudsman cannot accept complaints those are  handled by a court, tribunal, or arbitrator. Cases older than one year from the cause of action also do not entertained by Ombudsman.  How to File ...
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RAROC (Risk Adjusted Return on Capital)

RAROC & Economic Capital -
(Risk adjusted Return on Capital)


  • RAROC helps the bank to decide whether the business with its risk profile and budget economic capital add shareholders value or not.
  • RAROC is a measure of the expected return on economic capital over the life of an investment.
  • RAROC = Risk - Adjusted Return(Income)/Economic Capital.
  • Risk Adjusted Return = Revenue - Funding Cost or TPM - Credit Provisions(for expected losses)  - Administrative Expenses  - Capital Charge on RWA 



Uses Of RAROC

  • It is an improvement over the traditional approach in that it allows one to campare two businesses with different risk(volatility of returns) profiles.
  • Using the hurdle rate (expected rate of return), a lender/financial institution can also use the RAROC principles to set the target pricing for a relationship or a transaction.


Inputs Used For Calculation Of RAROC  - 

  • PD - Probability of Default
  • LGD - Loss Given Default
  • EAD - Exposure of Default
  • M - Maturity & Correlation Factor                               
Risk Adjusted Performance Measure(RAPM) - 
Example - Forex Dealer Position -$100 m 
Volatility - 12%
Confidence land - 99% or  2.33 Standard Deviation ,
Risk Capital Required is Rs = 100000000X0.12X2.33 = $27960000

RAPM = Profit/Risk Capital.


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