Question

I want 250 words essays as to how COVID - 19 will lead to various losses in Bank owing to Market Risk, Credit Risk, Operational Risk, Liquidity Risk, ALM risk, Capital Adequacy risk, Resilience risk and so on. (In Indian Context).

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Answer 1

Yes, the outbreak of the Covid-19 has led to the financial markets suffer huge losses. Hence, as a result banks suffer from market risk , as the Bank Nifty and Sensex has fallen dramatically all the banks have suffered huge losses. This loss has uniformly affected the entire market and cannot be avoided.

Credit risk: As the markets have fallen, the entire county has gone into a lockdown. The businesses have been adversely affected as a result, they have not been able to make the timely payments due to which the credit risk has also increased, as the possibility of default rises,due to the businesses suffering losses as result of the nationwide lockdown.

Operational risk : No system can control the happenings of the market as they are interdependent of the demand and supply cycle of the economy. So, all the banks are facing operational risk due to Covid -19.

Liquidity Risk: Since the long term cycle of the economy is in the doldrums obviously any short term financial demands/obligations can suffer hence the liquidity risk increases. The market has no buyer and sellers as a result the market suffers liquidity risk. The business will not be able to sell and easily generate cash in the short term due to the markets sufferings. Peole are short of cash and liquidity of the overall amrket is suffering as a result.

ALM Risk:Asset Liability Management Risk is to ensure that assets and the projected/future cash flows can meet the short term liabilities and the ratio is positive.In the Indian context apart from Reliance Industries Ltd and Tata Sons all the firms including biggies like DMart wont be able to control the ALM Risk post a quarter

Capital Adequacy Risk:Capital to risk weighted assets ratio is to ensure that post a major event there is stability despite absording reasonable amount of loss.In India it is primarily required for maintaining statutory requirements however it is a no brained that if the ramifications go beyond the 1st quarter of FY 2020-21 then the company has to report it within the requisite time

Resilience Risk:The resilience risk is to ensure that the system can absorb a major downturn including long term recession.With Covid 19 existing investments and ROI would be affected thus further increasing the resilience risk of the company including the long term affect of the economy