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RAROC Example

The document outlines an organization's investments and loans over 4 periods (I-IV). It shows: - Investments in government securities and loans to companies of varying credit ratings. - The annual income, costs, profits, returns, risk weighted assets, capital requirements, and risk-adjusted returns for each period. - Key metrics like return on assets, risk-adjusted return on assets, and risk-adjusted return on capital are presented to analyze performance over the periods.

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Venkatsubramanian R Iyer
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© © All Rights Reserved
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196 views

RAROC Example

The document outlines an organization's investments and loans over 4 periods (I-IV). It shows: - Investments in government securities and loans to companies of varying credit ratings. - The annual income, costs, profits, returns, risk weighted assets, capital requirements, and risk-adjusted returns for each period. - Key metrics like return on assets, risk-adjusted return on assets, and risk-adjusted return on capital are presented to analyze performance over the periods.

Uploaded by

Venkatsubramanian R Iyer
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Particulars of investment/ lending I II III IV

Investment in Govt. Sec. with yield 5% and RW 5% 1000 400 300 300

Lending to AAA rated Co. with yield 8% & RW 20% 0 600 300 300

Lending to AA rated Co. with yield 10% and RW 50% 0 0 400 200

Lending to A rated Co. with yield 12% and RW 100% 0 0 0 200


TOTAL INVESTMENT 1000 1000 1000 1000

Particulars of income / cost / profit / return I II III IV


Annual Income based on yield on invested amount 50.00 72.00 82.00 86.00
Annual Cost of borrowing @ 3% per annum 30.00 30.00 30.00 30.00
Net income net of borrowing cost ( Income – cost) 20.00 42.00 52.00 56.00
ROA in % = ( Net Income / Investment ) * 100 2.00% 4.20% 5.20% 5.60%
Total Risk Weighted Assets 50.00 120.00 260.00 360.00
Capital Required @ 8% (Rs. In Crore) = Expected loss 4.00 9.60 20.80 28.80
Annual Income net of expected loss 16.00 32.40 31.20 27.20
Risk adjusted return on Assets 2.00% 3.24% 3.12% 2.72%
= (Annual Net Income net of expected loss / Investment ) * 100
RAROC 400.00% 337.50% 150.00% 94.44%
= (Annual Net Income net of expected loss / Capital) * 100

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