12/30/2016 ReserveBankofIndiaGlossary

GLOSSARY

Capital

CapitalFunds
Equitycontributionofowners.Thebasicapproachofcapitaladequacyframeworkisthatabankshouldhavesufficient
capitaltoprovideastableresourcetoabsorbanylossesarisingfromtherisksinitsbusiness.Capitalisdividedinto
differenttiersaccordingtothecharacteristics/qualitiesofeachqualifyinginstrument.Forsupervisorypurposescapital
issplitintotwocategories:TierIandTierII.
TierICapital
Atermusedtorefertooneofthecomponentsofregulatorycapital.Itconsistsmainlyofsharecapitalanddisclosed
reserves(minusgoodwill,ifany).TierIitemsaredeemedtobeofthehighestqualitybecausetheyarefullyavailableto
coverlossesHenceitisalsotermedascorecapital.
TierIICapital
Referstooneofthecomponentsofregulatorycapital.Alsoknownassupplementarycapital,itconsistsofcertain
reservesandcertaintypesofsubordinateddebt.TierIIitemsqualifyasregulatorycapitaltotheextentthattheycanbe
usedtoabsorblossesarisingfromabank'sactivities.TierII'scapitallossabsorptioncapacityislowerthanthatofTier
Icapital.
Revaluationreserves
RevaluationreservesareapartofTierIIcapital.Thesereservesarisefromrevaluationofassetsthatareundervalued
onthebank'sbooks,typicallybankpremisesandmarketablesecurities.Theextenttowhichtherevaluationreserves
canberelieduponasacushionforunexpectedlossesdependsmainlyuponthelevelofcertaintythatcanbeplacedon
estimatesofthemarketvaluesoftherelevantassetsandthesubsequentdeteriorationinvaluesunderdifficultmarket
conditionsorinaforcedsale.
Leverage
Ratioofassetstocapital.
Capitalreserves
Thatportionofacompany'sprofitsnotpaidoutasdividendstoshareholders.Theyarealsoknownasundistributable
reservesandareploughedbackintothebusiness.
DeferredTaxAssets
Unabsorbeddepreciationandcarryforwardoflosseswhichcanbesetoffagainstfuturetaxableincomewhichis
consideredastimingdifferencesresultindeferredtaxassets.ThedeferredTaxAssetsareaccountedasperthe
AccountingStandard22.
DeferredTaxLiabilities
Deferredtaxliabilitieshaveaneffectofincreasingfutureyear'sincometaxpayments,whichindicatesthattheyare
accruedincometaxesandmeetdefinitionofliabilities.
Subordinateddebt
Referstothestatusofthedebt.Intheeventofthebankruptcyorliquidationofthedebtor,subordinateddebtonlyhasa
secondaryclaimonrepayments,afterotherdebthasbeenrepaid.
Hybriddebtcapitalinstruments
Inthiscategory,fallanumberofcapitalinstruments,whichcombinecertaincharacteristicsofequityandcertain
characteristicsofdebt.Eachhasaparticularfeature,whichcanbeconsideredtoaffectitsqualityascapital.Where
theseinstrumentshaveclosesimilaritiestoequity,inparticularwhentheyareabletosupportlossesonanongoing
basiswithouttriggeringliquidation,theymaybeincludedinTierIIcapital.
BASELCommitteeonBankingSupervision
TheBASELCommitteeisacommitteeofbanksupervisorsconsistingofmembersfromeachoftheG10countries.The
Committeeisaforumfordiscussiononthehandlingofspecificsupervisoryproblems.Itcoordinatesthesharingof
supervisoryresponsibilitiesamongnationalauthoritiesinrespectofbanks'foreignestablishmentswiththeaimof
ensuringeffectivesupervisionofbanks'activitiesworldwide.
BASELCapitalaccord
TheBASELCapitalAccordisanAgreementconcludedamongcountryrepresentativesin1988todevelopstandardised
riskbasedcapitalrequirementsforbanksacrosscountries.TheAccordwasreplacedwithanewcapitaladequacy
framework(BASELII),publishedinJune2004.BASELIIisbasedonthreemutuallyreinforcingpillarshatallowbanks
andsupervisorstoevaluateproperlythevariousrisksthatbanksface.Thesethreepillarsare:

Minimumcapitalrequirements,whichseektorefinethepresentmeasurementframework

supervisoryreviewofaninstitution'scapitaladequacyandinternalassessmentprocess

marketdisciplinethrougheffectivedisclosuretoencouragesafeandsoundbankingpractices
RiskWeightedAsset
Thenotionalamountoftheassetismultipliedbytheriskweightassignedtotheassettoarriveattheriskweighted

https://www.rbi.org.in/scripts/Glossary.aspx#FI 1/7
12/30/2016 ReserveBankofIndiaGlossary

assetnumber.Riskweightfordifferentassetsvarye.g.0%onaGovernmentDatedSecurityand20%onaAAArated
foreignbanketc.
CRAR(CapitaltoRiskWeightedAssetsRatio)
Capitaltoriskweightedassetsratioisarrivedatbydividingthecapitalofthebankwithaggregatedriskweighted
assetsforcreditrisk,marketriskandoperationalrisk.ThehighertheCRARofabankthebettercapitalizeditis.
CreditRisk
Theriskthatapartytoacontractualagreementortransactionwillbeunabletomeetitsobligationsorwilldefaulton
commitments.Creditriskcanbeassociatedwithalmostanyfinancialtransaction.BASELIIprovidestwooptionsfor
measurementofcapitalchargeforcreditrisk
1.standardisedapproach(SA)UndertheSA,thebanksuseariskweightingscheduleformeasuringthecreditriskof
itsassetsbyassigningriskweightsbasedontheratingassignedbytheexternalcreditratingagencies.
2.Internalratingbasedapproach(IRB)TheIRBapproach,ontheotherhand,allowsbankstousetheirowninternal
ratingsofcounterpartiesandexposures,whichpermitafinerdifferentiationofriskforvariousexposuresandhence
deliverscapitalrequirementsthatarebetteralignedtothedegreeofrisks.TheIRBapproachesareoftwotypes:
a)FoundationIRB(FIRB):ThebankestimatestheProbabilityofDefault(PD)associatedwitheachborrower,andthe
supervisorsuppliesotherinputssuchasLossGivenDefault(LGD)andExposureAtDefault(EAD).
b)AdvancedIRB(AIRB):InadditiontoProbabilityofDefault(PD),thebankestimatesotherinputssuchasEADand
LGD.Therequirementsforthisapproacharemoreexacting.Theadoptionofadvancedapproacheswouldrequirethe
bankstomeetminimumrequirementsrelatingtointernalratingsattheoutsetandonanongoingbasissuchasthose
relatingtothedesignoftheratingsystem,operations,controls,corporategovernance,andestimationandvalidationof
creditriskcomponents,viz.,PDforbothFIRBandAIRBandLGDandEADforAIRB.Thebanksshouldhave,atthe
minimum,PDdataforfiveyearsandLGDandEADdataforsevenyears.InIndia,bankshavebeenadvisedto
computecapitalrequirementsforcreditriskadoptingtheSA.
Marketrisk
Marketriskisdefinedastheriskoflossarisingfrommovementsinmarketpricesorratesawayfromtheratesor
pricessetoutinatransactionoragreement.ThecapitalchargeformarketriskwasintroducedbytheBASEL
CommitteeonBankingSupervisionthroughtheMarketRiskAmendmentofJanuary1996tothecapitalaccordof1988
(BASELIFramework).Therearetwomethodologiesavailabletoestimatethecapitalrequirementtocovermarket
risks:
1)TheStandardisedMeasurementMethod:Thismethod,currentlyimplementedbytheReserveBank,adoptsa
'buildingblock'approachforinterestraterelatedandequityinstrumentswhichdifferentiatecapitalrequirementsfor
'specificrisk'fromthoseof'generalmarketrisk'.The'specificriskcharge'isdesignedtoprotectagainstanadverse
movementinthepriceofanindividualsecurityduetofactorsrelatedtotheindividualissuer.The'generalmarketrisk
charge'isdesignedtoprotectagainsttheinterestrateriskintheportfolio.
2)TheInternalModelsApproach(IMA):Thismethodenablesbankstousetheirproprietaryinhousemethodwhich
mustmeetthequalitativeandquantitativecriteriasetoutbytheBCBSandissubjecttotheexplicitapprovalofthe
supervisoryauthority.
OperationalRisk
TherevisedBASELIIframeworkoffersthefollowingthreeapproachesforestimatingcapitalchargesforoperational
risk:
1)TheBasicIndicatorApproach(BIA):Thisapproachsetsachargeforoperationalriskasafixedpercentage("alpha
factor")ofasingleindicator,whichservesasaproxyforthebank'sriskexposure.
2)TheStandardisedApproach(SA):Thisapproachrequiresthattheinstitutionseparateitsoperationsintoeight
standardbusinesslines,andthecapitalchargeforeachbusinesslineiscalculatedbymultiplyinggrossincomeofthat
businesslinebyafactor(denotedbeta)assignedtothatbusinessline.
3)AdvancedMeasurementApproach(AMA):Underthisapproach,theregulatorycapitalrequirementwillequaltherisk
measuregeneratedbythebanks'internaloperationalriskmeasurementsystem.InIndia,thebankshavebeenadvised
toadopttheBIAtoestimatethecapitalchargeforoperationalriskand15%ofaveragegrossincomeoflastthreeyears
istakenforcalculatingcapitalchargeforoperationalrisk.
InternalCapitalAdequacyAssessmentProcess(ICAAP)
IntermsoftheguidelinesonBASELII,thebanksarerequiredtohaveaboardapprovedpolicyoninternalcapital
adequacyassessmentprocess(ICAAP)toassessthecapitalrequirementasperICAAPatthesoloaswellas
consolidatedlevel.TheICAAPisrequiredtoformanintegralpartofthemanagementanddecisionmakingcultureofa
bank.ICAAPdocumentisrequiredtoclearlydemarcatethequantifiableandqualitativelyassessedrisks.TheICAAPis
alsorequiredtoincludestresstestsandscenarioanalyses,tobeconductedperiodically,particularlyinrespectofthe
bank'smaterialriskexposures,inordertoevaluatethepotentialvulnerabilityofthebanktosomeunlikelybutplausible
eventsormovementsinthemarketconditionsthatcouldhaveanadverseimpactonthebank'scapital.
SupervisoryReviewProcess(SRP)
Supervisoryreviewprocessenvisagestheestablishmentofsuitableriskmanagementsystemsinbanksandtheir
reviewbythesupervisoryauthority.TheobjectiveoftheSRPistoensurethatthebankshaveadequatecapitalto
supportalltherisksintheirbusinessasalsotoencouragethemtodevelopandusebetterriskmanagementtechniques
formonitoringandmanagingtheirrisks.
MarketDiscipline
MarketDisciplineseekstoachieveincreasedtransparencythroughexpandeddisclosurerequirementsforbanks.
Creditriskmitigation

https://www.rbi.org.in/scripts/Glossary.aspx#FI 2/7
12/30/2016 ReserveBankofIndiaGlossary

Techniquesusedtomitigatethecreditrisksthroughexposurebeingcollateralisedinwholeorinpartwithcashor
securitiesorguaranteedbyathirdparty.
MortgageBackSecurity
Abondtypesecurityinwhichthecollateralisprovidedbyapoolofmortgages.Incomefromtheunderlyingmortgages
isusedtomeetinterestandprincipalrepayments.
Derivative
Aderivativeinstrumentderivesitsvaluefromanunderlyingproduct.Therearebasicallythreederivatives
a)ForwardContractAforwardcontractisanagreementbetweentwopartiestobuyorsellanagreedamountofa
commodityorfinancialinstrumentatanagreedprice,fordeliveryonanagreedfuturedate.FutureContractIsa
standardizedexchangetradableforwardcontractexecutedatanexchange.Incontrasttoafuturescontract,aforward
contractisnottransferableorexchangetradable,itstermsarenotstandardizedandnomarginisexchanged.Thebuyer
oftheforwardcontractissaidtobelongonthecontractandthesellerissaidtobeshortonthecontract.
b)OptionsAnoptionisacontractwhichgrantsthebuyertheright,butnottheobligation,tobuy(calloption)orsell(put
option)anasset,commodity,currencyorfinancialinstrumentatanagreedrate(exerciseprice)onorbeforeanagreed
date(expiryorsettlementdate).Thebuyerpaystheselleranamountcalledthepremiuminexchangeforthisright.
Thispremiumisthepriceoftheoption.
c)SwapsIsanagreementtoexchangefuturecashflowatprespecifiedIntervals.Typicallyonecashflowisbasedon
avariablepriceandotheronaffixedone.
Duration
Duration(Macaulayduration)measuresthepricevolatilityoffixedincomesecurities.Itisoftenusedinthecomparison
ofinterestrateriskbetweensecuritieswithdifferentcouponsanddifferentmaturities.Itisdefinedastheweighted
averagetimetocashflowsofabondwheretheweightsarenothingbutthepresentvalueofthecashflowsthemselves.
Itisexpressedinyears.Thedurationofafixedincomesecurityisalwaysshorterthanitstermtomaturity,exceptin
thecaseofzerocouponsecuritieswheretheyarethesame.
ModifiedDuration
ModifiedDuration=MacaulayDuration/(1+y/m),where'y'istheyield(%),'m'isthenumberoftimescompounding
occursinayear.Forexampleifinterestispaidtwiceayearm=2.ModifiedDurationisameasureofthepercentage
changeinpriceofabondfora1%changeinyield.
NonPerformingAssets(NPA)
Anasset,includingaleasedasset,becomesnonperformingwhenitceasestogenerateincomeforthebank.
NetNPA
GrossNPA(BalanceinInterestSuspenseaccount+DICGC/ECGCclaimsreceivedandheldpendingadjustment+
Partpaymentreceivedandkeptinsuspenseaccount+Totalprovisionsheld).
CoverageRatio
EquityminusnetNPAdividedbytotalassetsminusintangibleassets.
SlippageRatio
(FreshaccretionofNPAsduringtheyear/Totalstandardassetsatthebeginningoftheyear)*100
Restructuring
Arestructuredaccountisonewherethebank,grantstotheborrowerconcessionsthatthebankwouldnototherwise
consider.Restructuringwouldnormallyinvolvemodificationoftermsoftheadvances/securities,whichwouldgenerally
include,amongothers,alterationofrepaymentperiod/repayableamount/theamountofinstallmentsandrateof
interest.Itisamechanismtonurtureanotherwiseviableunit,whichhasbeenadverselyimpacted,backtohealth.
SubstandardAssets
Asubstandardassetwouldbeone,whichhasremainedNPAforaperiodlessthanorequalto12months.Suchan
assetwillhavewelldefinedcreditweaknessesthatjeopardizetheliquidationofthedebtandarecharacterisedbythe
distinctpossibilitythatthebankswillsustainsomeloss,ifdeficienciesarenotcorrected.
DoubtfulAsset
Anassetwouldbeclassifiedasdoubtfulifithasremainedinthesubstandardcategoryforaperiodof12months.A
loanclassifiedasdoubtfulhasalltheweaknessesinherentinassetsthatwereclassifiedassubstandard,withthe
addedcharacteristicthattheweaknessesmakecollectionorliquidationinfull,onthebasisofcurrentlyknownfacts,
conditionsandvalueshighlyquestionableandimprobable.
DoubtfulAsset
Anassetwouldbeclassifiedasdoubtfulifithasremainedinthesubstandardcategoryforaperiodof12months.A
loanclassifiedasdoubtfulhasalltheweaknessesinherentinassetsthatwereclassifiedassubstandard,withthe
addedcharacteristicthattheweaknessesmakecollectionorliquidationinfull,onthebasisofcurrentlyknownfacts,
conditionsandvalueshighlyquestionableandimprobable.
LossAsset
AlossassetisonewherelosshasbeenidentifiedbythebankorinternalorexternalauditorsortheRBIinspectionbut
theamounthasnotbeenwrittenoffwholly.Inotherwords,suchanassetisconsidereduncollectibleandofsuchlittle
valuethatitscontinuanceasabankableassetisnotwarrantedalthoughtheremaybesomesalvageorrecoveryvalue.
OffBalanceSheetExposure
OffBalanceSheetexposuresrefertothebusinessactivitiesofabankthatgenerallydonotinvolvebookingassets
(loans)andtakingdeposits.Offbalancesheetactivitiesnormallygeneratefees,butproduceliabilitiesorassetsthat

https://www.rbi.org.in/scripts/Glossary.aspx#FI 3/7
12/30/2016 ReserveBankofIndiaGlossary

aredeferredorcontingentandthus,donotappearontheinstitution'sbalancesheetuntilandunlesstheybecome
actualassetsorliabilities.
CurrentExposureMethod
Thecreditequivalentamountofamarketrelatedoffbalancesheettransactioniscalculatedusingthecurrentexposure
methodbyaddingthecurrentcreditexposuretothepotentialfuturecreditexposureofthesecontracts.Currentcredit
exposureisdefinedasthesumofthepositivemarktomarketvalueofacontract.TheCurrentExposureMethod
requiresperiodicalcalculationofthecurrentcreditexposurebymarkingthecontractstomarket,thuscapturingthe
currentcreditexposure.Potentialfuturecreditexposureisdeterminedbymultiplyingthenotionalprincipalamountof
eachofthesecontractsirrespectiveofwhetherthecontracthasazero,positiveornegativemarktomarketvalueby
therelevantaddonfactorprescribedbyRBI,accordingtothenatureandresidualmaturityoftheinstrument.

Earnings

Totalincome
Sumofinterest/discountearned,commission,exchange,brokerageandotheroperatingincome.
Totaloperatingexpenses
Sumofinterestexpended,staffexpensesandotheroverheads.
Operatingprofitbeforeprovisions
Netoftotalincomeandtotaloperatingexpenses.
Netoperatingprofit
Operatingprofitbeforeprovisionminusprovisionforloanlosses,depreciationininvestments,writeoffandother
provisions.
Profitbeforetax(PBT)
(Netoperatingprofit+/realizedgains/lossesonsaleofassets)
Profitaftertax(PAT)
Profitbeforetaxprovisionfortax.
Retainedearnings
Profitaftertaxdividendpaid/proposed.
AverageYield
(Interestanddiscountearned/averageinterestearningassets)*100
Averagecost
(Interestexpendedondepositsandborrowings/Averageinterestbearingliabilities)*100
ReturnonAsset(ROA)AfterTax
ReturnonAssets(ROA)isaprofitabilityratiowhichindicatesthenetprofit(netincome)generatedontotalassets.Itis
computedbydividingnetincomebyaveragetotalassets.Formula(Profitaftertax/Av.Totalassets)*100
Returnonequity(ROE)AfterTax
ReturnonEquity(ROE)isaratiorelatingnetprofit(netincome)toshareholders'equity.Heretheequityreferstoshare
capitalreservesandsurplusofthebank.FormulaProfitaftertax/(Totalequity+Totalequityattheendofprevious
year)/2}*100
Accretiontoequity
(Retainedearnings/Totalequityattheendofpreviousyear)*100
NetNonInterestIncome
Thedifferential(surplusordeficit)betweennoninterestincomeandnoninterestexpensesasapercentagetoaverage
totalassets.
NetInterestIncome(NII)
TheNIIisthedifferencebetweentheinterestincomeandtheinterestexpenses.
NetInterestMargin
Netinterestmarginisthenetinterestincomedividedbyaverageinterestearningassets.
Costincomeratio(Efficiencyratio)
Thecostincomeratioreflectstheextenttowhichnoninterestexpensesofabankmakeachargeonthenettotal
income(totalincomeinterestexpense).Thelowertheratio,themoreefficientisthebank.Formula:Noninterest
expenditure/NetTotalIncome*100.

FundsandInvestment

CASADeposit
DepositinbankincurrentandSavingsaccount.
HighCostDeposit
Depositsacceptedabovecardrate(forthedeposits)ofthebank.
LiquidAssets
Liquidassetsconsistsof:cash,balanceswithRBI,balancesincurrentaccountswithbanks,moneyatcallandshort

https://www.rbi.org.in/scripts/Glossary.aspx#FI 4/7
12/30/2016 ReserveBankofIndiaGlossary

notice,interbankplacementsduewithin30daysandsecuritiesunder"heldfortrading"and"availableforsale"
categoriesexcludingsecuritiesthatdonothavereadymarket.
FundingVolatilityRatio
Liquidassets[asabove]tocurrentandsavingsdeposits(Highertheratio,thebetter)
MarketLiabilityRatio
InterbankandmoneymarketdepositliabilitiestoAverageTotalAssets
ALM
AssetLiabilityManagement(ALM)isconcernedwithstrategicbalancesheetmanagementinvolvingallmarketrisks.It
alsodealswithliquiditymanagement,fundsmanagement,tradingandcapitalplanning.
ALCO
AssetLiabilityManagementCommittee(ALCO)isastrategicdecisionmakingbody,formulatingandoverseeingthe
functionofassetliabilitymanagement(ALM)ofabank.
BankingBook
Thebankingbookcomprisesassestsandliabilities,whicharecontractedbasicallyonaccountofrelationshiporfor
steadyincomeandstatutoryobligationsandaregenerallyheldtillmaturity.
VentureCapitalFund
Afundsetupforthepurposeofinvestinginstartupbusinessesthatisperceivedtohaveexcellentgrowthprospects
butdoesnothaveaccesstocapitalmarkets.
HeldTillMaturity(HTM)
Thesecuritiesacquiredbythebankswiththeintentiontoholdthemuptomaturity.
HeldforTrading(HFT)
Securitieswheretheintentionistotradebytakingadvantageofshorttermprice/interestratemovements.
AvailableforSale(AFS)
Thesecuritiesavailableforsalearethosesecuritieswheretheintentionofthebankisneithertotradenortoholdtill
maturity.Thesesecuritiesarevaluedatthefairvaluewhichisdeterminedbyreferencetothebestavailablesourceof
currentmarketquotationsorotherdatarelativetocurrentvalue.
Yieldtomaturity(YTM)orYield
TheYieldtomaturity(YTM)istheyieldpromisedtothebondholderontheassumptionthatthebondwillbeheldto
maturityandcouponpaymentswillbereinvestedattheYTM.Itisameasureofthereturnofthebond.
Convexity
Thisrepresentstherateofchangeofduration.Itisthedifferencebetweenactualpriceofabondandtheprice
estimatedbymodifiedduration.
ForeignCurrencyConvertibleBond
Abondissuedinforeigncurrencyabroadgivingtheinvestortheoptiontoconvertthebondintoequityatafixed
conversionpriceorasperapredeterminedpricingformula.
TradingBook
Investmentsintradingbookareheldforgeneratingprofitsontheshorttermdifferencesinprices/yields.Heldfortrading
(HFT)andAvailableforsale(AFS)categoryconstitutetradingbook.
CRR
CashreserveratioisthecashparkedbythebanksintheirspecifiedcurrentaccountmaintainedwithRBI.
SLR
Statutoryliquidityratioisintheformofcash(bookvalue),gold(currentmarketvalue)andbalancesinunencumbered
approvedsecurities.
Stresstesting
Stresstestingisusedtoevaluateabank'spotentialvulnerabilitytocertainunlikelybutplausibleeventsormovements
infinancialvariables.Thevulnerabilityisusuallymeasuredwithreferencetothebank'sprofitabilityand/orcapital
adequacy.
ScenarioAnalysis
Amethodinwhichtheearningsorvalueimpactiscomputedfordifferentinterestratescenario.
LIBOR
LondonInterBankOfferedRate.Theinterestrateatwhichbanksoffertolendfundsintheinterbankmarket.
BasisPoint
Isonehundredthofonepercent.1basispointmeans0.01%.Usedformeasuringchangeininterestrate/yield.
Fraud
Fraudshavebeenclassifiedasunder,basedmainlyontheprovisionsoftheIndianPenalCode
(a)Misappropriationandcriminalbreachoftrust.
(b)Fraudulentencashmentthroughforgedinstruments,manipulationofbooksofaccountorthroughfictitiousaccounts
andconversionofproperty.
(c)Unauthorisedcreditfacilitiesextendedforrewardorforillegalgratification.
(d)Negligenceandcashshortages.
(e)Cheatingandforgery.

https://www.rbi.org.in/scripts/Glossary.aspx#FI 5/7
12/30/2016 ReserveBankofIndiaGlossary

(f)Irregularitiesinforeignexchangetransactions.
(g)Anyothertypeoffraudnotcomingunderthespecificheadsasabove.

AssetSecuritisation

Securitization
Aprocessbywhichasingleassetorapoolofassetsaretransferredfromthebalancesheetoftheoriginator(bank)to
abankruptcyremoteSPV(trust)inreturnforanimmediatecashpayment.
SpecialPurposeVehicle(SPV)
Anentitywhichmaybeatrust,companyorotherentityconstitutedorestablishedbya'Deed'or'Agreement'fora
specificpurpose.
Bankruptcyremote
ThelegalpositionwithreferencetothecreationoftheSPVshouldbesuchthattheSPVanditsassetswouldnotbe
touchedincasetheoriginatorofthesecuritizationgoesbankruptanditsassetsareliquidated.
Creditenhancement
ThesearethefacilitiesofferedtoanSPVtocovertheprobablelossesfromthepoolofsecuritizedassets.Itisacredit
riskcovergivenbytheoriginatororathirdpartyandmeantfortheinvestorsinanysecuritizationprocess.
Custodian
Anentity,usuallyabankthatactuallyholdsthereceivablesasagentandbaileeofthetrustee.
Firstlossfacility
FirstlevelofcreditenhancementofferedtoanSPVaspartoftheprocessinbringingthesecuritiesissuedbySPVto
investmentgrade.
Secondlossfacility
CreditenhancementprovidingthesecondorsubsequenttierofprotectiontoanSPVagainstpotentiallosses.
ValueatRisk(VAR)
VARisasinglenumber(currencyamount)whichestimatesthemaximumexpectedlossofaportfoliooveragiventime
horizon(theholdingperiod)andatagivenconfidencelevel.VaRisdefinedasanestimateofpotentiallossinaposition
orasset/liabilityorportfolioofassets/liabilitiesoveragivenholdingperiodatagivenlevelofcertainty.Thefollowingare
thethreemainmethodologiesusedtocalculateVaR:ParametricEstimatesEstimatesVaRusingparameterssuchas
volatilityandcorrelation.Accuratefortraditionalassetsandlinearderivatives,butlessaccuratefornonlinear
derivatives.MonteCarlosimulationEstimatesVaRbysimulatingrandomscenariosandrevaluingpositionsinthe
portfolio.Appropriateforalltypesofinstruments,linearandnonlinear.HistoricalsimulationEstimatesVaRbyreliving
historytakesactualhistoricalratesandrevaluespositionsforeachchangeinthemarket
Commercialrealestate
commercialrealestateisdefinedas"fundbasedandnonfundbasedexposuressecuredbymortgagesoncommercial
realestates(officebuildings,retailspace,multipurposecommercialpremises,multifamilyresidentialbuildings,multi
tenantedcommercialpremises,industrialorwarehousespace,hotels,landacquisition,developmentandconstruction
etc.)"

NDSOMWeb

PrimaryMember(PM)
AmemberofNDSOM(havingConstituentSubsidiaryGeneralLedger(CSGL)andcurrentaccountwithRBI)who
authorizestheirGiltAccountHolderstohavedirectaccesstothewebenabledNDSOMsystem.
GiltAccountHolders(GAHs)
NonNDSmemberswhohavegiltaccountandcurrentaccountwithPMsaretermedasGAHs.GAHspermittedbyRBI
includeNBFCs,ProvidentFunds,PensionFunds,MutualFunds,InsuranceCompanies,CooperativeBanks,Regional
RuralBanks,Trusts,Corporates,Individualsetc.
DedicatedURLndsind.com
DedicatedURLisasecuresite,i.e.,https//accessibleonlythroughdeploymentofrequisitedigitalcertificatesand
tokens(fornonrepudiationoftransactions).Theissuanceandmanagementofdigitalcertificatesandsecuritytokens
wouldbetheresponsibilityofthePMaspartofGAHcreationandactivationprocess.Regularrenewalsthereofwould
alsobethePMsresponsibility.
DigitalCertificatesandetokens(PM)
DigitalcertificatesaredigitalsignaturestobeobtainedbyPMfromanyGovernmentRecognizedCertifyingAuthority
designatedbyRBI,onbehalfofGAH.Foraddedsecurity,thecertificatesneedtobeinstalledinanetokenasper
specificationsapproved.ThedigitalcertificateandtokenspecificationsneedstobeSHA2(2048bit)compliant.
WithouttheDigitalcertificateandetoken,theGAHcannotlogintotheNDSOMwebbasedmodule.ThePrimary
memberwillberesponsibleforobtaining/renewalandintimatingrevocationtoRBI/CCILoftheDigitalCertificateforsuch
GAHusers.
NDSOMAdministrator(CCILNDSOMAdmin)
TheAdministrator(CCIL)isthepersonwhocreatesandactivatestheGAHinthewebbasedsystemontherequestof
thePMandalsoauthorizestheemployeesofGAH(GAHUserscreatedbyPM)toaccessthesystembygenerating
loginandpassword.

https://www.rbi.org.in/scripts/Glossary.aspx#FI 6/7
12/30/2016 ReserveBankofIndiaGlossary

AuthorizedUsersofGiltAccountHolder(GAHUser)
OnceGAHiscreatedasaclientofPMinthewebbasedsystembyCCIL(theNDSOMAdmin),UsersofGAHare
createdbyPMandlaterauthorizedbyCCILtoaccessandoperatethesystem.Whileauthorizing,CCILgeneratesthe
loginIDandpasswordfortheGAHUsersandforwardsthesametoPM.PMinturnforwardsthesametoGAHto
enableitsemployees(GAHUsers)tologintotheWebBasedApplication(https://www.ndsind.com).
ClientHead(PM)
TheClientHeadisthesuperuseratthePMend.OnlyClientHeadhasprivilegestoperformactionslikecreateGAH
users,modifyusers,suspendusers,unlock,logoffusers,resettheloginpasswordofusers,setrisklimits&take
actiononclientbidsetc.OnlyoneuserispossibleineveryPMenvironment.
TransactionalUser(GAH)
TheseareGAHemployees(GAHUsers)whoareauthorizedbyPMtoplace,modify,canceltheirbids,viewstatusof
theirbidsandviewthelimitssetbythePM&alongwiththecurrentutilization.
ViewOnlyUser(GAH)
TheseareGAHemployees(GAHUsers)whohavebeenprovidedwithViewonlyrightsbythePM.Theseemployees
haveanaggregatedviewofalltheactivitiesandrisklimitsofalltransactionalusersundertherespectiveGAH.Italso
includesviewofissuancedetailsandaggregateviewofbiddingandallocationdetailsofalltransactionalusers.
SingleOrderLimit(SOL)forTrades
SOLshallmeanthemaximumorderquantity(intermsoffacevalue)thatcanbeplacedbytheconcerneduserthrough
asingleorder.
Price/YieldRangeSettingsforTrades
NDSOMWebshallvalidatethattheprice/yieldofeveryorderplacedbyaGAHuseriswithintherangespecifiedbythe
PrimaryMembervisvisthelasttradedprice/yieldfortheconcernedsecurityinthespecificmarket.
SecurityStockBalancesSettingsforTrades
PrimaryMembersshallupdatetheSecurityStockBalancesforeachoftheirGAH.Onceinput,NDSOMshall
automaticallyupdatethesecuritybalancesbasedonactivityundertakenonNDSOMWebonthesamelinesasthatof
NDSOM.Adequacyofavailablefreebalancesforeachsecurityshallbevalidatedbeforeacceptingasaleorder(s)for
anysecurity.Ifthebalanceisnotadequate,therespectivesaleordershallberejected.
ActivityControlSettingsforTrades
PrimaryMembersshallassignBuyand/orSellprivilegestoeachoftheTransactionalUsersoftheirGAHthrough
activitycontrolsettings.
FundingLimitsSettingsforTrades
FundinglimitsfortradesrepresentthenetaggregatesettlementconsiderationamountuptowhichtheconcernedGAH
canaccumulatenetlongfundpositionsarisingoutoftradesconcludedonNDSOMWeb.Thiscontrolshallbesetfor
everyGAHattheGAHuserlevel.Thislimitconstitutesatradinglimitwhichshallgetreinstatedatthebeginningof
everytradingsessionforeveryGAH.
TurnoverLimitsforTrades
Turnoverlimitsrepresentthegrossamountinfacevaluetermscomputedbyaggregatingindividual"buys"+"sells"
ordersinputtedonbehalfofaGAHacrossallitsusers.Thisvalueisexpressedinconsiderationtermsoftheunderlying
securityinstrumentandshallreflectthetotalaggregatevaluethatcanbeundertakenbytheGAHforthattrading
session.ThiscontrolshallbesetforeveryGAHattheuserlevel.Thislimitconstitutesatradinglimitwhichshallget
reinstatedatthebeginningofeverytradingsessionforeveryGAH

https://www.rbi.org.in/scripts/Glossary.aspx#FI 7/7