Economics · Risk Management
A borrower has a fund-based Cash Credit (CC) average utilization of ₹8.0 cr (Pricing: Lending rate 11.5%, funding cost 6.5%). Non-fund based Import LCs outstanding is ₹6.0 cr with a Credit Conversion Factor (CCF) = 50% for Exposure at Default (EAD). LC commission is 0.40% per quarter with an average usance of 180 days (2 quarters on ₹6.0 cr). Operating Expense (Opex) = ₹12 lakh, Probability of Default (PD) = 1.5%, and Loss Given Default (LGD) = 45%. If Economic Capital is 12% of the total EAD, compute the closest Risk-Adjusted Return on Capital (RAROC).
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