2.1 Salient Features

Traditionally, banks had adopted a uniform product pricing policy that does not consider the incremental risk that the bank was taking on its books on account of the new product. This results in a less than optimum price which is not sufficient to cover the additional risk.

To resolve these issues, the Price Creation and Discovery tool help the banks in the following ways:

• Enables banks to assess the cost and risk added to their portfolio by each new product and helps them to price the product appropriately.
• Addresses this need by estimating the Transfer Rates, Capital Charges, and the Corresponding Price to be charged for the new exposure.
• Estimates the Cash Flows from each new product and calculates the profitability measures like Risk-Adjusted Return on Capital (RAROC), Return On Total Assets (ROTA), Net Interest Margin (NIM), Revenue, and Shareholder Value Added (SVA) to measure the returns generated from a product by considering the risk added by them.
• Enables banks to identify good credits and avoid bad credits.

The suggested price points and the final selected price should be saved in a database and made available for further analysis at a later stage.