1

PROJECT REPORT

TO STUDY THE CREDIT RISK ANALYSIS OF BANKING INDUSTRY WITH

REFERENCE TO SBI BANK

ACKNOWLEDGEMENT
I wish to express my sincere thanks to my guide for his valuable guidance, consistent

encouragement and continuous supervision and support at every state of the project.

My sincere thanks to my all teachers for their valuable guidance in successful completion of my

project work. Last but not the least I express my thanks to all those who directly or indirectly

helped us and encouraged us in carrying of this work.

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TABLE OF CONTENT
S.No Chapter Name Page Nos
Certificate of Originality
Acknowledgement
Title of the Project
1 Introduction to the Study

Statement of the Problem

Rationale of the Study

Objectives and scope of the

Study
2 Banking Profile
3 Literature Review
4 Study Methodology

Limitations of the Study

5 Data analysis and

Interpretation
6 Findings and suggestions
7 Conclusion
8 References
Annexure
Questionnaire
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TITLE OF THE PROJECT

TO STUDY THE CREDIT RISK ANALYSIS OF BANKING INDUSTRY WITH

REFERENCE TO SBI BANK

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CHAPTER – 1

Inroduction and Scope and Objective

Background

Credit risk has been studied a lot across the development of banking as a popular topic in the

industry. Nevertheless, as long as banks practice their core functions, which are credit activities,

this issue never goes old. The thesis shares the interest in this big topic and aims to research the

impacts of credit risk on bank performance as well as methods that credit institutions can apply

to control the risk. Banks offer many services but most of them are related to credit, for example,

business loans, checking accounts, payment services, cash management. One of the financial ser-

vices that contribute greatly to bank revenues is lending. Loans that banks lend out acts as

financial solutions for theirclients, and in return, the clients have theresponsibility to

payprincipals and interests. In terms of creditworthy customers, who are capable of re-paying

their debts, banks will be profitable. However, this is not always the casesince there are risks that

customers cannot afford to full fill their loan obligations. These risks can shift performing loans

to non-performing loans (NPLs), or worse, impairment losses. Bad debts, another term of NPLs,

cause negative impacts on bank performance, profits and reputation. Even though banks are

exposed to many types of risks, credit risk is considered to have the most influence on financial

performance by far. Due to these reasons, risk controlling in credit activities is a critical issue in

the banking industry which requires bank managers and experts to come up with solutions that

can minimize credit risk and bad debts.

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Introduction

Credit Risk

Credit risk is defined as the possibility of losses associated with diminution in the credit quality

of borrowers or counter parties. In banks/financial institutions portfolio, losses stem from ought

default due to inability or unwillingness of a customer or counter party to meet commitments in

relation to lending, trading, settlement and other financial transactions. Alternatively, losses

result from reduction in portfolio value arising from actual or perceived deterioration in credit

risk emanates from bank’s dealing with an individual, corporate, bank financial institution or a

sovereign. Credit risk may take the following forms.

 In the case of direct lending: principal and /or interest amount may not be repaid;

 In the case of guarantees or letters of credit: funds may not be forthcoming from the

constituents upon crystallization of the liability.

 In the case of treasury operations: the payment or series of payments due from the counter

parties under the respective contracts may not be forthcoming or ceases;

 In the case of securities trading businesses: funds/securities settlement may not be effected,

 In the case of cross-border exposure ceases or restrictions may be imposed by the

sovereign.

Credit Risk Management Techniques

Techniques are methods to accomplish a desired aim. In credit risk modeling, the aim is

essentially to compute the probability of default of an asset/loan. Broadly, the following range is

available to an organization going in for a credit risk model:

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 Economics technique: statistical models such as linear probability and logic model,

linear discriminate model, RARUC model, etc.

 Neural networks: computer-based systems using economic techniques on an alternative

implementation basis.

Components of Credit Risk: Credit Risk arises from potential changes in the Credit Quality of

a borrower or portfolio. It has two components at portfolio level (i) Concentration Risk and (ii)

Systematic Risk. The two components of Transaction Risk are Default Grade Risk. The diagram

for the same is given here under:

Credit Risk

Portfolio Risk Borrower Level Risk

Concentration Risk Systematic Risk Default Risk Downgrade Risk

Risk Management Process in Banks

The word ‘process’ connotes a continuing activity or function towards a particular result. The

process is in fact the last of the four wings in the entire risk management edifice-the other three

being organizational structure, principles and policies. In effect it is the vehicle to implement an

organization’s risk principles and policies, aided by organizational structure, with the sole

objective of creating and maintaining a healthy risk across the organization.

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1) Risk Identification: In order to achieve a common understanding of the characteristics

of each risk segment at all levels in an organization, it is necessary to spell out the danger

signals. This helps decision-makers to get the best from various activity points of the

Organization, allowing them to take calculated risks and not be risk averse. While

identification risks, the following points have to be kept in mind.

 All types of risk (existing and potential) must be identified and their likely effect in the

short-run be understood, like for example a rise in interest rates on bank borrowing in the

next six months/one year.

 The magnitude of each risk segment may vary from organization to organization. In

financial service industries like banks, delayed payment by counter-parties create

‘settlement risk’. Its effects may be more severe for them when compared to utility

service providers like power companies that have a wide consumer base and one default

may not a major credit risk hazard. This being so, dominant risk activities must be

separated from the identification process.

 The geographical area covered by an organization may determine the coverage of its

content. A bank that international operations may experience different intensity of credit,

market and operational risks in various countries when compared with a pure domestic

bank. Also, even with in a bank, risks will vary in its domestic operations and its overseas

arms.

 One clear way of identifying risk in an organization is to scan both balance sheet items

and off-balance sheet items and find the risk elements. For operational risk issues of
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lapses arising out of ‘people’, process, system & procedure may facilitate identification

of risk contents.

2) Risk Measurement: ‘Measurement’ means weighing the contents and/or value,

intensity, magnitude of any object against a yardstick. In risk measurement it is necessary

to establish clear ways of evaluating various risk categories in an organization, without

which identification of risk would not serve any purpose. Using quantitative techniques

in a qualitative framework will facilitate the following objectives.

 Findings out and understanding the exact degree of risk elements in each category in the

operational environment.

 Directing the efforts of the organization to mitigate the risks according to the

vulnerability of a particular risk factor.

 Taking appropriate initiatives in planning the organization’s future thrust areas and line

of business and capital allocation.

The system/techniques used to measure risk depend on the nature and complexity of a risk factor.

While a very simple qualitative assessment may be sufficient in some cases, sophisticated

methodology/statistical models may be necessary in other for a quantitative value. In bank

lending activity, a simple one-page credit rating system along with simple financial analysis may

be sufficient for a relatively low credit limit (say up to Rs. 50,000). But for higher credit limits,

detailed qualitative and quantitative analysis with sophisticated credit models may be required
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because the size of the credit limit would indicate the size of default risk and its ultimate effect

on the institution. Value at Risk (VAR), Credit Value at Risk (C-VAR), Duration and Stress

Testing are all contemporary higher-order statistical tools for the qualitative analysis of credit

risk, market risk and operative risk areas. in a model should be realistic after ample scrutiny and

analysis.

3) Risk Monitoring: Keeping close track of risk identification measurement activities in the

light of the risk, principles and policies is a core function in a risk management system.

For the success of the system, it is essential that the operating wings perform their

activities within the board contours of the organization’s risk perception. Risk monitoring

activity should thus ensure that:

 Each operating segment has clear lines of authority and responsibility.

 Whenever the organization’s principles and policies are breached—even if they may be

to its advantages—they should be analyzed and the appropriate authorities to aid in

policy-making.

 In the course of risk monitoring, if it appears that it is in the organization’s interests to

modify existing policies and procedures, steps to change them should be considered.

 There is an action plan to deal with major threat areas facing the organization in the

future.

 The activities of both the business and reporting wings are monitored, striking a balance

at all points in time.

 Tracking of risk migration is both upward and downward.

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4) Risk Control: There must be an appropriate mechanism to regulate or guide operation of

the risk management system in the entire organization through a set of control devices.

These can be achieved through a host of management process.

 Assessing risk profile techniques regularly to examine how far they are effective in

mitigating risk factors in the organization.

 Analyzing internal and external audit feedback from the risk angle and using it to activate

control mechanisms.

 Segregating risk areas of major concern from other relatively insignificant areas and

exercising more control over them. For example, in banks, lending against its own

deposits does not pose a significant risk compared to advances against shares. In a

pharmaceutical unit, quality control is riskier than credit risk.

 Putting in place a well drawn-out risk-focused audit system to provide inputs on restraint

for operating personnel so that they do not take needless risks for short-term interests.

 Risk control mechanism provides top management the opportunity to review Staff

Skilling (training) aspects in the organization.

It is evident, therefore, that the risk management process through all its four wings—

identification, measurement, monitoring and control—facilitate an organization’s

sustainability and growth. The importance of each wing depends on the nature of
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organization’s activity, size and objective. But it still remains a fact that the importance

of the entire process is paramount.

Importance of Risk Management

Whether it is in business or otherwise (like schools/colleges etc), risk management is not e new

phenomenon. This has been there over the ages in ages in some from or the other, though its

various forms were not called market risk, credit risk or operational risk as they are today. But

the importance of risk management has grown in recent times. The international Regulatory

authority, the Bank for International Settlement at Basel, Switzerland, has been working on a

well-structured risk management system. The concern over risk management arose from the

following developments:

 In February 1995, the Barings Bank episode shook the markets and brought about the

downfall of the oldest merchant bank in the UK. Inadequate regulation and the poor

systems and practices of the bank were responsible for the disaster. All components of

risk management —market risk, credit and operational risk-were thrown overboard.

 Shortly thereafter, in July 1997, there was the Asian financial crisis, brought about again

by the poor risk management systems in banks/financial institutions coupled with

perfunctory supervision by the regulatory authorities. Such practices could have severely

damaged the monetary systems of the various countries involved and had international

ramifications.

 By analyzing these two incidents, we can come to the following conclusions:

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 Risks do increase over time in a business, especially in a globalized environment.

 A mere quantitative approach to risk perception—arising out of trading volumes,

earnings levels etc.—does not reveal the inherent drawbacks in an organization/system.

 Increasing competition, the removal of barriers to entry to new business units by many

countries, higher order expectations by shareholders lead to assumption of risks without

adequate support and safeguards.

 Business is tempted to bring in new types products, spreading to uncharted areas for

short-term gains.

 The traditional focus of business has been ‘transaction-oriented’. This has often proved

disastrous. There is a need for them to take a ‘risk perception’ approach enterprise wide

for the long-term sustainability of operations.

 The technological revolution, while introducing countless benefits, has also created many

new risks for an organization—like technology fraud, loss due to wrong monitoring of

technology etc.—which can be tackled only through a compact risk management system.

 The external operating environment in the 21st century is noticeably different. It is not

possible to manage tomorrow’s events with yesterday’s systems and procedures and

today’s human skill sets. Hence risk management has to address such issues on a
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continuing basis and install safeguards from time to time with the tool of risk

management.

 Forward-looking assessment by an organization in operational matters is best aided by a

properly articulated risk management system.

 Stakeholders in business are now demanding that their long-term interest be protected in

a changing environment. They expect the organization to install appropriates systems to

handle a worst-case situation. Here lies the task of a risk management system—providing

returns and enjoying their confidence.

 The three-pillar principle of the Basel Committee (capital adequacy, supervisory process

and market discipline) can be served if an organization has in place a risk management

system.

 Risk management is thus a functional necessity and adds to the strength and efficiency of

an organization on an ongoing basis.

Types of Risk in banking Sector

Business Risks: By definition, business risks includes all risk factors, whether it affects a

business directly (loss affecting capital etc.) or indirectly (continued loss affecting business

strategy). Business risk can be divided into the followings:

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a) Capital risk: The size of the owner’s stakes (like capital) in the organization determines

the strength of its operation. The composition of its capital—Tier-I (paid-up capital +

reserves) and Tiers-II (bonds, hybrid instruments etc.) –depends on its resource

mobilization capacity. If an organization can access capital from only limited sources like

directors (their friends and relatives) rather than from the public, then this may act as a

constraint on capital. In contemporary financial management, capital has a number of

components. These include:

 According capital: funds belonging to the promoters/owners.

 Regulatory capital: the minimum amount of capital necessary to take care of asset value

as per regulatory requirements.

 Economic capital: the amount of funds set aside to absorb any violent unexpected loss

 According to the Basel Committee, capital base is one of the three pillars of risk

assessment (the other two being supervisory role and market discipline).

b) Credit risk: While we will discuss comprehensively on this category of risk in

subsequent chapters, it may be sufficient at this stage to indicate its components:

 Credit growth in the organization and composition of the credit folio in terms of sectors

centers and size of borrowing activities so as to assess the extent of credit concentration.

 Credit quality in terms of standards, sub-standard, doubtful and loss-making assets.

 Extent of the provision made towards poor quality credits.

 Volume of off-balance-sheet exposures having a bearing on the credit portfolio.

c) Market risk: The component of this risk type is:

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 Composition of the investment portfolio.

 Quality of the investment portfolio (i.e., investment in rated and unrated instrument).

 Interest rate volatility and sensibility.

 Where in a business the foreign exchange aspect is also vital (i.e., banking/export-

oriented units).

Control Risks: In the entire risk measurement process, ‘control’ of activities finds a prominent

place. A control mechanism is a must for any organization’s well-being. Control risks can be

divided into:

a) Internal control risks: Lack of a clear line of responsibility and authority. In-house lack

of control may lead to house – keeping and other problems, which may affect the

organization’s well- being.

 Poor systems for monitoring and reporting suspicious transactions that have a noticeable

impact on the organization.

 No regular surveillance of the control mechanism by the top management.

b) Organizational risk:

 Vague and overlapping organizational structure with unclear legal implications.

 Absence of a structured assessment mechanism to leverage external and internal

relationships.

 Absence of a cordial industrial relationship.

c) Management (including corporate governance) risk:

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 Composition, cohesiveness, competence and leadership attributes of the board of

directors. The match between the board and the organization’s risk philosophy and risk

appetite.

 Non-assessment of the effectiveness of function of senior management.

 Absence of a clear succession planning mechanism.

 Undefined responsibility and accountability.

 Whether it follows contemporary corporate governance practices, especially with regard

to strategy formulation and problem-solving.

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STATEMENT OF THE PROBLEM

Credit risk has been the subject of considerable research interest in Banking and Financial

communities, and has recently drawn the attention of statistical researchers. The exposure to

credit risk continues to be the leading source of problems in the banking industry and as a result

needs to be managed. Credit risk is identified as a core pillar for the viability of banks and credit

institutions.

Credit risk is the risk of loss due to a debtor's non-payment of a loan or other line of credit.

Credit risk is defined as the potential that a bank and borrower or counterparty will fail to meet

its obligations in accordance with agreed terms. Default occurs if the debtor is unable to meet its

legal obligation according to the debt contract. The examples of default event include the bond

default, the corporate bankruptcy, the credit card charge-off, and the mortgage foreclosure. Other

forms of credit risk include the repayment delinquency in retail loans, the loss severity upon the

default event, as well as the unexpected change of credit rating. Hence, this project is taken to

analyses the credit risk management Practices in SBI Bank. This study is very useful for the bank

in formulation of the various plans, strategies and future policies related to credit risk

management.
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RATIONALE OF THE STUDY

The purpose of this study is to highlight the importance of risk management in everyday

changing business environment; study emphasize that how the strategies of the risk management

works, and implemented within the whole business world, especially in Indian Banking industry.

There has always been a concern about market position, financial issues and market share and

credit risks of the organisation in present economic scenario. We have identified that at least for

stability, and at most to get the lion shares for being a market leader, management of every

organisation always need to keep an eye on changing market, and take quickly risky decisions

whenever required.

OBJECTIVES OF THE STUDY

1) To find out the various methods of credit risk mitigation by which NPAs is minimize in

the bank.

2) To study about the credit risk which occur due to borrower default or other line of credit

interest.

3) To analyse the methods of institution to assessing the risk.

4) To make policy recommendation based on the findings from our study.

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CHAPTER – 2

BANKING PROFILE

State bank of India (SBI)

SBI is the oldest bank of India and India’s largest commercial bank, which is a government,

owned bank was established in 1806. The bank provides a wide array of banking products

through their effective network not only in India but also overseas. The bank has about 18,266

branches, including 4,724 branches of its five Associate Banks, and is also accountable for one-

fifth of the loans of India. It has about 8500 ATMs across the nation.
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CHAPTER – 3

LITERATURE REVIEW

A weak credit risk system precipitates high levels of nonperforming loans and that is why the

NPLs levels have been used as the intervening variable. The principal way of reducing loan

losses and ensuring that loan loss provisions properly replicate the risk profile is to device a

robust, unified, quantitative credit risk management solutions. One of the biggest tests to any

lender or a financial system is the performance of the loan assets and ultimately the asset quality

of the portfolio. The major stock in trade for most of the banks or lenders is their loan assets or

interest or fees earning credit facilities. Loans generate revenue income in form of interest

income, commissions and other chargeable fees and therefore a lifeline to these financial

institutions. Therefore, the literature reviewed provides a fertile ground for development of

robustness in credit risk management systems for commercial banks. If banks develop such

robust systems the likelihood of the growth in NPLs will significantly reduce, reduce the levels

of provisions held and ultimately improve the bank performance.

Origin and Evolution of Credit Risk Management

The origin and Evolution of Credit risk can be traced back thousands of years ago. Credit is

much older than writing. Krimsky and Plough (1988) trace the origin of risk awareness back to

Ancient Mesopotamia, based on the work by Covello and Mumpower (1985), as do Golding
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(1992) and Thompson, et al.(2005). According to Covello and Mumpower (1985), an

optimistically early dating of the practice of risk analysis is that of the time of ancient

Mesopotamia, as well as ancient Greece and Rome, the former relating to sacerdotal practice and

the latter to the history of philosophy (Covello and Mumpower, 1985). The main consideration

of Covello and Mumpower‘s statements about the history of risk are that they are generic.

Althaus (2005) traces a more linear and detailed postulated development through linguistics of

the term ̳risk‘. Even though the code which codified legal thinking from 4,000 years ago in

Mesopotamia (Hammurabi‘s Code) fails to give basic rules of borrowing, it did emphasize that

failure to pay a debt is a crime. The code boldly said that one who fails to pay a debt at the right

time should be treated identically to theft and fraud. Hammurabi‘s Code did not address concepts

such as interest, collateral and default as use by the present day financial institutions but also set

some limits to penalties for a defaulter (Aaron, 2004). Aaron (2004) said a defaulter could face a

penalty of been sold by his creditor into slavery, but his wife and children could only be sold for

a three-year term.

Tracing the history of most places, credit default was a crime and the defaulters were punished.

The punishment varies from place to place. In some areas defaulters of credit risk were

punishable by death, mutilation, torture, imprisonment or enslavement. The punishments could

be visited upon debtors and their dependents. At times debt could be transfer to relative or

political entities. Looking at the penalties involve in credit and pains lenders faced in collecting

their moneys one has to be surprise why anyone borrowed or lent money in ancient times.
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William et al., (2000) wrote an article which describes the internal rating systems presently in

use at the 50 largest US banking organizations: since internal credit risk rating systems are

becoming an increasingly important element of large commercial bank‘s measurement and

management of the credit risk of both individualexposures and portfolios. They used the

diversity of current practice to illuminate the relationships between uses of ratings, different

options for rating system design, and the effectiveness of internal rating systems. They

concluded that Growing stresses on rating systems make an understanding of such relationships

important for both banks and regulators.

Huang and Huang (2003) model postulates the asset risk premium which was a stochastic

process with a negative correlation. They concluded based on theempirical finding that risk

premiums of a security tend to move reversely against the returns of stock index in it. In recent

years, credit scoring has been used for home loans, small business loans and insurance

applications and renewals (Koh, Tan et al., 2004; Thomas, 2000). Conversely, Liu and

Schumann (2005) studied how four feature selection methods - Relief‘, “Correlation-based‘,

Consistency-based‘ and Wrapper‘ algorithms help to improve three aspects of the performance

of scoring models: modelsimplicity, model speed and model accuracy. They realized their results

using four classification algorithms - ̳model tree (M5)‘, ̳neural network (multi-layer perceptron

with back-propagation)‘, ̳logistic regression‘, and k-nearest-neighbours‘.

Kleimeier, 2007). Lean et al., (2007) used a multistage neural network ensemble learning model

to evaluate credit risk at the measurement level. They proposed six models consisting of six

stages. The first stage, a bagging sampling approach was used to generate different training data
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subsets especially for data shortage. In the second stage, the different neural network models are

created with different training subsets obtained from the previous stage. In the third stage, the

generated neural network models are trained with different training datasets and accordingly the

classification score and reliability value of neural classifier can be obtained. In the fourth stage, a

decorrelation maximization algorithm was used to select the appropriate ensemble members.

Lee et al., 2006 demonstrated the effectiveness of credit scoring using CART and MARS. Their

results revealed that, CART and MARS outperform traditional discriminant analysis, logistic

regression, neural networks, and support vector machine (SVM) approachesin terms of credit

scoring accuracy. Recently, with the development of data mining software the process involved

in building credit scoring model is made much easier for credit analysts. Despite the

development of new novel techniques, for practical applications the popular techniques for

banking and business enterprises are credit scorecards, logistic regression and decision trees as it

is relatively easy to identify the important input variable, interpret the results and deploy the

model. Evelyn et al., (2009) evaluated the relative performance of logistic credit risk models that

were selected by means of standard stepwise model selection methods, and average models

obtained by Bayesian model averaging (BMA). Their bootstrap analysis shows that BMA should

be considered as an alternative to stepwise model selection procedures.

Xiaolin et al., (2009) used mixed logit model to predict credit risk of listed companies in China.

In order to reduce the difficulty in dealing with the facts of correlation and multi dimension of

the financial indexes of listed companies and meanwhile to ensure that the data are not lost, they

introduced factor analysis to the mixed logit equation and constructed a factor analysis mixed
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logit model. Fifteen factors were extracted from original financial indexes, and four main factors

were selected to substitute the original financial indexes as explanatory variables. Their results

show that the new approach is reliable, and general prediction accuracy is higher than 80%.

Amir et al.,(2010) applied machine-learning techniques to construct nonlinear nonparametric

forecasting models of consumer credit risk. By combining customer transactions and credit

bureau data from January 2005 to April 2009 for a sample of a major commercial bank's

customers, they were able to constructed out-of-sample forecasts that significantly improve the

classification rates of credit-card-holder delinquencies and defaults, with linear regression R2's

of forecasted/realized delinquencies of 85%. Using conservative assumptions for the costs and

benefits of cutting credit lines based on machine-learning forecasts, they estimated the cost

savings to range from 6% to 25% of total losses. Moreover, the time-series patterns of estimated

delinquency rates from this model over the course of the recent financial crisis suggests that

aggregated consumer-credit risk analytics may have important applications in forecasting

systemic risk.

Bee et al.,(2011) used data mining to improve assessment of credit worthiness using credit

scoring models. Due to privacy concerns and unavailability of real financial data from banks

they used data of payment history of members from a recreational club for the credit scoring

model. The club has been facing a problem of rising number in defaulters in their monthly club

subscription payments. The management would like to have a model which they can deploy to

identify potential defaulters.

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Ayyappan and Ramachandran (2011) conducted a study of 22 public sector and 15 private sector

banks to predict the determinants of the credit risk in the Indian Commercial banking sector by

using an econometric model. The outcome of the study is the non-performing assets had a strong

and statistically significant positive influence on the current non-performing assets. They opined

that the problem of NPA is not only affecting the banks but also the whole economy.

REVIEW OF LITERATURE OF RISK AND CREDIT RISK MANAGEMENT

Gupta and Meera (2011) feel that Basel II regulations have led to a significant improvement in

the risk structure of banks because their capital adequacy has improved. Also, there exists an

inverse relation between CAR and Non-Performing Assets (NPAs), which clearly indicates that

due to capital regulation, banks have to increase their CAR which leads to decrease in NPAs.

Choudhary Navin (2011) designed to develop an internal credit rating model for banks which

improves their current predictive power of financial risk factors. He highlights how banks assess

the creditworthiness of their borrowers and how can they identify the potential defaulters so as to

improve their credit evaluation. He concluded that the business of lending has given rise to credit

risk, which is the risk of default.

A detailed review of several studies points towards the fact that the robustness or weakness of a

credit risk management has a negative impact on the bank performance. Weak credit risk

management platform is a recipe for a higher level of NPLs and this ultimately leads to a poor

financial performance of commercial banks. For instance, Ahsan (2018) study on the problems

and obstacles in credit risk management in Indian Public- Sector Banks concluded that there
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were various grey areas in credit risk systems and proposed an immediate attention and action if

reduction of the bank’s non-performing assets was to be achieved. The study noted that these

grey areas lead to a weak credit risk system that results into high NPLs and consequently low

profitability or bank performance. The research also found out that level of NPLs has intervening

characteristics on the relationship between credit risk management and bank performance.

Therefore, increase in NPLs leads to the deterioration in firms’ balance sheets which precipitates

poor bank performance.

After an in-depth dissection of many studies that used a mixture of primary and secondary data,

the key outcomes of the review were that there is a relationship between credit risk management

and bank performance. The study equally tested the impact of the changes in the macroeconomic

environment to the relationship between the independent and the dependent variables. For

instance, Inaba et al. (2005) investigated the interrelationship between the increase in NPLs and

real economic performance and this was based in an Asian economic giant, in Japan and was

based from the 1990s. The study also noted that some cyclical economic slumps caused

increased NPLs. Second, the upward surge in NPLs led to slanted real economic performance

due to a wrecked banking sector. Dietrich and Wanzenried (2010) sought to examine how the

bank internal features, macroeconomic factors and industry-related influences which impact

numerous banks in Switzerland. The study involved the time within 1999 to 2006 and considered

the impacts of recent financial crisis. The conclusion was that healthier capitalized bank seems to

be more profitable and banks with faster growing loan book posted better results. Waweru and

Kalani (2009) who also carried out a research study on the causes of nonperforming loans in
 27

Kenya concluded that the hostile economic environment was perceived as a perilous external

factor.

Swaranjeet Arora (2013)[1] made an attempt to identify the factors that contribute to Credit

Risk analysis in Indian banks and to compare Credit Risk analysis practices followed by Indian

public and private sector banks, the empirical study has been conducted and views of employees

of various banks have been tested using statistical tools. Present study explored the phenomenon

from different perspectives and revealed that Credit Worthiness analysis and Collateral

requirements are the two important factors for analyzing Credit Risk. From the descriptive and

analytical results, it concluded that Indian banks efficiently manage credit risk. The results also

indicate that there is significant difference between the Indian Public and Private sector banks in

Analyzing Credit Risk.

T. VEERABHADRA RAO (2011) in his study assessed the Risk Management, Regulation and

Supervision of the Financial Sector in general and the Banking Sector in particular is of

paramount importance for the orderly growth of the economy. The present study is undertaken to

assess the impact of such Risk Management and Risk Based Supervision measures introduced by

the Reserve Bank of India (RBI) in the post Reform period. The main objective of the study is to

evaluate the benefits of these measures on the overall working of the Scheduled Commercial

Banks (SCBs)belonging to the three Sectors viz., Public Sector, Private Sector and Foreign

Banks. The study also made inter- sector cross comparisons to see if the impact is uniform

among these sectors and if not, to find out which sector has performed better due to these

changes. It found that the impact of the changes was favorable in the case of the sample SCBs in
 28

general. It observed that the Public Sector Banks have shown outstanding performance indicating

significant difference in their working the results of the ANOVA and Post Hoc Tests have also

confirmed that that the difference is significant in the case of Public Sector Banks as compared to

Private Sector and Foreign Banks. It concludes that Sector wise, the Public Sector Banks have

shown significant difference in their working. Banks in all the three Sectors have also been

ranked on the basis of their performance on individual parameters. Composite Ranking also was

given taking into account the results of all the Parameters. As per this analysis, Development

Bank of Singapore in Foreign Sector secured the 1st Rank, while the second position has gone to

Corporation Bank Ltd. in the Public Sector. HDFC Bank Ltd. in Private Sector stood 4th in the

overall Ranking. It recommended that Banks should adopt Risk Based Audit which should be

more IT based. And On the Human Resources Development front, it is recommended that Banks

should develop well designed training facilities in areas such as Treasury Management, Credit

Risk Management, and Operations Risk Management etc. It is further recommended that

promotions Should be based on merit rather than conventional seniority.

Dr. Krishn A. Goyal (2010)[3] made an attempt to discuss in depth, the importance of risk

management process and throws light on challenges and opportunities regarding implementation

of Basel-II in Indian Banking Industry. The fast changing financial environment exposes the

banks to various types of risk. The concept of risk and management are core of financial

enterprise. The financial sector especially the banking industry in most emerging economies

including India is passing through a process of change. Rising global competition, increasing

deregulation, introduction of innovative products and delivery channels have pushed risk

management to the forefront of today's financial landscape. Ability to gauge the risks and take
 29

appropriate position will be the key to success. It Concluded that Risk is an opportunity as well

as a threat and has different meanings for different users. The banking industry is exposed to

different risks such as forex volatility, risk, variable interest rate risk, market play risk,

operational risks, credit risk etc. which can adversely affect its profitability and financial health.

Risk management has thus emerged as a new and challenging area in banking. Basel II intended

to improve safety and soundness of the financial system by placing increased emphasis on bank's

own internal control and risk management process and models. The supervisory review and

market discipline. Indeed, to enable the calculation of capital requirements under the new accord

requires a bank to implement a comprehensive risk management framework. Over a period of

time, the risk management improvements that are the intended result may be rewarded by lower

capital requirements. However, these changes will also have wide-ranging effects on a bank's

information technology systems, process, people and business, beyond and regulatory

compliance, risk management and finance function.

Dr. Yogieta S. Mehra (2010) analysed the impact of size and ownership of banks on the range

of operational risk management practices used by the banks through execution of survey

comprising of a questionnaire. The study aimed to explore the range of practices used by Indian

Banks in management of operational risk essential for achievement of Advanced Measurement

Approach (hereafter referred to as AMA) for a cross –section of Indian Banks and perform a

comparative analysis with AMA compliant banks worldwide.

The analysis was performed to extract the most important variables which differentiate

performance of one bank from other. The study provides a conclusive evidence of heightened
 30

awareness and due importance given to operational risk by Indian banks. Size was observed to be

a deterrent to collection of external loss data, deeper level of involvement of operational risk

functionaries, data collection and analysis. The practices of average and small sized public sector

and old private sector banks were observed to be lagging behind that of new private sector banks

in usage of BEICFs (RCSA, KRIs), usage of scenarios, updating of these indicators and

collection and usage of external loss data. Wide gap was observed in the range of practices

followed by Indian Banks and the AMA compliant banks worldwide.

Bodla, B. S., Verma, Richa (2009) designed a paper to study the implementation of the Credit

Risk Management Framework by Commercial Banks in India. The results show that the

authority for approval of Credit Risk vests with ‘Board of Directors’ in case of 94.4% and 62.5%

of the public sector and private sector banks, respectively. This authority in the remaining banks,

however, is with the ‘Credit Policy Committee’. For Credit Risk Management, most of the banks

(if not all) are found performing several activities like industry study, periodic credit calls,

periodic plant visits, developing MIS, risk scoring and annual review of accounts. However, the

banks in India are abstaining from the use of derivatives products as risk hedging tool. The

survey has brought out that irrespective of sector and size of bank, Credit Risk Management

framework in India is on the right track and it is fully based on the RBI’s guidelines issued in

this regard.

Usha, Janakiramani (2008) assessed in detail the status of operational risk management in the

Indian banking system in the context of Basel II. The expected coverage of banking assets and

the approach adopted for operational risk capital computation is compared broadly with the
 31

position of the banking system in Asia, Africa and the Middle East. A survey conducted on

twenty two Indian banks indicates insufficient internal data, difficulties in collection of external

loss data and modelling complexities as significant impediments in the implementation of

operational risk management framework in banks in India. The survey underscores the need to

devote more time and resources if banks desire to implement the advanced approach under Basel

II. The results of the survey clearly indicate that the process of designing the framework for

operational risk has just begun for Indian banks. Basel II /regulatory compliance and desire to

establish and implement good controls emerged as two major drivers of operational risk

management in banks. The positive features are that all banks have well defined organizational

structure and Board approved policies for operational risk management; a majority of the banks

were using some of self assessment- a qualitative factor, as an important tool in their operational

risk framework; many banks had started the operational risk loss data collection exercise for

moving over to the advanced approaches though these were still in the formative stages.

However, it also emerged that many banks did not have a clear idea about the elements/factors

required for moving over to the Advanced Measurement Approach (AMA). Insufficient data,

difficulties in gathering external data and modelling difficulties were cited as very significant

obstacles in the implementation of the operational risk management (ORM) framework in banks.

A majority of the banks have also cited lack of regulatory clarity as a moderately significant

obstacle in moving over to the advanced approaches. Banks await regulatory guidance

particularly on the quantification aspects. Regarding the approach to be adopted for regulatory

capital under Basel II, all the banks expect to adopt the Basic Indicator Approach by 2008-09. A

majority of the banks had a desire to move over to the advanced approaches, though no clear

roadmap /Board approval for moving over to advanced approaches was evidenced. The entire
 32

commercial banking system in India, i.e. 100% of the commercial banking assets is expected to

be Basel II compliant by 2009, albeit with the simpler approaches to start with. This position

compares favorably to the coverage of Asia (70% of banking assets), Africa (65% of banking

assets) and the Middle East (89% of banking assets).

Al-Mojahid (2010)[14] in his study indicated that The importance of this study faced by the

banks of the problem of bankruptcy, especially with the recent period due to a lack of risk bank

expected through the development of plans to address them or mitigate their impact, this is what

caused a significant reduction of revenue and therefore to bankruptcy. Therefore, necessary to

study the effect banking risks and their impact on returns, has been selected study sample of

Bank of Credit Agricultural cooperative (CAC BANK) which is considered an appropriate model

for banks Yemen to study the problem of search .it has been the selection of indicators for the

types of risks and returns and study the relationship between them through the financial and

statistical analysis during the Period of the research 2004 to 2008. The study concluded that there

is much direct impact between the banks risks and returns which have reached the most

important results of that over the years the bank. High risk is in 2004 and 2005, where and in this

period occurred miss the proportion of financial and analytical results largely have been the

reason in the main administration changes the banks and the chairman of the board, which has

worked to change policy and strategy of the bank largely and focus on profit over the long term,

and to engage in market to competition, where it has become world bank loan specialist

agricultural bank to the concept of nearly universal.

A weak credit risk system precipitates high levels of nonperforming loans and that is why the

NPLs levels have been used as the intervening variable. The principal way of reducing loan
 33

losses and ensuring that loan loss provisions properly replicate the risk profile is to device a

robust, unified, quantitative credit risk management solutions. One of the biggest tests to any

lender or a financial system is the performance of the loan assets and ultimately the asset quality

of the portfolio. The major stock in trade for most of the banks or lenders is their loan assets or

interest or fees earning credit facilities. Loans generate revenue income in form of interest

income, commissions and other chargeable fees and therefore a lifeline to these financial

institutions. Therefore, the literature reviewed provides a fertile ground for development of

robustness in credit risk management systems for commercial banks. If banks develop such

robust systems the likelihood of the growth in NPLs will significantly reduce, reduce the levels

of provisions held and ultimately improve the bank performance.

CHAPTER – 4

STUDY METHODOLOGY

Research Design: This study is based on a Descriptive research design. Descriptive research is a

type of conclusive research that has as its major objective the description of something.

Sampling Technique: In this research the sampling technique is Non-Probability sampling in

consultation with the project guide since; I was familiar with the research field.

Sampling Method: Convenient sampling method, because it is most efficient and simplest

method of data collection study.

 34

Sampling Unit: The unit refers to the definitions of the particular person who is to be survey. In

this study the unit is the respondent, which is operating in various branches of SBI in New Delhi.

Sampling Size: This refers to the procedure by which we describe the total number of

respondents from whom the information is to be collected.

Sample Size: 100

Data Collection: After the research problem has been defined and the research design has been

chalked out, the task of data collection begins. Data can be collected from either primary or

secondary source. In this study although the data was collected mainly through primary sources,

it was supplemented by secondary data. For the collection of primary data, the respondents were

contacted personally and the tool for gathering the data was the questionnaire.

Methods of Collection of Data

The data for the project report has been collected from the

Primary Data: Primary Data is collected with the help of structured questionnaire from the

employees of SBI Bank, New Delhi.

Secondary Data: Secondary data is collected through various publications of risk management

practices in bank, credit risk management, financial books, newspapers, Bank annual report etc.

Tools of Data Analysis: All the questions in a questionnaire are framed with a specific objective

in mind and are placed in logical, sequential order. The questionnaire framed for the purpose of
 35

the study consists of a limited number of questions placed in a logical order. After that data is

presented with the help of table and charts.

Scope of Study: The scope has been limited to sample size of 100 respondents due to time and

cost constraints. However, the area of study with respect to geographical city is New Delhi.

LIMITATIONS OF THE STUDY

1) The first and foremost limitation was time constraints but still efforts have been made to

put the picture as clear as possible.

2) The sample size is limited to 100 respondents only.

3) Samples were selected as per convenience so errors are bound to creep in the study.

4) Limited access to bank reports and financial data

5) Some bank employees were reluctant to pass out the information.

 36

CHAPTER – 5

DATA ANALYSIS,Tools AND INTERPRETATION

1) Do you have risk management policy in your bank?

Table 1

Risk Management policy in No of respondent % of the respondent

bank
Yes 100 100

No 0 0

Total 100 100

Graph 1
 37

Risk Management policy in bank

Yes No

100%

Interpretation: Above graph shows that all the respondents who are the employees of the bank

are aware about the risk management policy in their bank because SBI has implemented this

policy to all branches. So no respondent was in favour of above question.

2) Which type of risk is more prevalent in your bank?

Table 2

Type of risk No of respondent % of the respondent

Credit risk 98 98%

Business risk 2 2%

Operational 0 0

risk
Total 100 100%

Graph 2
 38

Type of risk
Credit risk Business risk Operational risk
2%

98%

Interpretation: From the above graph and table, we can analyze that Credit risk (98%) is more

prevalent in bank rather than other types of risk (2%). So it is clear that in this bank the risk of

credit is rated high which can be minimize through the various techniques of risk management.

3) What is the main reason for default in Credit?

Table 3

Reason for default in No of respondent % of the respondent

credit
Careless Lending 1 1%

Borrower default 92 92%

Government 7 7%
Policies
Natural Calamities 0 0%
Total 100 100%

Graph
 39

Reason for default in credit

Reason for default in credit
92%

7%
1% 0%
Careless Lending Borrower default Government Natural Calamities
Policies

Interpretation: By above it can be classified that 92% default in credit is more due to

Borrowers default, 7% due to Government policies and 1% due to Careless lending. So,

borrower default mean to non-payment of due money which the bank has granted to its

customers. Above data also shows that bank is very careful in lending service.

4) Does your Bank has a credit recovery department that handles credit collection in

case of default?

Table 4

Having credit Recovery No of respondent % of the respondent

department
Yes 85 85%

No 15 15%

Total 100 100

 40

Graph 4

Having credit Recovery department

Yes No
15%

85%

INTERPRETATION: 85% of the respondents said that they have their own Credit Recovery

Department to handle the cases of credit in default. So such type of functions improves the

operational efficiency of the bank. In the absence of such type of department it is very difficult to

recover the default money from the defaulter. But also 15% respondent’s response in negative.

5) What are the methods used by your bank in assessing credit risk?

Table 5

Methods of assessing credit risk No of respondent % of the respondent

Risk mitigation 17 17%

Monitor and inspection 81 81%

With the help of external audit and 2 2%

committee
 41

Total 100 100%

Graph 5

Methods of assessing credit risk

Risk mitigation
Monitor and inspection
With the help of external audit and committee
2% 17%

81%

Interpretation: Under this 81% employees said that they use Monitor and Inspection technique

to assess the credit risk while 17% said that they use Risk Mitigation technique and 2% take the

help of External Audit and Committee. To assessing the risk, monitor and inspection method is

suitable for bank.

6) What are various techniques of risk mitigation used by your bank?

Table 6

Techniques of risk No of % of the respondent

mitigation respondent
Mortgage 79 79%

Guarantor 4 4%

Insurance 0 0%
Working Status 17 17%
Total 100 100%
 42

Graph 6

Techniques of risk mitigation

17%

4%

79%

Mortgage Guarantor Insurance Working Status

Interpretation: By above it can be explained that 79% of them use Mortgage as Risk mitigation

technique where as 17% uses the Working status of the bank and 4% of them uses guarantor as

Risk Mitigation techniques in their banks & insurance technique is not in their use.

7) What are the key components of credit risk management in your Bank?

Table 7

Key components of risk management No of % of the respondent

respondent
Risk mitigation approach 90 90%

Training to the staff 8 8%

Guideline to loan procedure 2 2%
Total 100 100%
 43

Graph 7

Key components of risk management

Key components of risk management
90%

8% 2%

ch aff r e
r oa e
st e du
p th oc
ap o pr
on gt an
gati nin lo
iti ai to
m Tr e
sk lin
Ri id
e
Gu

Interpretation: Above tables explains that 90% of them prefer Risk Mitigation

Approach as a key component of risk management, where as 2% of them like the

technique of giving Guideline to loan procedure.& 8% respondents favour to give

training to staff.

8) Do you think training of employees will be helpful to minimize the Credit Risk?

Table 8

Training program given to employees No of respondent % of the respondent

Yes 76 76%

No 24 24%

Total 100 100

Graph 8
 44

Training program given to employees

Yes No
24%

76%

Interpretation: Above graph shows that bank should give proper training to their employees

regarding credit risk. 76% of the respondents were agreeing to provide the special training for

minimizing the credit risk & 24% of them was in against of the above question. So bank should

provide the training for the same.

9) Which sector is rated under high Credit Risk?

Table 9

Sector under high credit No of respondent % of the respondent

risk
Industry Sector 89 89%

Retail Sector 5 5%

Service Sector 3 3%
Public Sector 0 0
Individual 3 3%
Total 100 100%
 45

Graph 9

Sector under high credit risk

Sector under high credit risk
89%

5% 3% 3%
0%

Industry Retail Sector Service Sector Public Sector Individual

Sector

Interpretation: 89% of them said that Industry sector is high rated for credit risk where

as 5% were in favour of Retail sector and 3% defined Service sector as highly rated under

Credit risk and no one consider the public sector is risky one because only this sector

ensures you good creditworthiness and 3% respondents agreed with individual.

 46

CHAPTER – 6

FINDINGS AND SUGGESTIONS AND CONCLUSION

Findings
 47

1) Based on the study, 100% respondents who are the employees of the bank have got risk

management policy because SBI has implemented this policy to all branches. So no

respondent was in favour of above question.

2) By the above study it can be said that Credit risk is more in bank which is maximum

98%, business risk is found just 2% & no operational risk is being found at all. So this

data shows that in the bank the risk of credit is rated high.

3) As per study it can be concluded that 92% default in credit is more due to Borrowers

default, 7% due to Government policies and 1% due to Careless lending.

4) Maximum respondents which were 81% employees said that they use Monitor and

Inspection technique to asses the credit risk while 17% said that they use Risk Mitigation

technique and 2% take the help of External Audit and Committee.

5) Most of the respondents use Mortgage as Risk mitigation technique which was 79%

where as 17% uses the Working status of the bank and 4% of them uses guarantor as Risk

Mitigation techniques.

6) The data analysis explains that 90% of the respondents prefer Risk Mitigation Approach,

where as 2% of them like the technique of giving Guideline to loan procedure.& 8%

respondents favour to give training to staff.

 48

7) The study shows that bank should give proper training to their employees regarding

credit risk. 76% of the respondents were agreeing to provide the special training for

minimizing the credit risk & 24% of them were in against.

8) In this study 89% respondents said that Industry sector is high rated for credit risk where

as 5% were in favour of Retail sector and 3% defined Service sector as highly rated under

Credit risk and no one consider the public sector is risky one because only this sector

ensures you good creditworthiness and 3% respondents agreed with individual.

Suggestions

1) Credit risk report should suggest weakness and strength of the project and risk mitigation

measures.

2) While rating existing financial institutions it would be desirable to obtain three years of

working results (B/S and P&L account) analyze and rate the proposals.

3) Benchmark values for each parameter shall be on par with the leading banks / financial

institutions in order to access risk adequately.

4) Risk can be diversified in the industrial portfolio by reducing concentration in single

activities.
 49

5) There various types of parameters for different segments like commercial loans, house

loans, personal loans etc.

6) While rating the company, the proper financial information is sufficient, but in this case

we have only 2 years financials. If more than 2 years information is available more

accurate ratings can be given.

CHAPTER – 7

Linking  of  recommendations  to  the  objectives

 50

Risk management is not something new. Every employee joining a bank starts learning about the

risk inherent in banking operations from day one. Risk management is one of the most important

practices to be used especially in banks. Risk is threats of banks of course, RBI is issuing

guidelines from time to time to maintain solvency of each and every banks. From this view,

internal management of SBI and associates should be checked frequently against this possible

risk. And it is also important that the external credit and risk management agencies should be

consulted by each other regularly so that risk can be controlled and managed. An efficient risk

management system is the need of time. Banks or financial institutions undertake structure rating

exercise with quantitative and qualitative input support to the credit decision. Whether it is a

sanction or rejection. Credit rating enables to check borrower’s capacity and competence and

also repaying capacity. The different banks also introduced credit risk management recently and

developed internally credit risk models for evaluating the loan proposals of the borrowers. In the

present scenario where a cut throat competition is prevailed in the market, the banks are very

conscious towards the different risk specially in the case of credit risk because this risk alone can

make the bank or financial organization a bankrupt. Hence it can be concluded that to decrease

the risk under credit it is necessary to manage and analyze all the necessary documents before

taking any decision regarding credit.

CHAPTER – 8

REFERENCES
 51

1) Voon-Choong. Y, Hway-Boon, O, Kok-Thim, C, and Yueh-Sin, A, (2010). Factors

Affecting Banks’ Risk Exposure: Evidence from Malaysia. European Journal of

Economics, Finance and Administrative Sciences, ISSN 1450-2887, Issue 19,

pp. 121-122.

2) Medova, E.A. (2001). Operational Risk Capital Allocation and Integration of

Risks.Centre for Financial Research, 1-23.

3) Cumming, Christine and Beverly J. Hirtle (2001), “The Challenges of Risk Management

in Diversified Financial Companies”, Economic Policy Review, Federal Reserve Bank of

New York, 7, 1-17

4) Diamond, D.W. (1999). Liquidity Risk, Liquidity Creation and Financial

Fragility: A Theory of Banking. National Bureau of Economic Research, 1-55.

5) Rajagopal, S., (1998). Bank Risk Management – A Pricing Model, The Banker, The

Journal of Banking, April, pp-25.

6) Battacharya, H., (2001). Banking Strategy, Credit Appraisal & Lending Decisions,

Oxford University Press, New Delhi.

7) Swaranjeet Arora, Credit Risk Analysis in Indian Commercial Banks-An Empirical

Investigation, Asia-Pacific Finance and Accounting Review,Volume 1, No. 2, Jan - Mar

2013.
 52

8) T. VEERABHADRA RAO, Risk Management Architecture - A Cross Comparison

Between Select Indian And Foreign Banks - Impact Of Risk Based Supervision, PhD

Theses, Jawaharlal Nehru Technological University Hyderabad, August 2011.

9) Dr. Krishn A. Goyal, “RISK MANAGEMENT IN INDIAN BANKS: SOME

EMERGING ISSUES”, International Journal Economics. Research. Volume 1, Issue 1,

Nov-Dec 2010.pp.102-109.

10) Dr. Yogieta S. Mehra, Operational Risk Management In Indian Banks: Impact Of

Ownership And Size On Range Of Practices For Implementation Of Advanced

Measurement Approach, Indian Journal of Finance, Volume 4. Number 11. November

2010.

11) Bodla, B. S.,Verma,Richa,Credit Risk Management Framework at Banks in India,

The ICFAI University journal of bank management : IJBM.,Hyderabad : ICFAI Univ.

Press, Vol. 8.NO.1, 2009, pp. 47-72

12) Usha, Janakiramani , Operational Risk Management In Indian Banks In The Context

Of Basel II: A Survey Of The State Of Preparedness And Challenges In Developing

The Framework, Reserve Bank of India, India, Asia Pacific Journal of Finance and

Banking Research Vol. 2, No. 2, 2008.

13) Bratanovic, S.B., and V.H. Greuning, (2000). Analyzing Banking Risk, Working Paper

the World Bank, Washington, D.C.

 53

14) Rajaraman, I and Vashistha, G., (2002).Non Performing Loans of Indian Public Sector

Banks – Some Panel Results, Economic and Political Weekly, February.

15) Raghavan, R.S., (2002). Risk Management - An Overview, A Monthly Journal of The

Indian Banking Association, Vol. XXIV, Dated November, p. 13.

16) Sathye, M., (2003). Efficiency of Banks in a Developing Economy: The Case of India,

European Journal of Operational Research, 148, pp. 662-671.

17) Rajesh, Sood., (2003). Risk Based Supervision – A New Tool with Supervision for

Managing Risks in Banks, A Monthly Journal of The Indian Banking Association, Vol.

XXV, No. 9, September, pp. 5.

18) Prabhaker Verma., (2004). Risk Mitigation: Need for Training, A Monthly Journal of the

Indian Banking Association, Vol. XXIV No. 6 June, pp. 30.

19) Peter O. Davis., (2004). Credit Risk Measurement: Avoiding Unintended Results, RMA

Journal, April, P. 86.

 54

ANNEXURE

QUESTIONNAIRE

1) Do you have risk management policy in your bank?

 Yes

 No

2) Which type of risk is more prevalent in your bank?

 Credit risk

 Business risk

 Operational risk

3) What is the main reason for default in Credit?

 Careless lending

 Borrower default

 Government policies

 Natural calamities

4) Does your Bank has a credit recovery department that handles credit collection in

case of default?

 Yes
 55

 No

5) What are the methods used by your bank in assessing credit risk?

 risk mitigation

 monitor and inspection

 with the help of external audit and committee

6) What are various techniques of risk mitigation used by your bank?

 Mortgage

 Guarantor

 Insurance

 Working status

7) What are the key components of credit risk management in your Bank?

 Risk mitigation approach

 Training to the staff

 Guideline to loan procedure

8) Do you think training of employees will be helpful to minimize the Credit Risk?

 Yes

 No

9) Which sector is rated under high Credit Risk?

 56

 Industry sector

 Retail sector

 Service sector

 Public sector

 Individual