“Credit Risk Management in State Bank Of India”

Credit Risk Management in State Bank Of India
EXECUTIVE SUMMARY
BABASAB PATIL 1

Credit Risk Management in State Bank Of India
TITLE OF THE PROJECT
“Credit Risk Management in State Bank Of India”

BACKRO!"# OF PROJECT TOPIC$
Credit risk is defined as the potentia that a !ank !orro"er or #o$nterpart% "i
fai to meet its o!igations in a##ordan#e "ith agreed terms& or in other "ords it is defined
as the risk that a firm's #$stomer and the parties to "hi#h it has ent mone% "i fai to
make promised pa%ments is kno"n as #redit risk
The e(pos$re to the #redit risks arge in #ase of finan#ia instit$tions& s$#h
#ommer#ia !anks "hen firms !orro" mone% the% in t$rn e(pose enders to #redit risk&
the risk that the firm "i defa$t on its promised pa%ments) As a #onse*$en#e& !orro"ing
e(poses the firm o"ners to the risk that firm "i !e $na!e to pa% its de!t and th$s !e
for#ed to !ankr$pt#%)
IMPORTA"CE OF THE PROJECT
The pro+e#t heps in $nderstanding the #ear meaning of #redit Risk Management In State
Bank Of India) It e(pains a!o$t the #redit risk s#oring and Rating of the Bank) And aso
St$d% of #omparati,e st$d% of Credit -oi#% "ith that of its #ompetitor heps in
$nderstanding the fair #redit poi#% of the Bank and Credit Re#o,er% management of the
Banks and aso its ke% #ompetitors)
BABASAB PATIL .

Credit Risk Management in State Bank Of India
OBJECTI%ES OF PROJECT
1) To St$d% the #ompete str$#t$re and histor% of State Bank Of India)
.) To kno" the different methods a,aia!e for #redit Rating and $nderstanding the
#redit rating pro#ed$re $sed in State Bank Of India)
/) To gain insights into the #redit risk management a#ti,ities of the State Bank Of
India)
0) To kno" the RBI 1$ideines regarding #redit rating and risk ana%sis)
2) St$d%ing the #redit poi#% adopted Comparati,e ana%ses of -$!i# se#tor and
pri,ate se#tor)
METHO#OLO&$
#ATA COLLECTIO" METHO#
To f$fi the o!+e#ti,es of m% st$d%& I ha,e taken !oth into #onsiderations ,i3 primar% 4
se#ondar% data)
Primar' data$ -rimar% data has !een #oe#ted thro$gh persona inter,ie" !% dire#t
#onta#t method) The method "hi#h "as adopted to #oe#t the information is 5-ersona
Inter,ie"’ method)
-ersona inter,ie" and dis#$ssion "as made "ith manager and other personne in
the organi3ation for this p$rpose)
Se()ndar' data$ The data is #oe#ted from the Maga3ines& Ann$a reports& Internet&
Te(t !ooks)
The ,ario$s so$r#es that "ere $sed for the #oe#tion of se#ondar% data are
BABASAB PATIL /

Credit Risk Management in State Bank Of India
o Interna fies 4 materias
o 6e!sites 7 Vario$s sites ike """) sharekhan)#om
""")indiainfoine)#om
""")s!i)#o)in
""")in,estopedia)#om
"""))"ikepedia)#om and other site
Findings$
• -ro+e#t findings re,ea that SBI is san#tioning ess Credit to agri#$t$re& as
#ompared "ith its ke% #ompetitor's ,i3)& Canara Bank& Corporation Bank&
S%ndi#ate Bank
• Re()*er' )f Credit$ SBI re#o,er% of Credit d$ring the %ear .889 is 9.)0:
Compared to other Banks SBI 5s re#o,er% poi#% is ,er% good& hen#e this red$#es
;-A
• T)ta+ Ad*an(es$ As #ompared tota ad,an#es of SBI is in#reased %ear !% %ear)
• State Bank Of India is granting #redit in a se#tors in an E*$ated Month%
Instaments so that an% !od% #an !orro" mone% easi%
• -ro+e#t findings re,ea that State Bank Of India is ending more #redit or
san#tioning more oans as #ompared to other Banks)
• State !ank Of India is e(panding its Credit in the foo"ing fo#$s areas<
1) SBI Term =eposits
.) SBI Re#$rring =eposits
/) SBI >o$sing ?oan
0) SBI Car ?oan
2) SBI Ed$#ationa ?oan
BABASAB PATIL 0

Credit Risk Management in State Bank Of India
9) SBI -ersona ?oan @et#
• In #ase of indire#t agri#$t$re ad,an#es& SBI is granting /)1: of ;et Banks
Credit& "hi#h is ess as #ompared to Canara Bank& S%ndi#ate Bank and
Corporation Bank) SBI has to entertain indire#t se#tors of agri#$t$re so that it
#an ha,e more n$m!er of !orro"ers for the Bank)
• SBI's dire#t agri#$t$re ad,an#es as #ompared to other !anks is 18)2: of the ;et
Bank's Credit& "hi#h sho"s that Bank has not ent eno$gh #redit to dire#t
agri#$t$re se#tor)
• Credit risk management pro#ess of SBI $sed is ,er% effe#ti,e as #ompared "ith
other !anks)
RECOMME"#ATIO"S$
• The Bank sho$d keep on re,ising its Credit -oi#% "hi#h "i hep Bank's effort to
#orre#t the #o$rse of the poi#ies
• The Chairman and Managing =ire#torAE(e#$ti,e =ire#tor sho$d make
modifi#ations to the pro#ed$ra g$ideines re*$ired for impementation of the
Credit -oi#% as the% ma% !e#ome ne#essar% from time to time on a##o$nt of
organi3ationa needs)
• Banks has to grant the oans for the esta!ishment of !$siness at a moderate rate of
interest) Be#a$se of this& the peope #an repa% the oan amo$nt to !ank reg$ar%
and prompt%)
• Bank sho$d not iss$e entire amo$nt of oan to agri#$t$re se#tor at a time& it
sho$d reease the oan in instaments) If the #imati# #onditions are good then
the% ha,e to reease remaining amo$nt)
• SBI has to red$#e the Interest Rate)
BABASAB PATIL 2

Credit Risk Management in State Bank Of India
• SBI has to entertain indire#t se#tors of agri#$t$re so that it #an ha,e more n$m!er
of !orro"ers for the Bank)
CO"CL!SIO"$
The pro+e#t $ndertaken has heped a ot in gaining kno"edge of the BCredit -oi#% and
Credit Risk ManagementC in ;ationai3ed Bank "ith spe#ia referen#e to State Bank Of
India) Credit -oi#% and Credit Risk -oi#% of the Bank has !e#ome ,er% ,ita in the
smooth operation of the !anking a#ti,ities) Credit -oi#% of the Bank pro,ides the
frame"ork to determine DaE "hether or not to e(tend #redit to a #$stomer and D!E ho"
m$#h #redit to e(tend) The -ro+e#t "ork has #ertain% enri#hed the kno"edge a!o$t the
effe#ti,e management of BCredit -oi#%C and BCredit Risk ManagementC in !anking
se#tor)
• BCredit -oi#%C and BCredit Risk ManagementC is a ,ast s$!+e#t and it is ,er%
diffi#$t to #o,er a the aspe#ts "ithin a short period) >o"e,er& e,er% effort has
!een made to #o,er most of the important aspe#ts& "hi#h ha,e a dire#t !earing
on impro,ing the finan#ia performan#e of Banking Ind$str%
• To s$m $p& it "o$d not !e o$t of "a% to mention here that the State Bank Of
India has gi,en spe#ia inp$ts on BCredit -oi#%C and BCredit Risk
ManagementC) In p$rs$an#e of the instr$#tions and g$ideines iss$ed !% the
Reser,e Bank of India& the State !ank Of India is granting and e(panding #redit
to a se#tors)
• The #on#erted efforts p$t in !% the Management and Staff of State Bank Of
India has heped the Bank in a#hie,ing remarka!e progress in amost a the
important parameters) The Bank is mar#hing ahead in the dire#tion of a#hie,ing
the ;$m!erF1 position in the Banking Ind$s
BABASAB PATIL 9

Credit Risk Management in State Bank Of India
BA;GI;1 I;=USTRY OVERVIE6
BABASAB PATIL H

Credit Risk Management in State Bank Of India
I"#!STR& O%ER%IE,
Hist)r'$
Banking in India has its origin as #arr% as the Vedi# period) It is !eie,ed that the
transition from mone% ending to !anking m$st ha,e o##$rred e,en !efore Man$& the
great >ind$ +$rist& "ho has de,oted a se#tion of his "ork to deposits and ad,an#es and
aid do"n r$es reating to the interest) =$ring the moga period& the indigeno$s !ankers
pa%ed a ,er% important roe in ending mone% and finan#ing foreign trade and
#ommer#e) =$ring the da%s of East India Compan%& it "as to t$rn of the agen#% ho$ses
top #arr% on the !anking !$siness) The genera !ank of India "as the first +oint sto#k !ank
to !e esta!ished in the %ear 1HI9)The others "hi#h foo"ed "ere the Bank of >ind$stan
and the Benga Bank) The Bank of >ind$stan is reported to ha,e #ontin$ed ti 1J89&
"hie the other t"o faied in the meantime) In the first haf of the 1J
th
Cent$r% the East
India Compan% esta!ished three !anksK The Bank of Benga in 1I8J& The Bank of
Bom!a% in 1I08 and The Bank of Madras in 1I0/)These three !anks aso kno"n as
presiden#% !anks and "ere independent $nits and f$n#tioned "e) These three !anks
"ere amagamated in 1J.8 and The Imperia Bank of India "as esta!ished on the .H
th
Lan 1J.1& "ith the passing of the SBI A#t in 1J22& the $ndertaking of The Imperia Bank
of India "as taken o,er !% the ne"% #onstit$ted SBI) The Reser,e Bank "hi#h is the
Centra Bank "as #reated in 1J/2 !% passing of RBI A#t 1J/0& in the "ake of s"adeshi
mo,ement& a n$m!er of !anks "ith Indian Management "ere esta!ished in the #o$ntr%
name% -$n+a! ;ationa Bank ?td& Bank of India ?td& Canara Bank ?td& Indian Bank ?td&
The Bank of Baroda ?td& The Centra Bank of India ?td )On L$% 1J
th
1J9J& 10 Ma+or
Banks of the #o$ntr% "ere nationai3ed and in 12
th
Apri 1JI8 si( more #ommer#ia
pri,ate se#tor !anks "ere aso taken o,er !% the go,ernment) The Indian Banking
ind$str%& "hi#h is go,erned !% the Banking Reg$ation A#t of India 1J0J& #an !e !road%
#assified into t"o ma+or #ategories& nonFs#hed$ed !anks and s#hed$ed !anks)
S#hed$ed Banks #omprise #ommer#ia !anks and the #oFoperati,e !anks)
BABASAB PATIL I

Credit Risk Management in State Bank Of India
The first phase of finan#ia reforms res$ted in the nationai3ation of 10 ma+or !anks in
1J9J and res$ted in a shift from #ass !anking to mass !anking) This in t$rn res$ted in
the signifi#ant gro"th in the geographi#a #o,erage of !anks) E,er% !ank had to earmark
a min per#entage of their oan portfoio to se#tors identified as Bpriorit% se#torsC the
man$fa#t$ring se#tor aso gre" d$ring the 1JH8's in prote#ted en,ironments and the
!anking se#tor "as a #riti#a so$r#e) The ne(t "a,e of reforms sa" the nationai3ation of
9 more #ommer#ia !anks in 1JI8 sin#e then the n$m!er of s#hed$ed #ommer#ia !anks
in#reased fo$rF fod and the n$m!er of !ank !ran#hes in#reased to eight fod)
After the se#ond phase of finan#ia se#tor reforms and i!erai3ation of the se#tor in the
ear% nineties) The -SB's fo$nd it e(treme% diffi#$t to #ompete "ith the ne" pri,ate
se#tor !anks and the foreign !anks) The ne" pri,ate se#tor first made their appearan#e
after the g$ideines permitting them "ere iss$ed in Lan$ar% 1JJ/)
T-e Indian Banking S'stem$
Banking in o$r #o$ntr% is aread% "itnessing the sea #hanges as the !anking se#tor seeks
ne" te#hnoog% and its appi#ations) The !est port is that the !enefits are !eginning to
rea#h the masses) Earier this domain "as the preser,e of ,er% fe" organi3ations) Moreign
!anks "ith hea,% in,estments in te#hnoog% started gi,ing some BO$t of the "ordC
#$stomer ser,i#es) B$t& s$#h ser,i#es "ere a,aia!e on% to see#ted fe"F the ,er% arge
a##o$nt hoders) Then #ame the i!erai3ation and "ith it a m$tit$de of pri,ate !anks& a
arge segment of the $r!an pop$ation no" re*$ires minima time and spa#e for its
!anking needs)
BABASAB PATIL J

Credit Risk Management in State Bank Of India
A$tomated teer ma#hines or pop$ar% kno"n as ATM are the three apha!ets that ha,e
#hanged the #on#ept of !anking ike nothing !efore) Instead of teers handing %o$r o"n
#ash& toda% there are effi#ient ma#hines that don't tak !$t +$st dispense #ash) Under the
Reser,e Bank of India A#t 1J/0& !anks are #assified as s#hed$ed !anks and nonF
s#hed$ed !anks) The s#hed$ed !anks are those& "hi#h are entered in the Se#ond
S#hed$e of RBI A#t& 1J/0) S$#h !anks are those& "hi#h ha,e paidF $p #apita and
reser,es of an aggregate ,a$e of not ess then Rs)2 a#s and "hi#h satisf% RBI that their
affairs are #arried o$t in the interest of their depositors) A #ommer#ia !anks Indian and
Moreign& regiona r$ra !anks and state #oFoperati,e !anks are S#hed$ed !anks) ;on
S#hed$ed !anks are those& "hi#h ha,e not !een in#$ded in the Se#ond S#hed$e of the
RBI A#t& 1J/0)
The organi3ed !anking s%stem in India #an !e !road% #assified into three #ategories< DiE
Commer#ia Banks DiiE Regiona R$ra Banks and DiiiE CoFoperati,e !anks) The Reser,e
Bank of India is the s$preme monetar% and !anking a$thorit% in the #o$ntr% and has the
responsi!iit% to #ontro the !anking s%stem in the #o$ntr%) It keeps the reser,es of a
#ommer#ia !anks and hen#e is kno"n as the BReser*e BankC)
C.rrent s(enari)$/
C$rrent% D.88HE& the o,era !anking in India is #onsidered as fair% mat$re in terms of
s$pp%& prod$#t range and rea#h F e,en tho$gh rea#h in r$ra India sti remains a
#haenge for the pri,ate se#tor and foreign !anks) E,en in terms of *$ait% of assets and
Capita ade*$a#%& Indian !anks are #onsidered to ha,e #ean& strong and transparent
!aan#e sheets F as #ompared to other !anks in #ompara!e e#onomies in its region) The
Reser,e Bank of India is an a$tonomo$s !od%& "ith minima press$re from the
1o,ernment
BABASAB PATIL 18

Credit Risk Management in State Bank Of India
6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$ite some time
espe#ia% in its ser,i#es se#tor& the demand for !anking ser,i#es espe#ia% retai
!anking& mortgages and in,estment ser,i#es are e(pe#ted to !e strong) Mergers 4
A#*$isitions)& takeo,ers& are m$#h more in a#tion in India)
One of the #assi#a e#onomi# f$n#tions of the !anking ind$str% that has remained
,irt$a% $n#hanged o,er the #ent$ries is ending) On the one hand& #ompetition has had
#onsidera!e ad,erse impa#t on the margins& "hi#h enders ha,e en+o%ed& !$t on the other
hand te#hnoog% has to some e(tent red$#ed the #ost of dei,er% of ,ario$s prod$#ts and
ser,i#es)
Bank is a finan#ia instit$tion that !orro"s mone% from the p$!i# and ends mone% to the
p$!i# for prod$#ti,e p$rposes) The Indian Banking Reg$ation A#t of 1J0J defines the
term Banking Compan% as NAn% #ompan% "hi#h transa#ts !anking !$siness in IndiaN and
the term !anking as NA((e0ting f)r t-e 0.r0)se )f +ending a++ in*estment )f de0)sits1
)f m)ne' fr)m t-e 0.2+i(1 re0a'a2+e )n demand )r )t-er3ise and 3it-dra3a+ 2'
(-e4.e1 draft )r )t-er3ise56
Banks pa% important roe in e#onomi# de,eopment of a #o$ntr%& ike<

• Banks mo!iise the sma sa,ings of the peope and make them a,aia!e for
prod$#ti,e p$rposes)
• -romotes the ha!it of sa,ings among the peope there!% offering attra#ti,e rates of
interests on their deposits)
• -ro,ides safet% and se#$rit% to the s$rp$s mone% of the depositors and as "e
pro,ides a #on,enient and e#onomi#a method of pa%ment)

• Banks pro,ide #on,enient means of transfer of f$nd from one pa#e to another)
• >eps the mo,ement of #apita from regions "here it is not ,er% $sef$ to regions
"here it #an !e more $sef$)
BABASAB PATIL 11

Credit Risk Management in State Bank Of India
• Banks ad,an#es e(pos$re in trade and #ommer#e& ind$str% and agri#$t$re !%
kno"ing their finan#ia re*$irements and prospe#ts)
• Bank a#ts as an intermediar% !et"een the depositors and the in,estors) Bank aso a#ts
as mediator !et"een e(porter and importer "ho does foreign trades)
Th$s Indian !anking has #ome from a ong "a% from !eing a seep% !$siness instit$tion
to a high% proFa#ti,e and d%nami# entit%) This transformation has !een arge% !ro$ght
a!o$t !% the arge dose of i!erai3ation and e#onomi# reforms that ao"ed !anks to
e(pore ne" !$siness opport$nities rather than generating re,en$es from #on,entiona
streams Di)e) !orro"ing and endingE) The !anking in India is high% fragmented "ith /8
!anking $nits #ontri!$ting to amost 28: of deposits and 98: of ad,an#es)
BABASAB PATIL 1.

Credit Risk Management in State Bank Of India
T-e Str.(t.re )f Indian Banking$
The Indian !anking ind$str% has Reser,e Bank of India as its Reg$ator% A$thorit%) This
is a mi( of the -$!i# se#tor& -ri,ate se#tor& CoFoperati,e !anks and foreign !anks) The
pri,ate se#tor !anks are again spit into od !anks and ne" !anks)
BABASAB PATIL 1/
Reser*e Bank )f India
7Centra+ Bank8
S(-ed.+ed Banks
S#hed$ed CoFoperati,e Banks
S#hed$ed
Commer#ia Banks
-$!i# Se#tor
Banks
;ationai3ed
Banks
SBI 4 its
Asso#iates
-ri,ate Se#tor
Banks
Od -ri,ate
Se#tor Banks
Moreign
Banks
Regiona
R$ra Banks
S#hed$ed Ur!an
CoFOperati,e
Banks
S#hed$ed State
CoFOperati,e Banks
;e" -ri,ate
Se#tor Banks

Credit Risk Management in State Bank Of India
Chart Sho"ing Three =ifferent Se#tors of Banks
iE -$!i# Se#tor Banks
iiE -ri,ate Se#tor Banks
-$!i# Se#tor Banks
SBI and ;ationai3ed Regiona R$ra
SUBSI=IARIES Banks Banks
SBI and s.2sidiaries
This gro$p #omprises of the State Bank of India and its se,en s$!sidiaries ,i3)&
State Bank of -atiaa& State Bank of >%dera!ad& State Bank of Tra,an#ore& State Bank of
Bikaner and Laip$r& State Bank of M%sore& State Bank of Sa$rashtra& State Bank of India
State Bank )f India DSBIE is the argest !ank in India) If one meas$res !% the
n$m!er of !ran#h offi#es and empo%ees& SBI is the argest !ank in the "ord)
Esta!ished in 1I89as Bank of Benga it is the odest #ommer#ia !ank in the Indian
s$!#ontinent) SBI pro,ides ,ario$s domesti#& internationa and ;RI prod$#ts and
ser,i#es& thro$gh its ,ast net"ork in India and o,erseas) 6ith an asset !ase of O1.9
!iion and its rea#h& it is a regiona !anking !ehemoth) The go,ernment nationai3ed the
!ank in1J22& "ith the Reser,e !ank of India taking a 98: o"nership stake) In re#ent
%ears the !ank has fo#$sed on t"o priorities& 1E& red$#ing its h$ge staff thro$gh 1oden
handshakes#hemes kno"n as the Vo$ntar% Retirement S#heme& "hi#h sa" man% of its
!est and !rightest defe#t to the pri,ate se#tor& and .E& #omp$teri3ing its operations)
BABASAB PATIL 10

Credit Risk Management in State Bank Of India
The State Bank of India tra#es its roots to the first de#ade of1Jth #ent$r%& "hen the Bank
of #$#$tta& ater renamed theBank of !enga& "as esta!ished on . +$n 1I89) The
go,ernment amagamatted Bank of Benga and t"o other -residen#% !anks& name%& the
Bank of Bom!a% and the !ank of Madras& and named the reorgani3ed !anking entit% the
Imperia Bank of India) A these -residen#% !anks "ere in#orporated as#ompanies& and
"ere the res$t of thero%a #harters) The Imperia Bank of India #ontin$ed to remain a
+oint sto#k #ompan%) Unti the esta!ishment of a #entra !ank in India the Imperia Bank
and its ear% prede#essors ser,ed as the nationPs #entra !ank printing #$rren#%)
The State Bank of India A#t 1J22& ena#ted !% the pariament of India& a$thori3ed the
Reser,e Bank of India& "hi#h is the #entra Banking Organisationof India& to a#*$ire a
#ontroing interest in the Imperia Bank of India& "hi#h "as renamed the State Bank of
India on/8th Apri 1J22)
In re#ent %ears& the !ank has so$ght to e(pand its o,erseas operations !% !$%ing foreign
!anks) It is the on% Indian !ank to feat$re in the top 188 "ord !anks in the Mort$ne
1o!a 288 rating and ,ario$s other rankings) A##ording to the Mor!es .888 isting it tops
a Indian #ompanies)
;ationai3ed !anks
This gro$p #onsists of pri,ate se#tor !anks that "ere nationai3ed) The 1o,ernment of
India nationai3ed 10 pri,ate !anks in 1J9J and another 9 in the %ear 1JI8) In ear% 1JJ/&
there "ere .I nationai3ed !anks i)e)& SBI and its H s$!sidiaries p$s .8 nationai3ed
!anks) In 1JJ/& the oss making ne" !ank of India "as merged "ith profit making
-$n+a! ;ationa Bank) >en#e& no" on% .H nationai3ed !anks e(ist in India)
BABASAB PATIL 12

Credit Risk Management in State Bank Of India
Regiona R$ra !anks
These "ere esta!ished !% the RBI in the %ear 1JH2 of !anking #ommission) It "as
esta!ished to operate e(#$si,e% in r$ra areas to pro,ide #redit and other fa#iities to
sma and margina farmers& agri#$t$ra a!orers& artisans and sma entreprene$rs)
Pri*ate Se(t)r Banks
Pri*ate Se(t)r Banks
Od pri,ate ne" pri,ate
Se#tor Banks Se#tor Banks
Od -ri,ate Se#tor Banks
This gro$p #onsists of the !anks that "ere esta!ishes !% the pri,% se#tors& #ommittee
organi3ations or !% gro$p of professionas for the #a$se of e#onomi# !etterment in their
operations) Initia%& their operations "ere #on#entrated in a fe" regiona areas) >o"e,er&
their !ran#hes so"% spread thro$gho$t the nation as the% gro")
;e" pri,ate Se#tor Banks
These !anks "ere started as profit orient #ompanies after the RBI opened the !anking
se#tor to the pri,ate se#tor) These !anks are most% te#hnoog% dri,en and !etter managed
than other !anks)
Moreign !anks
These are the !anks that "ere registered o$tside India and had originated in a foreign
#o$ntr%) The ma+or parti#ipants of the Indian finan#ia s%stem are the #ommer#ia !anks&
the finan#ia instit$tions DMIsE& en#ompassing termFending instit$tions& in,estment
BABASAB PATIL 19

Credit Risk Management in State Bank Of India
instit$tions& spe#iai3ed finan#ia instit$tions and the stateFe,e de,eopment !anks& ;onF
Bank Minan#ia Companies D;BMCsE and other market intermediaries s$#h as the sto#k
!rokers and mone%Fenders) The #ommer#ia !anks and #ertain ,ariants of ;BMCs are
among the odest of the market parti#ipants) The MIs& on the other hand& are reati,e%
ne" entities in the finan#ia market pa#e)
IMPORTA"CE OF BA"KI" SECTOR I" A RO,I" ECO"OM&
In the re#ent times "hen the ser,i#e ind$str% is attaining greater importan#e #ompared to
man$fa#t$ring ind$str%& !anking has e,o,ed as a prime se#tor pro,iding finan#ia
ser,i#es to gro"ing needs of the e#onom%)
Banking ind$str% has $ndergone a paradigm shift from pro,iding ordinar% !anking
ser,i#es in the past to pro,iding s$#h #ompi#ated and #r$#ia ser,i#es ike& mer#hant
!anking& ho$sing finan#e& !i dis#o$nting et#) This se#tor has !e#ome more a#ti,e "ith
the entr% of ne" pa%ers ike pri,ate and foreign !anks) It has aso e,o,ed as a prime
!$ider of the e#onom% !% $nderstanding the needs of the same and en#o$raging the
de,eopment !% "a% of gi,ing oans& pro,iding infrastr$#t$re fa#iities and finan#ing
a#ti,ities for the promotion of entreprene$rs and other !$siness esta!ishments)
Mor a fast de,eoping e#onom% ike o$rs& presen#e of a so$nd finan#ia s%stem to
mo!ii3e and ao#ate sa,ings of the p$!i# to"ards prod$#ti,e a#ti,ities is ne#essar%)
Commer#ia !anks pa% a #r$#ia roe in this regard)
The Banking se#tor in re#ent %ears has in#orporated ne" prod$#ts in their !$sinesses&
"hi#h are hepf$ for gro"th) The !anks ha,e started to pro,ide feeF!ased ser,i#es ike&
treas$r% operations& managing deri,ati,es& options and f$t$res& a#ting as !ankers to the
ind$str% d$ring the p$!i# offering& pro,iding #ons$tan#% ser,i#es& a#ting as an
intermediar% !et"een t"oF!$siness entities et#)At the same time& the !anks are rea#hing
BABASAB PATIL 1H

Credit Risk Management in State Bank Of India
o$t to other end of #$stomer re*$irements ike& ins$ran#e premi$m pa%ment& ta( pa%ment
et#) It has #hanged itsef from transa#tion t%pe of !anking into reationship !anking&
"here %o$ find friend% and *$i#k ser,i#e s$ited to %o$r needs) This is possi!e "ith
$nderstanding the #$stomer needs their ,a$e to the !ank& et#) This is possi!e "ith the
hep of "e organi3ed staff& #omp$ter !ased net"ork for speed% transa#tions& prod$#ts
ike #redit #ard& de!it #ard& heath #ard& ATM et#) These are the present trend of ser,i#es)
The #$stomers at present ask for #on,enien#e of !anking transa#tions& ike .0 ho$rs
!anking& "here the% "ant to $tii3e the ser,i#es "hene,er there is a need) The
reationship !anking pa%s a ma+or and important roe in gro"th& !e#a$se the #$stomers
no" ha,e eno$gh n$m!er of opport$nities& and the% #hoose a##ording to their
satisfa#tion of responses and re#ognition the% get) So the !anks ha,e to pa% #a$tio$s%&
ese the% ma% ose o$t the pa#e in the market d$e to #ompetition& "here sightest of
opport$nities are #apt$red fast)
Another ma+or roe pa%ed !% !anks is in transnationa !$siness& transa#tions and
net"orking) Man% eading Indian !anks ha,e spread o$t their net"ork to other #o$ntries&
"hi#h hep in #$rren#% transfer and earn e(#hange o,er it)
These !anks pa% a ma+or roe in #ommer#ia import and e(port !$siness& !et"een parties
of t"o #o$ntries) This foreign presen#e aso heps in !ringing in the internationa
standards of operations and ideas) The i!erai3ation poi#% of 1JJ1 has ao"ed man%
foreign !anks to enter the Indian market and esta!ish their !$siness) This has heped
arge amo$nt of foreign #apita info" 4 in#rease o$r Moreign e(#hange reser,e)
Another emerging #hange happening a o,er the !anking ind$str% is #onsoidation
thro$gh mergers and a#*$isitions) This heps the !anks in strengthening their empire and
e(panding their net"ork of !$siness in terms of ,o$me and effe#ti,eness)
BABASAB PATIL 1I

Credit Risk Management in State Bank Of India
EMERI" SCE"ARIO I" THE BA"KI" SECTOR
The Indian !anking s%stem has passed thro$gh three distin#t phases from the time of
in#eption) The first "as !eing the era of #hara#ter !anking& "here %o$ "ere re#ogni3ed as
a #redi!e depositor or !orro"er of the s%stem) This era #ome to an end in the si(ties) The
se#ond phase "as the so#ia !anking) ;o"here in the demo#rati# de,eoped "ord& "as
!anking or the ser,i#e ind$str% nationai3ed) B$t this "as pra#ti#ed in India) Those "ere
the da%s "hen !ankers has no #$e "hatsoe,er as to ho" to determine the s#ae of finan#e
to ind$str%) The third era of !anking "hi#h is in e(isten#e toda% is #aed the era of
-r$dentia Banking) The main fo#$s of this phase is on pr$dentia norms a##epted
internationa%)
SBI r).0/
The Bank of Benga& "hi#h ater !e#ame the State Bank of India) State Bank of India
"ith its se,en asso#iate !anks #ommands the argest !anking reso$r#es in India)
"ati)na+isati)n/
The ne(t signifi#ant miestone in Indian Banking happened in ate 1J98s "hen the then
Indira 1andhi go,ernment nationai3ed on 1J
th
L$% 1J0J& 10 ma+or #ommer#ia Indian
!anks foo"ed !% nationaisation of 9 more #ommer#ia Indian !anks in 1JI8)
The stated reason for the nationaisation "as more #ontro of #redit dei,er%) After this&
$nti 1JJ8s& the nationaised !anks gre" at a eis$re% pa#e of aro$nd 0: aso #aed as
the >ind$ gro"th of the Indian e#onom%)After the amagamation of ;e" Bank of India
"ith -$n+a! ;ationa Bank& #$rrent% there are 1J nationaised !anks in India)
BABASAB PATIL 1J

Credit Risk Management in State Bank Of India
Li2era+i9ati)n/
In the ear% 1JJ8's the then ;arasimha rao go,ernment em!arked a poi#% of
i!erai3ation and ga,e i#en#es to a sma n$m!er of pri,ate !anks& "hi#h #ame to !e
kno"n as ;e" generation te#hFsa,,% !anks& "hi#h in#$ded !anks ike ICICI and >=MC)
This mo,e aong "ith the rapid gro"th of the e#onom% of India& ki#k started the !anking
se#tor in India& "hi#h has seen rapid gro"th "ith strong #ontri!$tion from a the se#tors
of !anks& name% 1o,ernment !anks& -ri,ate Banks and Moreign !anks) >o"e,er there
had !een a fe" hi##$ps for these ne" !anks "ith man% either !eing taken o,er ike
1o!a Tr$st Bank "hie others ike Cent$rion Bank ha,e fo$nd the going to$gh)
The ne(t stage for the Indian Banking has !een set $p "ith the proposed rea(ation in the
norms for Moreign =ire#t In,estment& "here a Moreign In,estors in Banks ma% !e gi,en
,oting rights "hi#h #o$d e(#eed the present #ap of 18:& at pesent it has gone $p to 0J:
"ith some restri#tions)
The ne" poi#% shook the Banking se#tor in India #ompete%) Bankers& ti this time&
"ere $sed to the 0F9F0 method DBorro" at 0:K?end at 9:K1o home at 0E of f$n#tioning)
The ne" "a,e $shered in a modern o$took and te#hFsa,,% methods of "orking for
traditiona !anks)A this ed to the retai !oom in India) -eope not +$st demanded more
from their !anks !$t aso re#ei,ed more)
BABASAB PATIL .8

Credit Risk Management in State Bank Of India
C!RRE"T SCE"ARIO/
C$rrent% D.88HE& o,era& !anking in India is #onsidered as fair% mat$re in terms of
s$pp%& prod$#t range and rea#hFe,en tho$gh rea#h in r$ra India sti remains a #haenge
for the pri,ate se#tor and foreign !anks) E,en in terms of *$ait% of assets and #apita
ade*$a#%& Indian !anks are #onsidered to ha,e #ean& strong and transparent !aan#e
sheetsFas #ompared to other !anks in #ompara!e e#onomies in its region) The Reser,e
Bank of India is an a$tonomo$s !od%& "ith minima press$re from the go,ernment) The
stated poi#% of the Bank on the Indian R$pee is to manage ,oatiit%F"itho$t an% stated
e(#hange rateFand this has most% !een tr$e)
6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$ite some timeF
espe#ia% in its ser,i#es se#tor& the demand for !anking ser,i#esFespe#ia% retai
!anking& mortgages and in,estment ser,i#es are e(pe#ted to !e strong) M4As& takeo,ers&
asset saes and m$#h more a#tion Das it is $nra,eing in ChinaE "i happen on this front
in India)
In Mar#h .889& the Reser,e Bank of India ao"ed 6ar!$rg -in#$s to in#rease its stake in
Gotak Mahindra Bank Da pri,ate se#tor !ankE to 18 This is the first time an in,estor
has !een ao"ed to hod more than 2: in a pri,ate se#tor !ank sin#e the RBI anno$n#ed
norms in .882 that an% stake e(#eeding 2: in the pri,ate se#tor !anks "o$d need to !e
,etted !% them) C$rrent%& India has II s#hed$ed #ommer#ia !anks DSCBsE F .I p$!i#
se#tor !anks Dthat is "ith the 1o,ernment of India hoding a stakeE& .J pri,ate !anks
Dthese do not ha,e go,ernment stakeK the% ma% !e p$!i#% isted and traded on sto#k
e(#hangesE and /1 foreign !anks) The% ha,e a #om!ined net"ork of o,er 2/&888
!ran#hes and 1H&888 ATMs) A##ording to a report !% ICRA ?imited& a rating agen#%& the
p$!i# se#tor !anks hod o,er H2 per#ent of tota assets of the !anking ind$str%& "ith the
pri,ate and foreign !anks hoding 1I).: and 9)2: respe#ti,e%)
BABASAB PATIL .1

Credit Risk Management in State Bank Of India
Banking in India
1 Centra Bank Reser,e Bank of India
.
;ationaised Banks
State Bank of India& Aaha!ad Bank& Andhra Bank&
Bank of Baroda& Bank of India& Bank of
Maharastra&Canara Bank& Centra Bank of India&
Corporation Bank& =ena Bank& Indian Bank& Indian
o,erseas Bank&Orienta Bank of Commer#e& -$n+a! and
Sind Bank& -$n+a! ;ationa Bank& S%ndi#ate Bank&
Union Bank of India& United Bank of India& UCO
Bank&and Vi+a%a Bank)
/
-ri,ate Banks
Bank of Ra+astan& Bharath o,erseas Bank& Cathoi#
S%rian Bank& Cent$rion Bank of -$n+a!& Cit% Union
Bank& =e,eopment Credit Bank& =hanaa(mi Bank&
Medera Bank& 1anesh Bank of G$r$nd"ad& >=MC
Bank& ICICI Bank& I=BI& Ind$sInd Bank& I;1 V%s%a
Bank& Lamm$ and Gashmir Bank& Garnataka Bank
?imited& Gar$r V%s%a Bank& Gotek Mahindra Bank&
?akshmi,ias Bank& ?ord Grishna Bank& ;ainitak Bank&
Ratnakar Bank&Sangi Bank& SBI Commer#ia and
Internationa Bank& So$th Indian Bank& Tami ;ad$
Mer#hantie Bank ?td)& United 6estern Bank& UTI
Bank& YES Bank)
BABASAB PATIL ..

Credit Risk Management in State Bank Of India
COM-A;Y -ROMI?E
BABASAB PATIL ./

Credit Risk Management in State Bank Of India
STATE BA"K OF I"#IA
;ot on% man% finan#ia instit$tion in the "ord toda% #an #aim the anti*$it% and
ma+est% of the State Bank Of India fo$nded near% t"o #ent$ries ago "ith primari% intent
of imparting sta!iit% to the mone% market& the !ank from its in#eption mo!ii3ed f$nds
for s$pporting !oth the p$!i# #redit of the #ompanies go,ernments in the three
presiden#ies of British India and the pri,ate #redit of the E$ropean and India mer#hants
from a!o$t 1I98s "hen the Indian e#onom% !ook a signifi#ant eap for"ard $nder the
imp$se of *$i#kened "ord #omm$ni#ations and ingenio$s method of ind$stria and
agri#$t$ra prod$#tion the Bank !e#ame intimate% in ,a$ed in the finan#ing of
pra#ti#a% and mining a#ti,it% of the S$!F Continent Atho$gh arge E$ropean and Indian
mer#hants and man$fa#t$rers "ere $ndo$!ted% thee prin#ipa !enefi#iaries& the sma
man ne,er ignored oans as o" as Rs)188 "ere dis!$rsed in agri#$t$ra distri#ts against
gad ornaments) Added to these the !ank ti the #reation of the Reser,e Bank in 1J/2
#arried o$t n$mero$s Centra 7 Banking f$n#tions)
Adaptation "ord and the needs of the ho$r has !een one of the strengths of the Bank& In
the post depression e(e) Mor instan#e 7 "hen !$siness opport$nities !e#ome e(treme%
restri#ted& r$es aid do"n in the !ook of instr$#tions "ere reined to ens$re that good
!$siness did not go post) Yet sedom did the !ank #ontra,enes its ,a$e as depart from
so$nd !anking prin#ipes to retain as e(pand its !$siness) An inno,ati,e arra% of offi#e&
$nkno"n to the "ord then& "as de,ised in the form of !ran#hes& s$! !ran#hes& treas$r%
pa% offi#e& pa% offi#e& s$! pa% offi#e and o$t st$dents to e(poit the opport$nities of an
e(panding e#onom%) ;e" !$siness strateg% "as aso e,aded "a% !a#k in 1J/H to render
the !est !anking ser,i#e thro$gh prompt and #o$rteo$s attention to #$stomers)
BABASAB PATIL .0

Credit Risk Management in State Bank Of India
A high% effi#ient and e(perien#ed management f$n#tioning in a "e defined
organi3ationa str$#t$re did not take ong to pa#e the !ank an e(e#$ted pedesta in the
areas of !$siness& profita!iit%& interna dis#ipine and a!o,e a #redi!iit% A impe##a!e
finan#ia stat$s #onsistent maintenan#e of the oft% traditions if !anking an o!ser,ation of
a high standard of integrit% in its operations heped the !ank gain a preF eminent stat$s)
;o "onders the administration for the !ank "as $ni,ersa as ke% f$n#tionaries of India
s$##essi,e finan#e minister of independent India Reso$r#e Bank of go,ernors and
representati,es of #ham!er of #ommer#ia sho"ered e#onomi#s on it)
Modern da% management te#hni*$es "ere aso ,er% m$#h e,ident in the good od da%s
%ears !efore #orporate go,ernan#e had !e#ome a p$33ed the !anks !o$nd f$n#tioned
"ith a high degree of responsi!iit% and #on#erns for the sharehoders) An $n!roken
re#ords of profits and a fair% high rate of profit and fair% high rate of di,idend a
thro$gh ens$red satisfa#tion& pr$dentia management and asset ia!iit% management not
on% prote#ted the interests of the Bank !$t aso ens$red that the o!igations to #$stomers
"ere not met) The traditions of the past #ontin$ed to !e $phed e,en to this da% as the
State Bank %ears itsef to meet the emerging #haenges of the mienni$m)

BABASAB PATIL .2

Credit Risk Management in State Bank Of India

ABO!T LOO

THE PLACE TO SHARE THE "E,S 666::
SHARE THE %IE,S ::
Togetherness is the theme of this #orporate oge of SBI "here the "ord of !anking
ser,i#es meet the e,er #hanging #$stomers needs and esta!ishes a ink that is ike a
#ir#e& it indi#ates #ompete ser,i#es to"ards #$stomers) The ogo aso denotes a !ank
that it has prepared to do an%thing to go to an% engths& for #$stomers)
The !$e pointer represent the phiosoph% of the !ank that is a"a%s ooking for the
gro"th and ne"er& more #haenging& more promising dire#tion) The ke% hoe indi#ates
safet% and se#$rit%)
BABASAB PATIL .9

Credit Risk Management in State Bank Of India
MISSIO"1 %ISIO" A"# %AL!ES
MISSIO" STATEME"T$

To retain the Bank's position as premiere Indian Minan#ia Ser,i#e 1ro$p& "ith "ord
#ass standards and signifi#ant go!a #ommitted to e(#een#e in #$stomer& sharehoder
and empo%ee satisfa#tion and to pa% a eading roe in e(panding and di,ersif%ing
finan#ia ser,i#e se#tors "hie #ontaining emphasis on its de,eopment !anking r$e)
%ISIO" STATEME"T$
? -remier Indian Minan#ia Ser,i#e 1ro$p "ith prospe#ti,e "ordF#ass
Standards of effi#ien#% and professionaism and instit$tiona ,a$es)
? Retain its position in the #o$ntr% as pioneers in =e,eopment !anking)
? Ma(imi3e the sharehoders ,a$e thro$gh highFs$stained earnings per
Share)
? An instit$tion "ith #$t$ra m$t$a #are and #ommitment& satisf%ing and
1ood "ork en,ironment and #ontin$es earning opport$nities)
%AL!ES$
? E(#een#e in #$stomer ser,i#e
? -rofit orientation
? Beonging #ommitment to Bank
? Mairness in a deaings and reations
BABASAB PATIL .H

Credit Risk Management in State Bank Of India
? Risk taking and inno,ati,e
? Team pa%ing
? ?earning and rene"a
? Integrit%
? Transparen#% and =is#ipine in poi#ies and s%stems)
BABASAB PATIL .I

Credit Risk Management in State Bank Of India
ORA"ISATIO" STR!CT!RE
MA"AI" #IRECTOR

6 M 6M 6 M 6M 6M
;O0erati)ns< ;C=B< ;F=S< ;I< = C%O ;P=#<

9)na+ )ffi(ers
Functional Heads

BABASAB PATIL .J
CHIEF E"ERAL MA"AER

Credit Risk Management in State Bank Of India
Regiona offi#ers
-RO=UCTS A;= SERVICES
BABASAB PATIL /8

Credit Risk Management in State Bank Of India
PRO#!CTS$
State Bank Of India renders ,arieties of ser,i#es to #$stomers thro$gh the
foo"ing prod$#ts<
-ersona ?oan -rod$#t<

• SBI Term =eposits
• SBI Re#$rring =eposits
• SBI >o$sing ?oan
• SBI Car ?oan
• SBI Ed$#ationa ?oan
• SBI -ersona ?oan
• SBI ?oan Mor -ensioners
• ?oan Against Mortgage Of -ropert%
• ?oan Against Shares 4 =e!ent$res
• Rent -$s S#heme
• MediF-$s S#heme
• Rates Of Interest
SBI H).sing +)an
BABASAB PATIL /1

Credit Risk Management in State Bank Of India
SBI >o$sing oan or Mortgage ?oan s#hemes are designed to make it simpe for %o$ to
make a #hoi#e at east as far as finan#ing goesQ
>SBI/H)me L)ans>
feat.res$
• ;o #ap on ma(im$m oan amo$nt for p$r#haseA #onstr$#tion of ho$seA fat
• Option to #$! in#ome of %o$r spo$se and #hidren to #omp$te eigi!e oan
amo$nt
• -ro,ision to #$! e(pe#ted rent a##r$as from propert% proposed to #omp$te
eigi!e oan amo$nt
-ro,ision to finan#e #ost of f$rnishing and #ons$mer d$ra!es as part of pro+e#t
#ost
• Repa%ment permitted $pto H8 %ears of age
• Mree persona a##ident ins$ran#e #o,er
• Optiona 1ro$p Ins$ran#e from SBI ?ife at #on#essiona premi$m DUpfront
premi$m finan#ed as part of pro+e#t #ostE
• Interest appied on dai% diminishing !aan#e !asis
• P-$sP s#hemes "hi#h offer attra#ti,e pa#kages "ith #on#essiona interest rates to
1o,t) Empo%ees& Tea#hers& Empo%ees in -$!i# Se#tor Oi Companies)
• Spe#ia s#heme to grant oans to finan#e Earnest Mone% =eposits to !e paid to
Ur!an =e,eopment A$thorit%A >o$sing Board& et#) in respe#t of aotment of
sitesA ho$seA fat
• ;o Administrati,e Charges or appi#ation fee
BABASAB PATIL /.

Credit Risk Management in State Bank Of India
• -repa%ment penat% is re#o,ered on% if the oan is preF#osed !efore haf of the
origina ten$re Dnot re#o,ered for !$k pa%ments pro,ided the oan is not #osedE
• -ro,ision for do"n"ard refi(ation of EMI in respe#t of foating rate !orro"ers
"ho a,ai >o$sing ?oans of Rs)2 a#s and a!o,e& to a,ai the !enefit of
do"n"ard re,ision of interest rate !% 1: or more
• InFprin#ipe appro,a iss$ed to gi,e %o$ fe(i!iit% "hie negotiating p$r#hase of a
propert%
• ROption to a,ai oan at the pa#e of empo%ment or at the pa#e of #onstr$#tion
• Attra#ti,e pa#kages in respe#t of oans granted $nder tieF$p "ith CentraA State
1o,ernmentsA -SUsA rep$ted #orporates and tieF$p "ith rep$ted !$iders D-ease
#onta#t %o$r nearest !ran#h for detaisE
SER%ICES$
? =OMESTIC TREASURY
? SBI VIS>6A YATRA MOREI1; TRAVE? CAR=
? BROGI;1 SERVICES
? REVISE= SERVICE C>AR1ES
? ATM SERVICES
? I;TER;ET BA;GI;1
? EF-AY
? EFRAI?
? RBIEMT
? SAME =E-OSIT ?OCGER
? 1IMT C>ESUES
? MICR CO=ES
MOREI1; I;6AR= REMITTA;CES
BABASAB PATIL //

Credit Risk Management in State Bank Of India
ATM SER%ICES

STATE BA"K "ET,ORKE# ATM SER%ICES
State Bank offers %o$ the #on,enien#e of o,er I888 ATMs in India& the argest net"ork in
the #o$ntr% and #ontin$ing to e(pand fastQ This means that %o$ #an transa#t free of #ost at
the ATMs of State Bank 1ro$p DThis in#$des the ATMs of State Bank of India as "e as
the Asso#iate Banks 7 name%& State Bank of Bikaner 4 Laip$r& State Bank of >%dera!ad&
State Bank of Indore& State Bank of M%sore& State Bank of -atiaa& State Bank of
Sa$rashtra& and State Bank of Tra,an#oreE and "ho% o"ned s$!sidiar% ,i3) SBI
Commer#ia and Internationa Bank ?td)& $sing the State Bank ATMF#$mF=e!it DCash
-$sE #ard)
KI"#S OF CAR#S ACCEPTE# AT STATE BA"K ATMs
Besides State Bank ATMFC$mF=e!it Card and State Bank Internationa ATMFC$mF=e!it
Cards foo"ing #ards are aso a##epted at State Bank ATMs< F
1E State Bank Credit Card
.E ATM Cards iss$ed !% Banks $nder !iatera sharing ,i3) Andhra Bank&A(is
Bank& Bank of India& The Bank of Ra+asthan ?td)& Canara Bank& Corporation Bank& =ena
BABASAB PATIL /0

Credit Risk Management in State Bank Of India
Bank& >=MC Bank& Indian Bank& Ind$s Ind Bank& -$n+a! ;ationa Bank& UCO Bank
and Union Bank of India)
/E Cards iss$ed !% !anks Dother than !anks $nder !iatera sharingE dispa%ing Maestro&
Master Card& Cirr$s& VISA and VISA Ee#tron ogos
0E A =e!itA Credit Cards iss$ed !% an% !ank o$tside India dispa%ing Maestro& Master
Card& Cirr$s& VISA and VISA Ee#tron ogos
;ote< If %o$ are a #ardhoder of !ank other than State Bank 1ro$p& kind% #onta#t %o$r
Bank for the #harges re#o,era!e for $sage of State Bank ATMs)
STATE BA"K I"TER"ATIO"AL ATM/C!M/#EBIT CAR#
E+igi2i+it'$
A Sa,ing Bank and C$rrent A##o$nt hoders ha,ing a##o$nts "ith net"orked !ran#hes
and are<
BABASAB PATIL /2

Credit Risk Management in State Bank Of India
• 1I %ears of age 4 a!o,e
• A##o$nt t%pe< Soe or Loint "ith BEither or S$r,i,orC A BAn%one or S$r,i,orC
• ;RE a##o$nt hoders are aso eigi!e !$t ;RO a##o$nt hoders are not)
Benefits$
• TCon,enien#e to the #$stomers tra,eing o,erseas
• TCan !e $sed as =omesti# ATMF#$mF=e!it Card
• ?A,aia!e at a nomina +oining fee of Rs) .88AF
• T=ai% imit of US O 1888 or e*$i,aent at the ATM and US O 1888 or e*$i,aent at
-oint of Sae D-OSE termina for de!it transa#tion
• -$r#hase -rote#tionU$p to Rs) 2888AF and -ersona A##ident #o,erU$p to Rs)
.&88&888AF
• TCharges for $sage a!road< Rs) 128V Ser,i#e Ta( per #ash "ithdra"a Rs) 12 V
Ser,i#e Ta( per en*$ir%)
State Bank ATM/(.m/#e2it ;State Bank Cas- 0+.s< Card<
India's argest !ank is pro$d to offer %o$ $nparaeed #on,enien#e ,i3) State Bank ATMF
#$mF=e!itDCash -$sE #ard) 6ith this #ard& there is no need to #arr% #ash in %o$r "aet)
Yo$ #an no" "ithdra" #ash and make p$r#hases an%time %o$ "ish to "ith %o$r ATMF
#$mF=e!it Card)
1et an ATMF#$mF=e!it #ard "ith "hi#h %o$ #an transa#t for MREE at an% of o,er I888
ATMs of State Bank 1ro$p "ithin o$r #o$ntr%)
SBI OL# I"TER"ATIO"AL #EBIT CAR#S
BABASAB PATIL /9

Credit Risk Management in State Bank Of India

E/PA&
Bi -a%ment at Onine SBI DeF-a%E "i et %o$ to pa% %o$r Teephone& Mo!ie&
Ee#tri#it%& Ins$ran#e and Credit Card !is ee#troni#a% o,er o$r Onine SBI "e!site
E/RAIL
B))k ').r Rai+3a's Ti(ket On+ine6
The fa#iit% has !een a$n#hed "ef Ist Septem!er .88/ in asso#iation "ith IRCTC)
The s#heme fa#iitates Booking of Rai"a%s Ti#ket Onine)
T-e sa+ient feat.res )f t-e s(-eme are as .nder$
• A Internet !anking #$stomers #an $se the fa#iit%)

• On gi,ing pa%ment option as SBI& the $ser "i !e redire#ted to onines!i)#om)
After ogging on to the site %o$ "i !e dispa%ed pa%ment amo$nt& TI= ;o) and
Rai"a% referen#e no)
BABASAB PATIL /H

Credit Risk Management in State Bank Of India

• ) The ti#ket #an !e dei,ered or #oe#ted !% the #$stomer)

• The $ser #an #oe#t the ti#ket persona% at ;e" =ehi reser,ation #o$nter )
• The -a%ment amo$nt "i in#$de ti#ket fare in#$ding reser,ation #harges&
#o$rier #harges and Bank Ser,i#e fee of Rs 18A) The Bank ser,i#e fee has !een
"ai,ed $nto /1st L$% .889)
SAFE #EPOSIT LOCKER
Mor the safet% of %o$r ,a$a!es "e offer o$r #$stomers safe deposit ,a$t or o#ker
fa#iities at a arge n$m!er of o$r !ran#hes) There is a nomina ann$a #harge& "hi#h
depends on the si3e of the o#ker and the #entre in "hi#h the !ran#h is o#ated)
"RI HOME LOA"
SALIE"T FEAT!RES
P.r0)se )f L)an
?oans to ;RIs 4 -IOs #an !e e(tended for the foo"ing p$rposes)
• To p$r#haseA#onstr$#t a ne" ho$se A fat
• To repair& reno,ate or e(tend an e(isting ho$seAfat
BABASAB PATIL /I

Credit Risk Management in State Bank Of India
• To p$r#hase an e(isting ho$seAfat
• To p$r#hase a pot for #onstr$#tion of a d"eing $nit)
• To p$r#hase f$rnishings and #ons$mer d$ra!es& as a part of the pro+e#t #ost
ARIC!LT!RE ? R!RAL
State Bank )f India Caters to the needs of agri#$t$rists and andess agri#$t$ra
a!o$rers thro$gh a net"ork of 9988 r$ra and semiF$r!an !ran#hes) here are JH.
spe#iai3ed !ran#hes "hi#h ha,e !een set $p in different parts of the #o$ntr% e(#$si,e%
for the de,eopment of agri#$t$re thro$gh #redit depo%ment) These !ran#hes in#$de
0.H Agri#$t$ra =e,eopment Bran#hes DA=BsE and 20H !ran#hes "ith =e,eopment
Banking =epartment D=B=sE "hi#h #ater to agri#$t$rists and . Agri#$t$ra B$siness
Bran#hes at Chennai and >%dera!ad #atering to the needs of hite#h #ommer#ia
agri#$t$ra pro+e#ts)
T>EORETICA? BACG1ROU;= OM CRE=IT RISG MA;A1EME;T
CRE#IT$
The "ord 5#redit' #omes from the ?atin "ord 5#redere'& meaning 5tr$st') 6hen
seers transfer his "eath to a !$%er "ho has agreed to pa% ater& there is a #ear
impi#ation of tr$st that the pa%ment "i !e made at the agreed date) The #redit period
and the amo$nt of #redit depend $pon the degree of tr$st)
Credit is an essentia marketing too) It !ears a #ost& the #ost of the seer ha,ing to
!orro" $nti the #$stomers pa%ment arri,es) Idea%& that #ost is the pri#e !$t& as most
#$stomers pa% ater than agreed& the e(tra $npanned #ost erodes the panned net profit)
RISK $
Risk is defined as $n#ertain res$ting in ad,erse o$t #ome& ad,erse in reation to
panned o!+e#ti,e or e(pe#tation) It is ,er% diffi#$t o find a risk free in,estment) An
BABASAB PATIL /J

Credit Risk Management in State Bank Of India
important inp$t to risk management is risk assessment) Man% p$!i# !odies s$#h as
ad,isor% #ommittees #on#erned "ith risk management) There are main% three t%pes
of risk the% are foo"s
• Market risk
• Credit Risk
• sOperationa risk
Risk ana%sis and ao#ation is #entra to the design of an% pro+e#t finan#e& risk
management is of paramo$nt #on#ern) Th$s *$antif%ing risk aong "ith profit
pro+e#tions is $s$a% the first step in ga$ging the feasi!iit% of the pro+e#t) on#e
risk ha,e !een identified the% #an !e ao#ated to parti#ipants and appropriate
me#hanisms p$t in pa#e)
MARKET RISK$
Market risk is the risk of ad,erse de,iation of the mark to market ,a$e of the trading
portfoio& d$e to market mo,ement& d$ring the period re*$ired to i*$idate the
transa#tions)
BABASAB PATIL 08
Financial
Risks
Operational Risk
Market Risk
Credit Risk

T%pes of Minan#ia Risks

Credit Risk Management in State Bank Of India
OPERTIO"AL RISK$
Operationa risk is one area of risk that is fa#ed !% a organi3ation s) More #ompe( the
organi3ation more e(posed it "o$d !e operationa risk) This risk arises d$e to de,iation
from norma and panned f$n#tioning of the s%stem pro#ed$res& te#hnoog% and h$man
fai$re of omission and #ommission) Res$t of de,iation from norma f$n#tioning is
refe#ted in the re,en$e of the organi3ation& either !% the "a% of additiona e(penses or
!% "a% of oss of opport$nit%)
CRE#IT RISK$
Credit risk is defined as the potentia that a !ank !orro"er or #o$nterpart% "i fai to
meet its o!igations in a##ordan#e "ith agreed terms& or in other "ords it is defined as the
risk that a firm's #$stomer and the parties to "hi#h it has ent mone% "i fai to make
promised pa%ments is kno"n as #redit risk
The e(pos$re to the #redit risks arge in #ase of finan#ia instit$tions& s$#h #ommer#ia
!anks "hen firms !orro" mone% the% in t$rn e(pose enders to #redit risk& the risk that
the firm "i defa$t on its promised pa%ments) As a #onse*$en#e& !orro"ing e(poses the
firm o"ners to the risk that firm "i !e $na!e to pa% its de!t and th$s !e for#ed to
!ankr$pt#%)
CO;TRIBUTORS OM CRE=IT RISG<
• Corporate assets
• Retai assets
• ;onFS?R portfoio
• Ma% res$t from trading and !anking !ook
• Inter !ank transa#tions
• =eri,ati,es
• Settement& et#
BABASAB PATIL 01

Credit Risk Management in State Bank Of India
GEY E?EME;TS OM CRE=IT RISG MA;A1EME;T<
• Esta!ishing appropriate #redit risk en,ironment
• Operating $nder so$nd #redit granting pro#ess
• Maintaining an appropriate #redit administration& meas$rement 4 Monitoring
• Ens$ring ade*$ate #ontro o,er #redit risk
• Banks sho$d ha,e a #redit risk strateg% "hi#h in o$r #ase is #omm$ni#ated
thro$gho$t the organi3ation thro$gh #redit poi#%)
T"o f$ndamenta approa#hes to #redit risk managementR -oi#% A Tra#k re#ord of ind$stria $nrest X(((
. market report of management rep$tation X(((
/ histor% of MERA ,ioation A E= en*$ir% X(((
0 Too optimisti# pro+e#tions of saes and other finan#ias X(((
2 te#hni#a and manageria e(pertise X(((
9 #apa!iit% to raise mone% X(((
Tota X(((((
BABASAB PATIL 0H

Credit Risk Management in State Bank Of India
I; STATE BA;G OM I;=IA =MMERE;T -ARAMETERS
USE=TO 1IVE RATI;1S ARE AS MO?O6S RATED:E X(((
M/ -B=IT gro"th rateD:E X(
M0 ;et saesD:E X(
M2 ROCED:E X(
M9 TO?AT;6 X((
MH C$rrent ratio X((
MI =SCR X((
MJ Interest #o,erage ratio X(
M18 Moreign e(#hange risk X(
M11 Reia!iit% of de!tors X(
M1. Operating #ash fo" X(
M1/ Trend in #ash a##r$as (
BABASAB PATIL 0I

Credit Risk Management in State Bank Of India
BUSI;ESS -ARAMETERS
S);O Indi#atorAratio S#ore
B1 Credit period ao"edDda%sE X(
B. Credit period a,aiedDda%sE X(
B/ 6orking #apita #%#eDtimesE X(
B0 -rod$#tion reated risks X(
B2 -rod$#t reated risks X
B9 -ri#e reated risks X
BH Mi(ed assets t$rno,er X
BI ;o) of %eas in !$siness X
BJ ;at$re of #ientee !ase X
MA;A1EME;T -ARAMETERS
SR) ;O I;=ICATORARATIO SCORE
M1 >R poi#% X
M. Tra#k re#ord in pa%ment of stat$tor% and other d$es X
M/ Market report of management rep$tation X
M0 Too optimisti# pro+e#tions of saes and other finan#ias X
M2 Capa!iit% to raise reso$r#es X
M9 Te#hni#a and manageria e(pertise X
MH Repa%ment tra#k re#ord X
CO;=UCT -ARAMETERS
BABASAB PATIL 0J

Credit Risk Management in State Bank Of India
A1 Creation of #harges on primar% se#$rit% X
A. Creation of #harges on #oatera and e(e#$tion of persona
or #orporate g$arantee
X
A/ -roper e(e#$tion of do#$ments X
A0 A,aia!iit% of sear#h report X
A2 Other terms and #onditions not #ompied "ith X
A9 Re#eipt of periodi#a data X
AH Re#eipt of !aan#e sheet X
B1 ;egati,e de,iation in haf %ear% net saes ,isFZF,is
proportionate estimates
X
B. ;egati,e de,iation in ann$a net saes ,isFZF,is estimates X
B/ ;egati,e de,iation in haf %ear% net profit ,isFZF,is
proportionate estimates
X
B0 Ad,erse de,iation in in,entor% e,e in months ,isFZF,is
estimate e,e
X
B2 Ad,erse de,iation in re#ei,a!es e,e in months ,isFZF,is
estimated e,e
X
B9 S$ait% of re#ei,a!e assess from profie of de!tors X
BH Ad,erse de,iation in #reditors e,e in months ,isFZF,is
estimated e,e
X
BI Compian#e of finan#ia #o,nants X
BJ ;egati,e de,iation in ann$a net profit ,isFZF,is estimates X
Unit inspe#tion report o!ser,ations X
C. A$dit report internaAstat$tor%A#on#$rrentARBI X
C/ Cond$#t of a##o$nt "ith other !anksAenders and information
on #onsorti$m
X
=1 Ro$ting of proportionate t$rno,erA!$siness X
=. Utii3ation of fa#iitiesDnot appi#a!e for term oanE X
BABASAB PATIL 28

Credit Risk Management in State Bank Of India
=/ O,er d$e dis#o$nted !is d$ring the period $nder re,ie" "ithin the
san#tioned terms then not appi#a!e
X
=0 =e,o,ed !i $nder ?A# o$tstanding d$ring the period $nder re,ie" X
=2 In,oked B1s iss$ed o$tstanding d$ring the period $nder re,ie" X
=9 Intergro$p transfers not !a#ked !% trade transa#tions d$ring the
period $nder re,ie"
X
=H Mre*$en#% of ret$rn of #he*$es per *$arter deposited !% !orro"er X
=I Mre*$en#% of iss$ing #he*$es per *$arter "itho$t s$ffi#ient !aan#e
and ret$rned
X
=J -a%ment of interest or instaments X
=18 Mre*$en#% of re*$est for A= >OC I;CREASE OM ?IMIS d$ring
the ast one %ear
X
=11 Mre*$en#% of o,er dra"ings CC a##o$nt X
E1 Stat$s of deterioration in ,a$e of primar% se#$rit% or sto#k
depetion
X
E. Stat$s of deterioration in ,a$e of #oatera se#$rit% X
E/ Stat$s of deterioration in persona net "orth and T;6 X
E0 Ade*$a#% of ins$ran#e for the primar% A#oatera se#$rit% X
M1 ?a!or sit$ationAind$stria reations X
M. =ea% or defa$t in pa%ments of saaries and stat$tor% d$es X
M/ ;on #oFoperation !% the !orro"er X
M0 Intended endF$se of finan#ing X
M2 An% other ad,erse feat$reAsnon finan#ia in#$ding #orporate
go,ernan#e iss$es s$#hasad,erse p$!i#it%& stri#t$res from
reg$ators& piti#a risk and ad,erse trade en,ironment not #o,ered
X
BABASAB PATIL 21

Credit Risk Management in State Bank Of India
#iffi(.+t' )f meas.ring (redit risk$/
Meas$ring #redit risk on a portfoio !asis is diffi#$t) Banks and finan#ia instit$tions
traditiona% meas$re #redit e(pos$res !% o!igor and ind$str%) The% ha,e on% re#ent%
attempted to define risk *$antitati,e% in a portfoio #onte(t e)g)& a ,a$eFatFrisk DVaRE
frame"ork) Atho$gh !anks and finan#ia instit$tions ha,e !eg$n to de,eop interna%& or
p$r#hase& s%stems that meas$re VaR for #redit& !ank managements do not %et ha,e
#onfiden#e in the risk meas$res the s%stems prod$#e) In parti#$ar& meas$red risk e,es
depend hea,i% on $nder%ing ass$mptions and risk managers often do not ha,e great
#onfiden#e in those parameters) Sin#e #redit deri,ati,es e(ist prin#ipa% to ao" for the
effe#ti,e transfer of #redit risk& the diffi#$t% in meas$ring #redit risk and the a!sen#e of
#onfiden#e in the res$t of risk meas$rement ha,e appropriate% made !anks #a$tio$s
a!o$t the $se of !anks and finan#ia instit$tions interna #redit risk modes for reg$ator%
#apita p$rposes)
Meas$rement diffi#$ties e(pain "h% !anks and finan#ia instit$tions ha,e not& $nti
,er% re#ent%& tried to impement meas$res to #a#$ate Va$eFatFRisk DVaRE for #redit)
The VaR #on#ept& $sed e(tensi,e% for market risk& has !e#ome so "e a##epted that
!anks and finan#ia instit$tions s$per,isors ao" s$#h meas$res to determine #apita
re*$irements for trading portfoios) The modes #reated to meas$re #redit risk are ne"&
and ha,e %et to fa#e the test of an e#onomi# do"nt$rn) Res$ts of different #redit risk
modes& $sing the same data& #an "ide%) Unti !anks ha,e greater #onfiden#e in
parameter inp$ts $sed to meas$re the #redit risk in their portfoios) The% "i& and sho$d&
e(er#ise #a$tion in $sing #redit deri,ati,es to manage risk on a portfoio !asis) S$#h
modes #an on% #ompement& !$t not repa#e& the so$nd +$dgment of seasoned #redit risk
managers)
BABASAB PATIL 2.

Credit Risk Management in State Bank Of India
Credit Risk$/
The most o!,io$s risk deri,ati,es parti#ipants' fa#e is #redit risk) Credit risk is the risk to
earnings or #apita of an o!igor's fai$re to meet the terms of an% #ontra#t the !ank or
other"ise to perform as agreed) Mor !oth p$r#hasers and seers of prote#tion& #redit
deri,ati,es sho$d !e f$% in#orporated "ithin #redit risk management pro#ess) Bank
management sho$d integrate #redit deri,ati,es a#ti,it% in their #redit $nder"riting and
administration poi#ies& and their e(pos$re meas$rement& imit setting& and risk
ratingA#assifi#ation pro#esses) The% sho$d aso #onsider #redit deri,ati,es a#ti,it% in
their assessment of the ade*$a#% of the ao"an#e for oan and ease osses DA???E and
their e,a$ation of #on#entrations of #redit)
There a n$m!er of #redit risks for !oth seers and !$%ers of #redit prote#tion& ea#h of
"hi#h raises separate risk management iss$es) Mor !anks and finan#ia instit$tions seing
#redit prote#tion the primar% so$r#e of #redit is the referen#e asset or entit%)
Managing (redit risk$/
Mor !anks and finan#ia instit$tions seing #redit prote#tion thro$gh a #redit
deri,ati,e& management sho$d #ompete a finan#ia ana%sis of !oth referen#e o!igorDsE
and the #o$nterpart% Din !oth defa$t s"aps and TRSsE& esta!ish separate #redit imits for
ea#h& and assign appropriate risk rating) The ana%sis of the referen#e o!igor sho$d
in#$de the same e,e of s#r$tin% that a traditiona #ommer#ia !orro"er "o$d re#ei,e)
=o#$mentation in the #redit fie sho$d s$pport the p$rpose of the transa#tion and #redit
"orthiness of the referen#e o!igor) =o#$mentation sho$d !e s$ffi#ient to s$pport the
referen#e o!igor) =o#$mentation sho$d !e s$ffi#ient to s$pport the referen#e o!igor's
risk rating) It is espe#ia% important for !anks and finan#ia instit$tions to $se rigoro$s
BABASAB PATIL 2/

Credit Risk Management in State Bank Of India
d$e diigen#e pro#ed$re in originating #redit e(pos$re ,ia #redit deri,ati,e) Banks and
finan#ia instit$tions sho$d not ao" the ease "ith "hi#h the% #an originate #redit
E(pos$re in the #apita markets ,ia deri,ati,es to ead to a( $nder"riting standards& or to
ass$me e(pos$res indire#t% that the% "o$d not originate dire#t%)
Mor !anks and finan#ia instit$tions p$r#hasing #redit prote#tion thro$gh a #redit
deri,ati,e& management sho$d re,ie" the #redit"orthiness of the #o$nterpart%& esta!ish
a #redit imit& and assign a risk rating) The #redit ana%sis of the #o$nterpart% sho$d !e
#onsistent "ith that #ond$#ted for other !orro"ers or trading #o$nterparties) Management
sho$d #ontin$e to monitor the #redit *$ait% of the $nder%ing #redits hedged) Atho$gh
the #redit deri,ati,es ma% pro,ide defa$t prote#tion& in man% instan#es the !ank "i
retain the $nder%ing #redits after settement or mat$rit% of the #redit deri,ati,es) In the
e,ent the #redit *$ait% deteriorates& as ega o"ner of the asset& management m$st take
a#tions ne#essar% to impro,e the #redit)
Banks and finan#ia instit$tions sho$d meas$re #redit e(pos$res arising from #redit
deri,ati,es transa#tions and aggregate "ith other #redit e(pos$res to referen#e entities
and #o$nterparties) These transa#tions #an #reate high% #$stomi3ed e(pos$res and the
e,e of riskAprote#tion #an ,ar% signifi#ant% !et"een transa#tions) Meas$rement sho$d
do#$ment and s$pport their e(pos$res meas$rement methodoog% and $nder%ing
ass$mptions)
The #ost of prote#tion& ho"e,er& sho$d refe#t the pro!a!iit% of !enefiting from this
!asis risk) More genera%& $ness a the terms of the #redit deri,ati,es mat#h those of the
$nder%ing e(pos$re& some !asis risk "i e(ist& #reating an e(pos$re for the terms and
#onditions of prote#tion agreements to ens$re that the #ontra#t pro,ides the prote#tion
desired& and that the hedger has identified so$r#es of !asis risk)
A 0)rtf)+i) a00r)a(- t) (redit risk management$/
BABASAB PATIL 20

Credit Risk Management in State Bank Of India
Sin#e the 1JI8s& Banks and finan#ia instit$tions ha,e s$##essf$% appied modern
portfoio theor% DM-TE to market risk) Man% !anks and finan#ia instit$tions are no"
$sing earnings at risk DEaRE and Va$e at Risk DVaRE modes to manage their interest rate
and market RISG EX-OSURES) Unfort$nate%& ho"e,er& e,en thro$gh #redit risk
remains the argest risk fa#ing most !anks and finan#ia instit$tions& the appi#ation of
M-T to #redit risk has agged)
The so" de,eopment to"ard a portfoio approa#h for #redit risk res$ts for the
foo"ing fa#tors<
F The traditiona ,ie" of oans as hodFtoFmat$rit% assets)
F The a!sen#e of toos ena!ing the effi#ient transfer of #redit risk to in,estors "hie
#ontin$ing to maintain !ank #$stomer reationships)
F The a#k of effe#ti,e methodoogies to meas$re portfoio #redit risk)
F =ata pro!ems
Banks and finan#ia instit$tions re#ogni3e ho" #redit #on#entrations #an ad,erse%
impa#t finan#ia performan#e) As a res$t& a n$m!er of sophisti#ated instit$tions are
a#ti,e% p$rs$ing *$antitati,e approa#hes to #redit risk meas$rement) 6hie date
pro!ems remain an o!sta#e& these ind$str% pra#titioners are making signifi#ant progress
to"ard de,eoping toos that meas$re #redit risk in a portfoio #onte(t) The% are aso
$sing #redit deri,ati,es to transfer risk effi#ient% "hie preser,ing #$stomer
reationships) The #om!ination of these t"o de,eopments has pre#ipitated ,ast%
a##eerated progress in managing #redit risk in a portfoio #onte(t o,er the past se,era
%ears)
Asset A 2' A asset a00r)a(-$/
Traditiona%& !anks ha,e taken an asset 7 !% 7 asset approa#h to #redit risk
management) 6hie ea#h !ank's method ,aries& in genera this approa#h in,o,es
periodi#a% e,a$ating the #redit *$ait% of oans and other #redit e(pos$res) App%ing a
BABASAB PATIL 22

Credit Risk Management in State Bank Of India
a##redit risk rating and aggregating the res$ts of this ana%sis to identif% a portfoio's
e(pe#ted osses)
The fo$ndation of thee assetF!%Fasst approa#h is a so$nd oan re,ie" and interna #redit
risk rating s%stem) A oan re,ie" and #redit risk rating s%stem ena!es management to
identif% #hanges in indi,id$a #redits& or portfoio trends& in a time% manner) Based on
the res$ts of its pro!em oan identifi#ation& oan re,ie" and #redit risk rating s%stem
management #an make ne#essar% modifi#ations to portfoio strategies or in#rease the
s$per,ision of #redits in a time% manner)
Banks and finan#ia instit$tions m$st determine the appropriate e,e of the ao"an#es
for oan and osses DA???E on a *$arter% !asis) On arge pro!em #redits& the% assess
ranges of e(pe#ted osses !ased on their e,a$ation of a n$m!er of fa#tors& s$#h as
e#onomi# #onditions and #oatera) On smaer pro!em #redits and on 5pass' #redits&
!anks #ommon% assess the defa$t pro!a!iit% from histori#a migration ana%sis)
Com!ining the res$ts of the e,a$ation of indi,id$a arge pro!em #redits and histori#a
migration ana%sis& !anks estimate e(pe#ted osses for the portfoio and determine
pro,isions re*$irements for the A???)
=efa$t pro!a!iities do not& ho"e,er indi#ate oss se,erit%< i)e)& ho" m$#h the !ank "i
ose if a #redit defa$ts) A #redit ma% defa$t& %et e(pose a !ank to a minima oss risk if
the oan is "e se#$red) On the other hand& a defa$t might res$t in a #ompete oss)
Therefore& !anks and finan#ia instit$tions #$rrent% $se histori#a migration matri#es
"ith information on re#o,er% rates in defa$t sit$ations to assess the e(pe#ted potentia in
their portfoios)
P)rtf)+i) a00r)a(-$/
6hie the assetF!%Fasset approa#h is a #riti#a #omponent to managing #redit risk& it
does not pro,ide a #ompete ,ie" of portfoio #redit risk "here the term 5risk' refers to
the possi!iit% that osses e(#eed e(pe#ted osses) Therefore& to again greater insights into
BABASAB PATIL 29

Credit Risk Management in State Bank Of India
#redit risk& !anks in#reasing% ook to #ompement the assetF!%Fasset approa#h "ith the
*$antitati,e portfoio re,ie" $sing a #redit mode)
6hie !anks e(tending #redit fa#e a high pro!a!iit% of a sma gain Dpa%ment of
interest and ret$rn of prin#ipaE& the% fa#e a ,er% o" pro!a!iit% of arge osses)
=epending& $pon risk toeran#e& in,estor ma% #onsider a #redit portfoio "ith a arger
,arian#e ess risk% than one "ith a smaer ,arian#e if the sma ,arian#e portfoio has
some pro!a!iit% of an $na##epta!% arge oss) One "eakness "ith the assetF!%Fasset
approa#h is that it has diffi#$t% and meas$ring #on#entration risk) Con#entration risk
refers to additiona portfoio risk res$ting from in#reased e(pos$re to a !orro"er or to a
gro$p of #orreated !orro"ers) for e(ampe the high #orreation !et"een energ% and rea
estate pri#es pre#ipitated a arge n$m!er of fai$res of !anks that had #redit
#on#entrations in those se#tors in the mid 1JI8s)
T"o important ass$mptions of portfoio #redit risk modes are<
1) the hoding period of panning hori3on o,er "hi#h osses are predi#ted
.) >o" #redit osses "i !e reported !% the mode)
Modes genera% report either a defa$t or market ,a$e distri!$tion)
The o!+e#ti,e of #redit risk modeing is to identif% e(pos$res that #reate an $na##epta!e
riskAre"ard profie) S$#h as might arise from #redit #on#entration) Credit risk
management seeks to red$#e the $ns%stemati# risk of a portfoio !% di,ersif%ing risks) As
!anks and finan#ia instit$tions gain greater #onfiden#e in their portfoio modeing
#apa!iities) It is ike% that #redit deri,ati,es "i !e#ome a more signifi#ant ,ehi#e in to
manage portfoio #redit risk) 6hie some !anks #$rrent% $se #redit deri,ati,es to hedge
$ndesired e(pos$res m$#h of that a#ti,e% in,o,es a desire to red$#e #apita
re*$irements)
BABASAB PATIL 2H

Credit Risk Management in State Bank Of India
APPRAISAL OF THE FIRMS POSITIO" O" BASIS OF FOLLO,I" OTHER
PARAMETERS
1) Manageria Competen#e
.) Te#hni#a Measi!iit%
/) Commer#ia ,ia!iit%
0) Minan#ia Via!iit%
Manageria+ C)m0eten(e $
? Ba#k gro$nd of promoters
? E(perien#e
? Te#hni#a skis& Integrit% 4 >onest%
? ?e,e of interest A #ommitment in pro+e#t
? Asso#iate #on#erns

Te(-ni(a+ Feasi2i+it' <
? ?o#ation
? Si3e of the -ro+e#t
? Ma#tor% !$iding
? -ant 4 Ma#hiner%
? -ro#ess 4 Te#hnoog%
? Inp$ts A $tiities
) C)mmer(ia+ %ia2i+it' <
? =emand fore#asting A Ana%sis
? Market s$r,e%
? -ri#ing poi#ies
? Competition
BABASAB PATIL 2I

Credit Risk Management in State Bank Of India
?
? E(port poi#ies
Finan(ia+ %ia2i+it'$
? 6hether ade*$ate f$nds are a,aia!e at afforda!e #ost to impement the pro+e#t
? 6hether s$ffi#ient profits "i !e a,aia!e
? 6hether BE- or margin of safet% are satisfa#tor%
? 6hat "i !e the o,era finan#ia position of the !orro"er in #oming %ears)
Credit in*estigati)n re0)rt
Bran#h prepares Credit in,estigation report in order to a,oid #onse*$en#e in ater stage
Credit in,estigation report sho$d !e a part of #redit proposa) Bank has to s$!mit the
d$% #ompeted #redit in,estigation reports after #ond$#ting a detaied #redit in,estigation
as per g$ideines)
S)me )f t-e g.ide+ines in t-is regards as f)++)3$
? 6here,er a proposa is to !e #onsidered !ased on% on merits of fagships
#on#erns of the gro$p& then s$#h s$pport sho$d aso !e #ompied in respe#t of
s$!+e#t fagship in #on#ern !esides the appi#ant #ompan%)
? In regard of proposas faing !e%ond the po"er of rating offi#er& the !ran#h
sho$d ens$re parti#ipation of rating offi#er in #ompiation of this report)
? The #redit in,estigation report sho$d a##ompan% a the proposas "ith the f$nd
!ased imit of a!o,e .2 ?akhs and or non f$nd !ased of a!o,e Rs) 28 ?akhs)
BABASAB PATIL 2J

Credit Risk Management in State Bank Of India
? The part% ma% !e s$ita!% kept informed that the #ompiation of this report is one
of the re*$irements in the #onne#tion "ith the pro#essing for #onsideration of the
proposa)
? The !ran#h sho$d o!tain a #op% of atest san#tion etter !% e(isting !anker or the
finan#ia instit$tion to the part% and terms and #onditions of the san#tion sho$d
st$died in detai)
? Comments sho$d !e made "here,er ne#essar%& after making the
o!ser,ationsAapses in the foo"ing terms of san#tion)
? Some of the important fa#tors ike f$nding of interest& re s#hed$e of oans et#
terms and #onditions sho$d !e highighted)
? Cop% of statement of a##o$nts for the atest 9 months period sho$d !e o!tained
!% the !ank) To get the present #ondition of the part%)
? Remarks sho$d !e made !% the !ank on ad,erse feat$res o!ser,ed) De)g)& e(#ess
dra"ings& ret$rn of #he*$es et#E)
? -ersona en*$ir% sho$d !e made !% the !ank offi#ia "ith responsi!e offi#ia of
part%'s present A other !ankers and en*$iries sho$d !e made "ith a ei#it
information on #ond$#t of a##o$nt et#)
? Care sho$d !e taken in see#tion of #$stomers or #reditors "ho a#ts as the
representati,e) The% sho$d !e inter,ie"ed and #ompiation of opinion sho$d !e
done)
? En*$iries sho$d !e made regarding the *$ait% of prod$#t& pa%ment terms& and
period of o,erd$e "hi#h sho$d !e mentioned #ear% in the report) En*$ir%
sho$d !e aimed to as#ertain the stat$s of trading of the appi#ant and to kno"
their #apa!iit% to meet their #ommitments in time)
? To kno" the market trend !ran#h sho$d en*$ire the person or ind$str% that is in
the same ine of !$siness a#ti,it%)
? In depth o!ser,ation ma% !e made of the appi#ant as to <
i) "hether the $nit is "orking in f$ s"ing
ii) n$m!er of shifts and n$m!er of empo%ees
iii) an% o!soete sto#ks "ith the $nit
BABASAB PATIL 98

Credit Risk Management in State Bank Of India
i,) #apa#it% of the $nit
,) nat$re and #onditions of the ma#hiner% instaed
,i) Information on po"er& "ater and po$tion #ontro et#)
,ii) information on ind$stria reation and marketing strateg%
CRE#IT FILES$/
It's the fie& "hi#h pro,ides important so$r#e materia for oan s$per,ision in regard to
information for interna re,ie" and e(terna a$dit) Bran#h has to maintain separate #redit
fie #omp$sori% in #ase of ?oans e(#eeding Rs 28 ?akhs "hi#h sho$d !e maintained
for *$i#k a##ess of the reated information)
C)ntents )f t-e (redit fi+eome ?oans D?TV ] H2:E
[ ?ess than Rs .8 akhs 7 28:
[ Rs .8 akhs and a!o,e 7 H2:
[ >ome ?oans D?TV ^ H2:E 7 188:
[ Commer#ia Rea estate oans 7 128:
[ -ersona ?oans and #redit #ard re#ei,a!esF 1.2:
[ Staff >ome ?oansA-M ?ien noted oans 7 .8:
[ Cons$mer #redit D-ersona ?oansA Credit Card Re#ei,a!esE 7 1.2:
[ 1od oans $p to Rs 1 akh 7 28:
[ ;-As "ith pro,isions ].8: è 128:
BABASAB PATIL 9H

Credit Risk Management in State Bank Of India
FdoF .8 to ] 28: è 188:
FdoF 28: and a!o,e è 28:
[ Restr$#t$redA res#hed$ed ad,an#es 7 1.2:
[ Credit Con,ersion Ma#tors DCCMsE to !e appied on off !aan#e sheet items W;MBX
4 $n$tiised imits !efore app%ing risk "eights)
[ Some important CCMs 7
? =o#$mentar% ?Cs 7 .8: D;onF do#$mentar% F 188:EK
? -erf) 1$arantees 7 28:& Min) 1teesF 188:&
? Un$tiised imits 7 .8: D$p to 1 %earE& 28: D!e%ond 1 %earE
Standardised Approa#h 7 ?ong term
Mrom 1)0).88J& $nrated e(pos$re more than Rs 18 #rores "i attra#t a Risk 6eight of
128:
BABASAB PATIL 9I

Credit Risk Management in State Bank Of India
Mor .88IF.88J D"ef 1)0).88IE& $nrated e(pos$re more than Rs 28 #rores "i attra#t a
Risk 6eight of 128:
Standardi3ed Approa#h 7 Short Term
Coateras re#ognised !% Base II $nder Standardised Approach
? Cash
BABASAB PATIL 9J

Credit Risk Management in State Bank Of India
? 1od
? Se#$rities iss$ed !% Centra and State 1o,t
? GV-s and ;SCs Dnot o#ked inE
? ?ife -oi#ies
? Spe#ified i*$id =e!t Se#$rities
? E*$ities forming part of inde(
? MMs 7 S$oted and in,esting in Base II #oatera
Components of Credit Risk
S-)rt/term and L)ng/Term Ratings$
BABASAB PATIL H8
Si3e of E(pe#ted ?oss
Si3e of E(pe#ted ?oss
BE(pe#ted ?ossB
BE(pe#ted ?ossB
-ro!a!iit% of =efa$t
DMre*$en#%E
-ro!a!iit% of =efa$t
DMre*$en#%E
E(pos$re at =efa$t
E(pos$re at =efa$t
\
\
\
1) 6hat is the pro!a!iit%
of a
defa$t D;-AEY
1) 6hat is the pro!a!iit%
of a
defa$t D;-AEY
/) >o" m$#h of that e(pos$re
is the !ank going to oseY
/) >o" m$#h of that e(pos$re
is the !ank going to oseY
?oss 1i,en =efa$t
BSe,erit%C
E?
-=
Ea=
?1=
X
X
.) >o" m$#h "i !e the
ike%
e(pos$re in the #ase the ad,an#e
!e#omes ;-AY
.) >o" m$#h "i !e the
ike%
e(pos$re in the #ase the ad,an#e
!e#omes ;-AY
\
\

Credit Risk Management in State Bank Of India
• Mor E(pos$res "ith a #ontra#t$a mat$rit% of ess than or e*$a to one %ear
;eD(e0t Cas- Credit1 O*erdraft and )t-er Re*)+*ing Credits< ShortFterm
Ratings gi,en !% ECAIs "i !e appi#a!e)
• Mor =omesti# Cash Credit& O,erdraft and other Re,o,ing Credits irrespe#ti,e of
the period and Term ?oan e(pos$res of o,er 1 %ear& ?ong Term Ratings gi,en !%
ECAIs "i !e appi#a!e)
• Mor O,erseas e(pos$res& irrespe#ti,e of the #ontra#t$a mat$rit%& ?ong Term
Ratings gi,en !% IRAs "i !e appi#a!e)
• Rating assigned to one parti#$ar entit% "ithin a #orporate gro$p #annot !e $sed
to risk "eight other entities "ithin the same gro$p)
COMPETITORS #ETAILS
BABASAB PATIL H1

Credit Risk Management in State Bank Of India
In =har"ad Main #ompetitors of State Bank of India are ICICI Bank in pri,ate
se#tor !anks and S%ndi#ate Bank and Corporation Bank In p$!i# se#tor)
In SBI& it #an !e !etter $nderstood "ith gi,en -ie diagram as foo"s)