Description
CREDIT RISK MANAGEMENT OF SBI
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”
BACK RO!"# 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 he ps in $nderstanding the # ear meaning of #redit Risk Management In State Bank Of India) It e(p ains a!o$t the #redit risk s#oring and Rating of the Bank) And a so St$d% of #omparati,e st$d% of Credit -o i#% "ith that of its #ompetitor he ps in $nderstanding the fair #redit po i#% of the Bank and Credit Re#o,er% management of the Banks and a so its ke% #ompetitors)
BABASAB PATIL
.
Credit Risk Management in State Bank Of India
OBJECTI%ES OF PROJECT 1) To St$d% the #omp ete str$#t$re and histor% of State Bank Of India) .) To kno" the different methods a,ai a! e for #redit Rating and $nderstanding the #redit rating pro#ed$re $sed in State Bank Of India) /) To gain insights into the #redit risk management a#ti,ities of the State Bank Of India) 0) To kno" the RBI 1$ide ines regarding #redit rating and risk ana %sis) 2) St$d%ing the #redit po i#% adopted Comparati,e ana %ses of -$! 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 #o e#ted thro$gh persona inter,ie" !% dire#t
#onta#t method) The method "hi#h "as adopted to #o e#t the information is 5-ersona Inter,ie"’ method) -ersona inter,ie" and dis#$ssion "as made "ith manager and other personne in the organi3ation for this p$rpose)
Se()ndar' data$ The data is #o e#ted from the Maga3ines& Ann$a reports& Internet&
Te(t !ooks)
BABASAB PATIL
/
Credit Risk Management in State Bank Of India The ,ario$s so$r#es that "ere $sed for the #o e#tion of se#ondar% data are o Interna fi es 4 materia s o 6e!sites 7 Vario$s sites ike """) sharekhan)#om """)indiainfo ine)#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$ring the %ear .889 is 9.)0: Compared to other Banks SBI 5s re#o,er% po i#% is ,er% good& hen#e this red$#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*$ated Month %
Insta ments so that an% !od% #an !orro" mone% easi % • -ro+e#t findings re,ea that State Bank Of India san#tioning more oans as #ompared to other Banks) • State !ank Of India is e(panding its Credit in the fo o"ing fo#$s areas< 1) SBI Term =eposits .) SBI Re#$rring =eposits /) SBI >o$sing ?oan 0) SBI Car ?oan is ending more #redit or
BABASAB PATIL
0
Credit Risk Management in State Bank Of India 2) SBI Ed$#ationa ?oan 9) SBI -ersona ?oan @et# • In #ase of indire#t agri#$ 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 -o i#% "hi#h "i he p Bank's effort to #orre#t the #o$rse of the po i#ies • The Chairman and Managing =ire#torAE(e#$ti,e =ire#tor sho$ d make modifi#ations to the pro#ed$ra g$ide ines re*$ired for imp ementation of the Credit -o i#% as the% ma% !e#ome ne#essar% from time to time on a##o$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 peop e #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 re ease the oan in insta ments) If the # imati# #onditions are good then the% ha,e to re ease 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 $ndertaken has he ped a ot in gaining kno" edge of the BCredit -o i#% and Credit Risk ManagementC in ;ationa i3ed Bank "ith spe#ia referen#e to State Bank Of India) Credit -o i#% and Credit Risk -o i#% of the Bank has !e#ome ,er% ,ita in the smooth operation of the !anking a#ti,ities) Credit -o i#% of the Bank pro,ides the frame"ork to determine DaE "hether or not to e(tend #redit to a #$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 -o i#%C and BCredit Risk ManagementC in !anking se#tor) • BCredit -o i#%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 -o i#%C and BCredit Risk ManagementC) In p$rs$an#e of the instr$#tions and g$ide ines 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 he ped the Bank in a#hie,ing remarka! e progress in a most 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 !e ie,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 re ating to the interest) =$ring the moga period& the indigeno$s !ankers p a%ed a ,er% important ro e 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 fo o"ed "ere the Bank of >ind$stan and the Benga Bank) The Bank of >ind$stan is reported to ha,e #ontin$ed ti 1J89& "hi e the other t"o fai ed in the meantime) In the first ha f of the 1J th Cent$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 a so kno"n as presiden#% !anks and "ere independent $nits and f$n#tioned "e ) These three !anks "ere ama gamated 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$ntr% "ere nationa i3ed and in 12 th Apri 1JI8 si( more #ommer#ia pri,ate se#tor !anks "ere a so taken o,er !% the go,ernment) The Indian Banking ind$str%& "hi#h is go,erned !% the Banking Reg$ ation A#t of India 1J0J& #an !e !road %
BABASAB PATIL
I
Credit Risk Management in State Bank Of India # 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)
The first phase of finan#ia reforms res$ ted in the nationa i3ation 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 portfo io to se#tors identified as Bpriorit% se#torsC the man$fa#t$ring se#tor a so 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 nationa i3ation 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$rF fo d and the n$m!er of !ank !ran#hes in#reased to eight fo d) After the se#ond phase of finan#ia se#tor reforms and i!era i3ation of the se#tor in the ear % nineties) The -SB's fo$nd it e(treme % diffi#$ t to #omp ete "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$ide ines permitting them "ere iss$ed in Lan$ar% 1JJ/)
T-e Indian Banking S'stem$
Banking in o$r #o$ntr% is a read% "itnessing the sea #hanges as the !anking se#tor seeks ne" te#hno og% and its app i#ations) The !est port is that the !enefits are !eginning to rea#h the masses) Ear ier this domain "as the preser,e of ,er% fe" organi3ations) Moreign !anks "ith hea,% in,estments in te#hno og% started gi,ing some BO$t of the "or dC #$stomer ser,i#es) B$t& s$#h ser,i#es "ere a,ai a! e on % to se e#ted fe"F the ,er% arge a##o$nt ho ders) Then #ame the i!era i3ation and "ith it a m$ 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 te er ma#hines or pop$ ar % kno"n as ATM are the three a pha!ets that ha,e #hanged the #on#ept of !anking ike nothing !efore) Instead of te ers hand ing %o$r o"n #ash& toda% there are effi#ient ma#hines that don't ta k !$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!i it% 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 #ha enge for the pri,ate se#tor and foreign !anks) E,en in terms of *$a it% of assets and Capita ade*$a#%& Indian !anks are #onsidered to ha,e # ean& strong and transparent !a an#e sheets F as #ompared to other !anks in #ompara! e e#onomies in its region) The
BABASAB PATIL
18
Credit Risk Management in State Bank Of India Reser,e Bank of India is an a$tonomo$s !od%& "ith minima press$re from the 1o,ernment
6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$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& !$t on the other hand te#hno og% has to some e(tent red$#ed the #ost of de i,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 !$siness in IndiaN and the term !anking as NA((e0ting f)r t-e 0.r0)se )f +ending a++ in*estment )f de0)sits1 )f m)ne' fr)m t-e 0.2+i(1 re0a'a2+e )n demand )r )t-er3ise and 3it-dra3a+ 2' (-e4.e1 draft )r )t-er3ise56 Banks p a% important ro e in e#onomi# de,e opment of a #o$ntr%& ike< • • Banks mo!i ise the sma prod$#ti,e p$rposes) sa,ings of the peop e and make them a,ai a! e for
-romotes the ha!it of sa,ings among the peop e there!% offering attra#ti,e rates of interests on their deposits)
BABASAB PATIL
11
Credit Risk Management in State Bank Of India • -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 p a#e to another) >e ps the mo,ement of #apita from regions "here it is not ,er% $sef$ to regions "here it #an !e more $sef$ ) 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 a so a#ts as mediator !et"een e(porter and importer "ho does foreign trades)
Th$s Indian !anking has #ome from a ong "a% from !eing a s eep% !$siness instit$tion to a high % proFa#ti,e and d%nami# entit%) This transformation has !een arge % !ro$ght a!o$t !% the arge dose of i!era i3ation and e#onomi# reforms that a o"ed !anks to e(p ore ne" !$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 a most 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 sp it into o d !anks and ne" !anks)
Reser*e Bank )f India 7Centra+ Bank8
S(-ed.+ed Banks
S#hed$ ed Commer#ia Banks
S#hed$ ed CoFoperati,e Banks
-$! i# Se#tor Banks
-ri,ate Se#tor Banks
Moreign Banks
Regiona R$ra Banks
;ationa i3ed Banks
SBI 4 its Asso#iates
S#hed$ ed Ur!an CoFOperati,e Banks
S#hed$ ed State CoFOperati,e Banks
O d -ri,ate Se#tor Banks
;e" -ri,ate Se#tor Banks 1/
BABASAB PATIL
Credit Risk Management in State Bank Of India
Chart Sho"ing Three =ifferent Se#tors of Banks
iE iiE
-$! i# Se#tor Banks -ri,ate Se#tor Banks
-$! i# Se#tor Banks
SBI and SUBSI=IARIES ;ationa i3ed Banks Regiona R$ra Banks
SBI and s.2sidiaries
This gro$p #omprises of the State Bank of India and its se,en s$!sidiaries ,i3)& State Bank of -atia a& State Bank of >%dera!ad& State Bank of Tra,an#ore& State Bank of Bikaner and Laip$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$m!er of !ran#h offi#es and emp o%ees& SBI is the argest !ank in the "or d) Esta! ished in 1I89as Bank of Benga it is the o dest #ommer#ia !ank in the Indian s$!#ontinent) SBI pro,ides ,ario$s domesti#& internationa and ;RI prod$#ts and ser,i#es& thro$gh its ,ast net"ork in India and o,erseas) 6ith an asset !ase of O1.9 !i ion and its rea#h& it is a regiona !anking !ehemoth) The go,ernment nationa i3ed the
BABASAB PATIL
10
Credit Risk Management in State Bank Of India !ank in1J22& "ith the Reser,e !ank of India taking a 98: o"nership stake) In re#ent %ears the !ank has fo#$sed on t"o priorities& 1E& red$#ing its h$ge staff thro$gh 1o den 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)
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 ama gamatted 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 par iament of India& a$thori3ed the Reser,e Bank of India& "hi#h is the #entra Banking Organisationof India& to a#*$ire a #ontro ing 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$re in the top 188 "or d !anks in the Mort$ne 1 o!a 288 rating and ,ario$s other rankings) A##ording to the Mor!es .888 isting it tops a Indian #ompanies)
;ationa i3ed !anks
This gro$p #onsists of pri,ate se#tor !anks that "ere nationa i3ed) The 1o,ernment of India nationa i3ed 10 pri,ate !anks in 1J9J and another 9 in the %ear 1JI8) In ear % 1JJ/& there "ere .I nationa i3ed !anks i)e)& SBI and its H s$!sidiaries p $s .8 nationa i3ed
BABASAB PATIL
12
Credit Risk Management in State Bank Of India !anks) In 1JJ/& the oss making ne" !ank of India "as merged "ith profit making -$n+a! ;ationa Bank) >en#e& no" on % .H nationa i3ed !anks e(ist in 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#i ities 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
O d pri,ate Se#tor Banks ne" pri,ate Se#tor Banks
O d -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 professiona s for the #a$se of e#onomi# !etterment in their operations) Initia %& their operations "ere #on#entrated in a fe" regiona areas) >o"e,er& their !ran#hes s o" % spread thro$gho$t the nation as the% gro")
;e" pri,ate Se#tor Banks
These !anks "ere started as profit orient #ompanies after the RBI opened the !anking se#tor to the pri,ate se#tor) These !anks are most % te#hno og% dri,en and !etter managed than other !anks)
BABASAB PATIL
19
Credit Risk Management in State Bank Of India
Moreign !anks
These are the !anks that "ere registered o$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 termF ending instit$tions& in,estment
instit$tions& spe#ia i3ed finan#ia instit$tions and the stateF e,e de,e opment !anks& ;onF Bank Minan#ia Companies D;BMCsE and other market intermediaries s$#h as the sto#k !rokers and mone%F enders) The #ommer#ia !anks and #ertain ,ariants of ;BMCs are among the o dest of the market parti#ipants) The MIs& on the other hand& are re ati,e % ne" entities in the finan#ia market p a#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 #omp i#ated and #r$#ia ser,i#es ike& mer#hant !anking& ho$sing finan#e& !i dis#o$nting et#) This se#tor has !e#ome more a#ti,e "ith the entr% of ne" p a%ers ike pri,ate and foreign !anks) It has a so e,o ,ed as a prime !$i der of the e#onom% !% $nderstanding the needs of the same and en#o$raging the de,e opment !% "a% of gi,ing oans& pro,iding infrastr$#t$re fa#i ities and finan#ing a#ti,ities for the promotion of entreprene$rs and other !$siness esta! ishments) Mor a fast de,e oping e#onom% ike o$rs& presen#e of a so$nd finan#ia s%stem to mo!i i3e and a o#ate sa,ings of the p$! i# to"ards prod$#ti,e a#ti,ities is ne#essar%) Commer#ia !anks p a% a #r$#ia ro e in this regard)
BABASAB PATIL
1H
Credit Risk Management in State Bank Of India The Banking se#tor in re#ent %ears has in#orporated ne" prod$#ts in their !$sinesses& "hi#h are he pf$ 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!$siness entities et#)At the same time& the !anks are rea#hing o$t to other end of #$stomer re*$irements ike& ins$ran#e premi$m pa%ment& ta( pa%ment et#) It has #hanged itse f from transa#tion t%pe of !anking into re ationship !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 $e to the !ank& et#) This is possi! e "ith the he p of "e organi3ed staff& #omp$ter !ased net"ork for speed% transa#tions& prod$#ts ike #redit #ard& de!it #ard& hea th #ard& ATM et#) These are the present trend of ser,i#es) The #$stomers at present ask for #on,enien#e of !anking transa#tions& ike .0 ho$rs !anking& "here the% "ant to $ti i3e the ser,i#es "hene,er there is a need) The re ationship !anking p a%s a ma+or and important ro e in gro"th& !e#a$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 p a% #a$tio$s %& e se the% ma% ose o$t the p a#e in the market d$e to #ompetition& "here s ightest of opport$nities are #apt$red fast) Another ma+or ro e p a%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$ntries& "hi#h he p in #$rren#% transfer and earn e(#hange o,er it) These !anks p a% a ma+or ro e in #ommer#ia import and e(port !$siness& !et"een parties of t"o #o$ntries) This foreign presen#e a so he ps in !ringing in the internationa standards of operations and ideas) The i!era i3ation po i#% of 1JJ1 has a o"ed man% foreign !anks to enter the Indian market and esta! ish their !$siness) This has he ped arge amo$nt of foreign #apita inf o" 4 in#rease o$r Moreign e(#hange reser,e)
BABASAB PATIL
1I
Credit Risk Management in State Bank Of India Another emerging #hange happening a o,er the !anking ind$str% is #onso idation thro$gh mergers and a#*$isitions) This he ps the !anks in strengthening their empire and e(panding their net"ork of !$siness in terms of ,o $me and effe#ti,eness)
EMER I"
SCE"ARIO I" THE BA"KI"
SECTOR
The Indian !anking s%stem has passed thro$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,e oped "or d& "as !anking or the ser,i#e ind$str% nationa i3ed) B$t this "as pra#ti#ed in India) Those "ere the da%s "hen !ankers has no # $e "hatsoe,er as to ho" to determine the s#a e of finan#e to ind$str%) The third era of !anking "hi#h is in e(isten#e toda% is #a ed 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)
BABASAB PATIL
1J
Credit Risk Management in State Bank Of India
"ati)na+isati)n/
The ne(t signifi#ant mi estone in Indian Banking happened in ate 1J98s "hen the then Indira 1andhi go,ernment nationa i3ed on 1Jth L$ % 1J0J& 10 ma+or #ommer#ia Indian !anks fo o"ed !% nationa isation of 9 more #ommer#ia Indian !anks in 1JI8) The stated reason for the nationa isation "as more #ontro of #redit de i,er%) After this& $nti 1JJ8s& the nationa ised !anks gre" at a eis$re % pa#e of aro$nd 0: a so #a ed as the >ind$ gro"th of the Indian e#onom%)After the ama gamation of ;e" Bank of India "ith -$n+a! ;ationa Bank& #$rrent % there are 1J nationa ised !anks in India)
Li2era+i9ati)n/
In the ear % 1JJ8's the then ;arasimha rao go,ernment em!arked a po i#% of i!era i3ation 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# $ded !anks ike ICICI and >=MC) This mo,e a ong "ith the rapid gro"th of the e#onom% of India& ki#k started the !anking se#tor in India& "hi#h has seen rapid gro"th "ith strong #ontri!$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##$ps for these ne" !anks "ith man% either !eing taken o,er ike 1 o!a Tr$st Bank "hi e others ike Cent$rion Bank ha,e fo$nd the going to$gh) The ne(t stage for the Indian Banking has !een set $p "ith the proposed re a(ation in the norms for Moreign =ire#t In,estment& "here a Moreign In,estors in Banks ma% !e gi,en ,oting rights "hi#h #o$ d e(#eed the present #ap of 18:& at pesent it has gone $p to 0J: "ith some restri#tions)
BABASAB PATIL
.8
Credit Risk Management in State Bank Of India The ne" po i#% shook the Banking se#tor in India #omp ete %) 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 $shered in a modern o$t ook and te#hFsa,,% methods of "orking for traditiona !anks)A this ed to the retai !oom in India) -eop e not +$st demanded more from their !anks !$t a so re#ei,ed more)
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 #ha enge for the pri,ate se#tor and foreign !anks) E,en in terms of *$a it% of assets and #apita ade*$a#%& Indian !anks are #onsidered to ha,e # ean& strong and transparent !a an#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$re from the go,ernment) The stated po i#% of the Bank on the Indian R$pee is to manage ,o ati it%F"itho$t an% stated e(#hange rateFand this has most % !een tr$e)
BABASAB PATIL
.1
Credit Risk Management in State Bank Of India 6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$ite some timeF espe#ia % in its ser,i#es se#tor& the demand for !anking ser,i#esFespe#ia % retai !anking& mortgages and in,estment ser,i#es are e(pe#ted to !e strong) M4As& takeo,ers& asset sa es and m$#h more a#tion Das it is $nra,e ing in ChinaE "i happen on this front in India) In Mar#h .889& the Reser,e Bank of India a o"ed 6ar!$rg -in#$s to in#rease its stake in Gotak Mahindra Bank Da pri,ate se#tor !ankE to 18
This is the first time an in,estor has !een a o"ed to ho d more than 2: in a pri,ate se#tor !ank sin#e the RBI anno$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$! i# se#tor !anks Dthat is "ith the 1o,ernment of India ho ding a stakeE& .J pri,ate !anks Dthese do not ha,e go,ernment stakeK the% ma% !e p$! 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$! i# se#tor !anks ho d o,er H2 per#ent of tota assets of the !anking ind$str%& "ith the pri,ate and foreign !anks ho ding 1I).: and 9)2: respe#ti,e %)
Banking in India
1
Centra Bank
Reser,e Bank of India State Bank of India& A aha!ad Bank& Andhra Bank& Bank of Baroda& Bank of India& Bank of Maharastra&Canara Bank& Centra Bank of India&
.
;ationa ised Banks
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) Bank of Ra+astan& Bharath o,erseas Bank& Catho i#
BABASAB PATIL
..
Credit Risk Management in State Bank Of India S%rian Bank& Cent$rion Bank of -$n+a!& Cit% Union Bank& =e,e opment Credit Bank& =hana a(mi Bank& / -ri,ate Banks 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$r V%s%a Bank& Gotek Mahindra Bank& ?akshmi,i as Bank& ?ord Grishna Bank& ;ainitak Bank& Ratnakar Bank&Sang i Bank& SBI Commer#ia and Internationa Bank& So$th Indian Bank& Tami ;ad$ Mer#hanti e Bank ?td)& United 6estern Bank& UTI Bank& YES Bank)
BABASAB PATIL
./
Credit Risk Management in State Bank Of India
COM-A;Y -ROMI?E
STATE BA"K OF I"#IA
;ot on % man% finan#ia instit$tion in the "or d toda% #an # aim the anti*$it% and ma+est% of the State Bank Of India fo$nded near % t"o #ent$ries ago "ith primari % intent of imparting sta!i it% to the mone% market& the !ank from its in#eption mo!i i3ed 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 *$i#kened "or d #omm$ni#ations and ingenio$s method of ind$stria and
BABASAB PATIL
.0
Credit Risk Management in State Bank Of India 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 A tho$gh arge E$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$ra distri#ts against g ad ornaments) Added to these the !ank ti the #reation of the Reser,e Bank in 1J/2 #arried o$t n$mero$s Centra 7 Banking f$n#tions) Adaptation "or d and the needs of the ho$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$#tions "ere re ined to ens$re that good !$siness did not go post) Yet se dom did the !ank #ontra,enes its ,a $e as depart from so$nd !anking prin#ip es to retain as e(pand its !$siness) An inno,ati,e arra% of offi#e& $nkno"n to the "or d then& "as de,ised in the form of !ran#hes& s$! !ran#hes& treas$r% pa% offi#e& pa% offi#e& s$! pa% offi#e and o$t st$dents to e(p oit the opport$nities of an e(panding e#onom%) ;e" !$siness strateg% "as a so 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) A high % effi#ient and e(perien#ed management f$n#tioning in a "e defined
organi3ationa str$#t$re did not take ong to p a#e the !ank an e(e#$ted pedesta in the areas of !$siness& profita!i it%& interna dis#ip ine and a!o,e a #redi!i it% A impe##a! e finan#ia stat$s #onsistent maintenan#e of the oft% traditions if !anking an o!ser,ation of a high standard of integrit% in its operations he ped 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*$es "ere a so ,er% m$#h e,ident in the good o d da%s %ears !efore #orporate go,ernan#e had !e#ome a p$33 ed the !anks !o$nd f$n#tioned "ith a high degree of responsi!i it% and #on#erns for the shareho ders) An $n!roken
BABASAB PATIL
.2
Credit Risk Management in State Bank Of India re#ords of profits and a fair % high rate of profit and fair % high rate of di,idend a thro$gh ens$red satisfa#tion& pr$dentia management and asset ia!i it% management not on % prote#ted the interests of the Bank !$t a so ens$red that the o! igations to #$stomers "ere not met) The traditions of the past #ontin$ed to !e $phe d e,en to this da% as the State Bank %ears itse f to meet the emerging #ha enges of the mi enni$m)
ABO!T LO O
BABASAB PATIL
.9
Credit Risk Management in State Bank Of India THE PLACE TO SHARE THE "E,S 666:: SHARE THE %IE,S :: Togetherness is the theme of this #orporate oge of SBI "here the "or d of !anking ser,i#es meet the e,er #hanging #$stomers needs and esta! ishes a ink that is ike a #ir# e& it indi#ates #omp ete ser,i#es to"ards #$stomers) The ogo a so denotes a !ank that it has prepared to do an%thing to go to an% engths& for #$stomers) The ! $e pointer represent the phi osoph% of the !ank that is a "a%s ooking for the gro"th and ne"er& more #ha enging& more promising dire#tion) The ke% ho e indi#ates safet% and se#$rit%)
MISSIO"1 %ISIO" A"# %AL!ES
MISSIO" STATEME"T$ To retain the Bank's position as premiere Indian Minan#ia Ser,i#e 1ro$p& "ith "or d # ass standards and signifi#ant g o!a #ommitted to e(#e en#e in #$stomer& shareho der and emp o%ee satisfa#tion and to p a% a eading ro e in e(panding and di,ersif%ing finan#ia ser,i#e se#tors "hi e #ontaining emphasis on its de,e opment !anking r$ e) %ISIO" STATEME"T$ ? -remier Indian Minan#ia Ser,i#e 1ro$p "ith prospe#ti,e "or dF# ass Standards of effi#ien#% and professiona ism and instit$tiona ,a $es)
BABASAB PATIL
.H
Credit Risk Management in State Bank Of India ? Retain its position in the #o$ntr% as pioneers in =e,e opment !anking) ? Ma(imi3e the shareho ders ,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(#e en#e in #$stomer ser,i#e ? -rofit orientation ? Be onging #ommitment to Bank ? Mairness in a dea ings and re ations ? Risk taking and inno,ati,e ? Team p a%ing ? ?earning and rene"a ? Integrit% ? Transparen#% and =is#ip ine in po i#ies and s%stems)
BABASAB PATIL
.I
Credit Risk Management in State Bank Of India
OR A"ISATIO" STR!CT!RE MA"A I" #IRECTOR
CHIEF
E"ERAL MA"A ER
BABASAB PATIL
.J
Credit Risk Management in State Bank Of India
6M ;O0erati)ns<
6M ;C=B<
6M ;F=S<
6M ;I< = C%O
6M ;P=#<
9)na+ )ffi(ers
Functional Heads
Regiona offi#ers
-RO=UCTS A;= SERVICES
BABASAB PATIL
/8
Credit Risk Management in State Bank Of India
PRO#!CTS$
State Bank Of India renders ,arieties of ser,i#es to #$stomers thro$gh the fo o"ing prod$#ts<
-ersona ?oan -rod$#t<
• • • • • SBI Term =eposits SBI Re#$rring =eposits SBI >o$sing ?oan SBI Car ?oan SBI Ed$#ationa ?oan
BABASAB PATIL
/1
Credit Risk Management in State Bank Of India • SBI -ersona ?oan • • • • • • SBI ?oan Mor -ensioners ?oan Against Mortgage Of -ropert% ?oan Against Shares 4 =e!ent$res Rent - $s S#heme MediF- $s S#heme Rates Of Interest
SBI H).sing +)an SBI >o$sing oan or Mortgage ?oan s#hemes are designed to make it simp e 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 f at Option to # $! in#ome of %o$r spo$se and #hi dren to #omp$te e igi! e oan amo$nt -ro,ision to # $! e(pe#ted rent a##r$a s from propert% proposed to #omp$te e igi! e oan amo$nt
•
BABASAB PATIL
/.
Credit Risk Management in State Bank Of India -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 app ied on dai % diminishing !a an#e !asis P- $sP s#hemes "hi#h offer attra#ti,e pa#kages "ith #on#essiona interest rates to 1o,t) Emp o%ees& Tea#hers& Emp o%ees in -$! 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,e opment A$thorit%A >o$sing Board& et#) in respe#t of a otment of sitesA ho$seA f at
• •
•
• •
;o Administrati,e Charges or app i#ation fee -repa%ment pena t% is re#o,ered on % if the oan is preF# osed !efore ha f of the origina ten$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 f oating rate !orro"ers "ho a,ai >o$sing ?oans of Rs)2 a#s and a!o,e& to a,ai the !enefit of do"n"ard re,ision of interest rate !% 1: or more
•
•
InFprin#ip e appro,a iss$ed to gi,e %o$ f e(i!i it% "hi e negotiating p$r#hase of a propert% ROption to a,ai oan at the p a#e of emp o%ment or at the p a#e of #onstr$#tion Attra#ti,e pa#kages in respe#t of oans granted $nder tieF$p "ith Centra A State 1o,ernmentsA -SUsA rep$ted #orporates and tieF$p "ith rep$ted !$i ders D- ease #onta#t %o$r nearest !ran#h for detai sE
• •
SER%ICES$ =OMESTIC TREASURY SBI VIS>6A YATRA MOREI1; TRAVE? CAR=
? ?
BABASAB PATIL
//
Credit Risk Management in State Bank Of India ? 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
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
BABASAB PATIL
/0
Credit Risk Management in State Bank Of India >%dera!ad& State Bank of Indore& State Bank of M%sore& State Bank of -atia a& 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$mF =e!it Cards fo o"ing #ards are a so a##epted at State Bank ATMs< F 1E State Bank Credit Card .E ATM Cards iss$ed !% Banks $nder !i atera sharing ,i3) Andhra Bank&A(is Bank& Bank of India& The Bank of Ra+asthan ?td)& Canara Bank& Corporation Bank& =ena Bank& >=MC Bank& Indian Bank& Ind$s Ind Bank& -$n+a! ;ationa Bank& UCO Bank and Union Bank of India) /E Cards iss$ed !% !anks Dother than !anks $nder !i atera sharingE disp a%ing Maestro& Master Card& Cirr$s& VISA and VISA E e#tron ogos
0E A =e!itA Credit Cards iss$ed !% an% !ank o$tside India disp a%ing Maestro& Master Card& Cirr$s& VISA and VISA E e#tron ogos ;ote< If %o$ are a #ardho der of !ank other than State Bank 1ro$p& kind % #onta#t %o$r Bank for the #harges re#o,era! e for $sage of State Bank ATMs)
BABASAB PATIL
/2
Credit Risk Management in State Bank Of India
STATE BA"K I"TER"ATIO"AL ATM/C!M/#EBIT CAR#
E+igi2i+it'$ A Sa,ing Bank and C$rrent A##o$nt ho ders ha,ing a##o$nts "ith net"orked !ran#hes and are< • • • 1I %ears of age 4 a!o,e A##o$nt t%pe< So e or Loint "ith BEither or S$r,i,orC A BAn%one or S$r,i,orC ;RE a##o$nt ho ders are a so e igi! e !$t ;RO a##o$nt ho ders are not)
Benefits$
• • • • • • TCon,enien#e to the #$stomers tra,e ing o,erseas TCan !e $sed as =omesti# ATMF#$mF=e!it Card ?A,ai a! e at a nomina +oining fee of Rs) .88AF T=ai % imit of US O 1888 or e*$i,a ent at the ATM and US O 1888 or e*$i,a ent at -oint of Sa e 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%)
BABASAB PATIL
/9
Credit Risk Management in State Bank Of India
State Bank ATM/(.m/#e2it ;State Bank Cas- 0+.s< Card< India's argest !ank is pro$d to offer %o$ $npara e ed #on,enien#e ,i3) State Bank ATMF #$mF=e!itDCash - $sE #ard) 6ith this #ard& there is no need to #arr% #ash in %o$r "a et) 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$ntr%)
SBI
OL# I"TER"ATIO"AL #EBIT CAR#S
E/PA& Bi -a%ment at On ine SBI DeF-a%E "i et %o$ to pa% %o$r Te ephone& Mo!i e&
E e#tri#it%& Ins$ran#e and Credit Card !i s e e#troni#a % o,er o$r On ine SBI "e!site
BABASAB PATIL
/H
Credit Risk Management in State Bank Of India
E/RAIL
B))k ').r Rai+3a's Ti(ket On+ine6 The fa#i it% has !een a$n#hed "ef Ist Septem!er .88/ in asso#iation "ith IRCTC) The s#heme fa#i itates Booking of Rai "a%s Ti#ket On ine) T-e sa+ient feat.res )f t-e s(-eme are as .nder$ • • A Internet !anking #$stomers #an $se the fa#i it%)
On gi,ing pa%ment option as SBI& the $ser "i !e redire#ted to on ines!i)#om) After ogging on to the site %o$ "i !e disp a%ed pa%ment amo$nt& TI= ;o) and Rai "a% referen#e no)
•
) The ti#ket #an !e de i,ered or #o e#ted !% the #$stomer)
•
The $ser #an #o e#t the ti#ket persona % at ;e" =e hi reser,ation #o$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
BABASAB PATIL
/I
Credit Risk Management in State Bank Of India fa#i ities at a arge n$m!er of o$r !ran#hes) There is a nomina ann$a #harge& "hi#h depends on the si3e of the o#ker and the #entre in "hi#h the !ran#h is o#ated)
"RI HOME LOA"
SALIE"T FEAT!RES P.r0)se )f L)an ?oans to ;RIs 4 -IOs #an !e e(tended for the fo o"ing p$rposes)
• • • • •
To p$r#haseA#onstr$#t a ne" ho$se A f at To repair& reno,ate or e(tend an e(isting ho$seAf at To p$r#hase an e(isting ho$seAf at To p$r#hase a p ot for #onstr$#tion of a d"e ing $nit) To p$r#hase f$rnishings and #ons$mer d$ra! es& as a part of the pro+e#t #ost
A RIC!LT!RE ? R!RAL
State Bank )f India Caters to the needs of agri#$ t$rists and and ess agri#$ t$ra a!o$rers thro$gh a net"ork of 9988 r$ra and semiF$r!an !ran#hes) here are JH. spe#ia i3ed !ran#hes "hi#h ha,e !een set $p in different parts of the #o$ntr% e(# $si,e % for the de,e opment of agri#$ t$re thro$gh #redit dep o%ment) These !ran#hes in# $de 0.H Agri#$ t$ra =e,e opment Bran#hes DA=BsE and 20H !ran#hes "ith =e,e opment Banking =epartment D=B=sE "hi#h #ater to agri#$ 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$ra pro+e#ts)
T>EORETICA? BACG1ROU;= OM CRE=IT RISG MA;A1EME;T
BABASAB PATIL
/J
Credit Risk Management in State Bank Of India CRE#IT$ The "ord 5#redit' #omes from the ?atin "ord 5#redere'& meaning 5tr$st') 6hen se ers transfer his "ea th to a !$%er "ho has agreed to pa% ater& there is a # ear imp i#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 se er 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 $np anned #ost erodes the p anned net profit) RISK $ Risk is defined as $n#ertain res$ ting in ad,erse o$t #ome& ad,erse in re ation to p anned o!+e#ti,e or e(pe#tation) It is ,er% diffi#$ t o find a risk free in,estment) An important inp$t to risk management is risk assessment) Man% p$! i# !odies s$#h as ad,isor% #ommittees #on#erned "ith risk management) There are main % three t%pes of risk the% are fo o"s • • • Market risk Credit Risk sOperationa risk
Risk ana %sis and a o#ation is #entra to the design of an% pro+e#t finan#e& risk management is of paramo$nt #on#ern) Th$s *$antif%ing risk a ong "ith profit pro+e#tions is $s$a % the first step in ga$ging the feasi!i it% of the pro+e#t) on#e risk ha,e !een identified the% #an !e a o#ated to parti#ipants and appropriate me#hanisms p$t in p a#e)
BABASAB PATIL
08
Credit Risk Management in State Bank Of India
T%pes of Minan#ia Risks
Market Risk Financial Risks Credit Risk Operational Risk
Market risk is the risk of ad,erse de,iation of the mark to market ,a $e of the trading portfo io& d$e to market mo,ement& d$ring the period re*$ired to i*$idate the transa#tions)
MARKET RISK$
OPERTIO"AL RISK$
Operationa risk is one area of risk that is fa#ed !% a organi3ation s) More #omp e( the organi3ation more e(posed it "o$ d !e operationa risk) This risk arises d$e to de,iation from norma and p anned f$n#tioning of the s%stem pro#ed$res& te#hno og% and h$man fai $re of omission and #ommission) Res$ t of de,iation from norma f$n#tioning is ref e#ted in the re,en$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
BABASAB PATIL
01
Credit Risk Management in State Bank Of India
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$pt#%) CO;TRIBUTORS OM CRE=IT RISG< • • • • • • • Corporate assets Retai assets ;onFS?R portfo io Ma% res$ t from trading and !anking !ook Inter !ank transa#tions =eri,ati,es Sett ement& et#
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$gh #redit po i#%)
BABASAB PATIL
0.
Credit Risk Management in State Bank Of India
T"o f$ndamenta approa#hes to #redit risk managemento" #redit osses "i !e reported !% the mode ) Mode s genera % report either a defa$ t or market ,a $e distri!$tion) The o!+e#ti,e of #redit risk mode ing is to identif% e(pos$res that #reate an $na##epta! e riskAre"ard profi e) S$#h as might arise from #redit #on#entration) Credit risk management seeks to red$#e the $ns%stemati# risk of a portfo io !% di,ersif%ing risks) As !anks and finan#ia instit$tions gain greater #onfiden#e in their portfo io mode ing #apa!i ities) It is ike % that #redit deri,ati,es "i !e#ome a more signifi#ant ,ehi# e in to manage portfo io #redit risk) 6hi e 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) APPRAISAL OF THE FIRMS POSITIO" O" BASIS OF FOLLO,I" PARAMETERS 1) Manageria Competen#e .) Te#hni#a Measi!i it% /) Commer#ia ,ia!i it% 0) Minan#ia Via!i it% OTHER
Manageria+ C)m0eten(e $
? Ba#k gro$nd of promoters ? E(perien#e ? Te#hni#a ski s& Integrit% 4 >onest% ? ?e,e of interest A #ommitment in pro+e#t ? Asso#iate #on#erns
BABASAB PATIL
2I
Credit Risk Management in State Bank Of India
Te(-ni(a+ Feasi2i+it' <
? ?o#ation ? Si3e of the -ro+e#t ? Ma#tor% !$i ding ? - ant 4 Ma#hiner% ? -ro#ess 4 Te#hno og% ? Inp$ts A $ti ities ) C)mmer(ia+ %ia2i+it' < ? =emand fore#asting A Ana %sis ? Market s$r,e% ? -ri#ing po i#ies ? Competition ? ? E(port po i#ies
Finan(ia+ %ia2i+it'$
? 6hether ade*$ate f$nds are a,ai a! e at afforda! e #ost to imp ement the pro+e#t ? 6hether s$ffi#ient profits "i !e a,ai a! e ? 6hether BE- or margin of safet% are satisfa#tor% ? 6hat "i !e the o,era finan#ia position of the !orro"er in #oming %ears)
Credit in*estigati)n re0)rt
Bran#h prepares Credit in,estigation report in order to a,oid #onse*$en#e in ater stage Credit in,estigation report sho$ d !e a part of #redit proposa ) Bank has to s$!mit the d$ % #omp eted #redit in,estigation reports after #ond$#ting a detai ed #redit in,estigation as per g$ide ines)
BABASAB PATIL
2J
Credit Risk Management in State Bank Of India
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 f agships #on#erns of the gro$p& then s$#h s$pport sho$ d a so !e #ompi ed in respe#t of s$!+e#t f agship in #on#ern !esides the app i#ant #ompan%) ? In regard of proposa s fa ing !e%ond the po"er of rating offi#er& the !ran#h sho$ d ens$re parti#ipation of rating offi#er in #ompi ation of this report) ? The #redit in,estigation report sho$ d a##ompan% a the proposa s "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) ? The part% ma% !e s$ita! % kept informed that the #ompi ation of this report is one of the re*$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,ationsA apses in the fo o"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 high ighted) ? 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 e i#it information on #ond$#t of a##o$nt et#)
BABASAB PATIL
98
Credit Risk Management in State Bank Of India ? Care sho$ d !e taken in se e#tion of #$stomers or #reditors "ho a#ts as the representati,e) The% sho$ d !e inter,ie"ed and #ompi ation of opinion sho$ d !e done) ? En*$iries sho$ d !e made regarding the *$a it% of prod$#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$s of trading of the app i#ant and to kno" their #apa!i it% to meet their #ommitments in time) ? To kno" the market trend !ran#h sho$ 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 app i#ant as to < i) ii) iii) i,) ,) ,i) ,ii) "hether the $nit is "orking in f$ s"ing n$m!er of shifts and n$m!er of emp o%ees an% o!so ete sto#ks "ith the $nit #apa#it% of the $nit nat$re and #onditions of the ma#hiner% insta ed Information on po"er& "ater and po $tion #ontro et#) information on ind$stria re ation and marketing strateg%
CRE#IT FILES$/
It's the fi e& "hi#h pro,ides important so$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 fi e #omp$ sori % in #ase of ?oans e(#eeding Rs 28 ?akhs "hi#h sho$ d !e maintained for *$i#k a##ess of the re ated information)
C)ntents )f t-e (redit fi+eome ?oans D?TV ] H2:E [ [ [ [ [ ?ess than Rs .8 akhs 7 28: Rs .8 akhs and a!o,e 7 H2:
>ome ?oans D?TV ^ H2:E 7 188: Commer#ia Rea estate oans 7 128: -ersona ?oans and #redit #ard re#ei,a! esF 1.2:
[ [
Staff >ome ?oansA-M ?ien noted oans 7 .8: Cons$mer #redit D-ersona ?oansA Credit Card Re#ei,a! esE 7 1.2:
BABASAB PATIL
9H
Credit Risk Management in State Bank Of India [ 1o d oans $p to Rs 1 akh 7 28: [ ;-As "ith pro,isions ].8: è 128: .8 to ] 28: è 188: 28: and a!o,e è 28:
FdoF FdoF [ [ [ ? ? ?
Restr$#t$redA res#hed$ ed ad,an#es 7 1.2: Credit Con,ersion Ma#tors DCCMsE to !e app ied on off !a an#e sheet items W;MBX 4 $n$ti ised imits !efore app %ing risk "eights) Some important CCMs 7 =o#$mentar% ?Cs 7 .8: D;onF do#$mentar% F 188:EK -erf) 1$arantees 7 28:& Min) 1teesF 188:& Un$ti ised imits 7 .8: D$p to 1 %earE& 28: D!e%ond 1 %earE
Standardised Approa#h 7 ?ong term
Rating
Risk ,eig-t
AAA
AA
A
BBB BB 4 !e o" Unrated
.8 /8 28 188 128 188
BABASAB PATIL
9I
Credit Risk Management in State Bank Of India Mrom 1)0).88J& $nrated e(pos$re more than Rs 18 #rores "i attra#t a Risk 6eight of 128: 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
CARE
CRISIL
FITCH
ICRA
RISK ,EI HT
-R1V
-1V -1 -. -/ -04-2
M1V M1 M. M/ B&C&=
A1V A1 A. A/ A0AA2
.8: /8: 28: 188: 128:
-R1
-R.
-R/ -R0 4-R2
Co atera s re#ognised !% Base II $nder Standardised Approach BABASAB PATIL
9J
Credit Risk Management in State Bank Of India
? Cash ? 1o d ? Se#$rities iss$ed !% Centra and State 1o,t ? GV-s and ;SCs Dnot o#ked inE ? ?ife -o i#ies ? Spe#ified i*$id =e!t Se#$rities ? E*$ities forming part of inde( ? MMs 7 S$oted and in,esting in Base II #o atera Components of Credit Risk
Si3e Si3e of of E(pe#ted E(pe#ted ?oss ?oss
BE(pe#ted BE(pe#ted ?ossB ?ossB
\
E? \
1) 1)
of of a a defa$ defa$ tt D;-AEY D;-AEY
6hat 6hat is is the the pro!a!i pro!a!i it% it%
-ro!a!i -ro!a!i it% it% of of =efa$ =efa$ tt DMre*$en#%E DMre*$en#%E
\
-= X Ea=
.) .)
>o" >o" m$#h m$#h "i "i !e !e the the ike ike % % e(pos$re e(pos$re in in the the #ase #ase the the ad,an#e ad,an#e !e#omes !e#omes ;-AY ;-AY
E(pos$re E(pos$re at at =efa$ =efa$ tt \ \ ?oss 1i,en =efa$ t BSe,erit%C
X ?1=
/) >o" /) >o" m$#h m$#h of of that that e(pos$re e(pos$re is is the the !ank !ank going going to to oseY oseY
BABASAB PATIL
H8
Credit Risk Management in State Bank Of India
S-)rt/term and L)ng/Term Ratings$
• 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 app i#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$res of o,er 1 %ear& ?ong Term Ratings gi,en !% ECAIs "i !e app i#a! e) • Mor O,erseas e(pos$res& irrespe#ti,e of the #ontra#t$a mat$rit%& ?ong Term Ratings gi,en !% IRAs "i !e app i#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)
BABASAB PATIL
H1
Credit Risk Management in State Bank Of India
COMPETITORS #ETAILS
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 $nderstood "ith gi,en -ie diagram as fo o"s)
CREDIT RISK MANAGEMENT OF SBI
Credit Risk Management in State Bank Of India
EXECUTIVE SUMMARY
BABASAB PATIL
1
Credit Risk Management in State Bank Of India TITLE OF THE PROJECT
“Credit Risk Management in State Bank Of India”
BACK RO!"# OF PROJECT TOPIC$
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 he ps in $nderstanding the # ear meaning of #redit Risk Management In State Bank Of India) It e(p ains a!o$t the #redit risk s#oring and Rating of the Bank) And a so St$d% of #omparati,e st$d% of Credit -o i#% "ith that of its #ompetitor he ps in $nderstanding the fair #redit po i#% of the Bank and Credit Re#o,er% management of the Banks and a so its ke% #ompetitors)
BABASAB PATIL
.
Credit Risk Management in State Bank Of India
OBJECTI%ES OF PROJECT 1) To St$d% the #omp ete str$#t$re and histor% of State Bank Of India) .) To kno" the different methods a,ai a! e for #redit Rating and $nderstanding the #redit rating pro#ed$re $sed in State Bank Of India) /) To gain insights into the #redit risk management a#ti,ities of the State Bank Of India) 0) To kno" the RBI 1$ide ines regarding #redit rating and risk ana %sis) 2) St$d%ing the #redit po i#% adopted Comparati,e ana %ses of -$! 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 #o e#ted thro$gh persona inter,ie" !% dire#t
#onta#t method) The method "hi#h "as adopted to #o e#t the information is 5-ersona Inter,ie"’ method) -ersona inter,ie" and dis#$ssion "as made "ith manager and other personne in the organi3ation for this p$rpose)
Se()ndar' data$ The data is #o e#ted from the Maga3ines& Ann$a reports& Internet&
Te(t !ooks)
BABASAB PATIL
/
Credit Risk Management in State Bank Of India The ,ario$s so$r#es that "ere $sed for the #o e#tion of se#ondar% data are o Interna fi es 4 materia s o 6e!sites 7 Vario$s sites ike """) sharekhan)#om """)indiainfo ine)#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$ring the %ear .889 is 9.)0: Compared to other Banks SBI 5s re#o,er% po i#% is ,er% good& hen#e this red$#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*$ated Month %
Insta ments so that an% !od% #an !orro" mone% easi % • -ro+e#t findings re,ea that State Bank Of India san#tioning more oans as #ompared to other Banks) • State !ank Of India is e(panding its Credit in the fo o"ing fo#$s areas< 1) SBI Term =eposits .) SBI Re#$rring =eposits /) SBI >o$sing ?oan 0) SBI Car ?oan is ending more #redit or
BABASAB PATIL
0
Credit Risk Management in State Bank Of India 2) SBI Ed$#ationa ?oan 9) SBI -ersona ?oan @et# • In #ase of indire#t agri#$ 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 -o i#% "hi#h "i he p Bank's effort to #orre#t the #o$rse of the po i#ies • The Chairman and Managing =ire#torAE(e#$ti,e =ire#tor sho$ d make modifi#ations to the pro#ed$ra g$ide ines re*$ired for imp ementation of the Credit -o i#% as the% ma% !e#ome ne#essar% from time to time on a##o$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 peop e #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 re ease the oan in insta ments) If the # imati# #onditions are good then the% ha,e to re ease 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 $ndertaken has he ped a ot in gaining kno" edge of the BCredit -o i#% and Credit Risk ManagementC in ;ationa i3ed Bank "ith spe#ia referen#e to State Bank Of India) Credit -o i#% and Credit Risk -o i#% of the Bank has !e#ome ,er% ,ita in the smooth operation of the !anking a#ti,ities) Credit -o i#% of the Bank pro,ides the frame"ork to determine DaE "hether or not to e(tend #redit to a #$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 -o i#%C and BCredit Risk ManagementC in !anking se#tor) • BCredit -o i#%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 -o i#%C and BCredit Risk ManagementC) In p$rs$an#e of the instr$#tions and g$ide ines 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 he ped the Bank in a#hie,ing remarka! e progress in a most 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 !e ie,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 re ating to the interest) =$ring the moga period& the indigeno$s !ankers p a%ed a ,er% important ro e 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 fo o"ed "ere the Bank of >ind$stan and the Benga Bank) The Bank of >ind$stan is reported to ha,e #ontin$ed ti 1J89& "hi e the other t"o fai ed in the meantime) In the first ha f of the 1J th Cent$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 a so kno"n as presiden#% !anks and "ere independent $nits and f$n#tioned "e ) These three !anks "ere ama gamated 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$ntr% "ere nationa i3ed and in 12 th Apri 1JI8 si( more #ommer#ia pri,ate se#tor !anks "ere a so taken o,er !% the go,ernment) The Indian Banking ind$str%& "hi#h is go,erned !% the Banking Reg$ ation A#t of India 1J0J& #an !e !road %
BABASAB PATIL
I
Credit Risk Management in State Bank Of India # 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)
The first phase of finan#ia reforms res$ ted in the nationa i3ation 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 portfo io to se#tors identified as Bpriorit% se#torsC the man$fa#t$ring se#tor a so 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 nationa i3ation 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$rF fo d and the n$m!er of !ank !ran#hes in#reased to eight fo d) After the se#ond phase of finan#ia se#tor reforms and i!era i3ation of the se#tor in the ear % nineties) The -SB's fo$nd it e(treme % diffi#$ t to #omp ete "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$ide ines permitting them "ere iss$ed in Lan$ar% 1JJ/)
T-e Indian Banking S'stem$
Banking in o$r #o$ntr% is a read% "itnessing the sea #hanges as the !anking se#tor seeks ne" te#hno og% and its app i#ations) The !est port is that the !enefits are !eginning to rea#h the masses) Ear ier this domain "as the preser,e of ,er% fe" organi3ations) Moreign !anks "ith hea,% in,estments in te#hno og% started gi,ing some BO$t of the "or dC #$stomer ser,i#es) B$t& s$#h ser,i#es "ere a,ai a! e on % to se e#ted fe"F the ,er% arge a##o$nt ho ders) Then #ame the i!era i3ation and "ith it a m$ 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 te er ma#hines or pop$ ar % kno"n as ATM are the three a pha!ets that ha,e #hanged the #on#ept of !anking ike nothing !efore) Instead of te ers hand ing %o$r o"n #ash& toda% there are effi#ient ma#hines that don't ta k !$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!i it% 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 #ha enge for the pri,ate se#tor and foreign !anks) E,en in terms of *$a it% of assets and Capita ade*$a#%& Indian !anks are #onsidered to ha,e # ean& strong and transparent !a an#e sheets F as #ompared to other !anks in #ompara! e e#onomies in its region) The
BABASAB PATIL
18
Credit Risk Management in State Bank Of India Reser,e Bank of India is an a$tonomo$s !od%& "ith minima press$re from the 1o,ernment
6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$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& !$t on the other hand te#hno og% has to some e(tent red$#ed the #ost of de i,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 !$siness in IndiaN and the term !anking as NA((e0ting f)r t-e 0.r0)se )f +ending a++ in*estment )f de0)sits1 )f m)ne' fr)m t-e 0.2+i(1 re0a'a2+e )n demand )r )t-er3ise and 3it-dra3a+ 2' (-e4.e1 draft )r )t-er3ise56 Banks p a% important ro e in e#onomi# de,e opment of a #o$ntr%& ike< • • Banks mo!i ise the sma prod$#ti,e p$rposes) sa,ings of the peop e and make them a,ai a! e for
-romotes the ha!it of sa,ings among the peop e there!% offering attra#ti,e rates of interests on their deposits)
BABASAB PATIL
11
Credit Risk Management in State Bank Of India • -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 p a#e to another) >e ps the mo,ement of #apita from regions "here it is not ,er% $sef$ to regions "here it #an !e more $sef$ ) 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 a so a#ts as mediator !et"een e(porter and importer "ho does foreign trades)
Th$s Indian !anking has #ome from a ong "a% from !eing a s eep% !$siness instit$tion to a high % proFa#ti,e and d%nami# entit%) This transformation has !een arge % !ro$ght a!o$t !% the arge dose of i!era i3ation and e#onomi# reforms that a o"ed !anks to e(p ore ne" !$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 a most 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 sp it into o d !anks and ne" !anks)
Reser*e Bank )f India 7Centra+ Bank8
S(-ed.+ed Banks
S#hed$ ed Commer#ia Banks
S#hed$ ed CoFoperati,e Banks
-$! i# Se#tor Banks
-ri,ate Se#tor Banks
Moreign Banks
Regiona R$ra Banks
;ationa i3ed Banks
SBI 4 its Asso#iates
S#hed$ ed Ur!an CoFOperati,e Banks
S#hed$ ed State CoFOperati,e Banks
O d -ri,ate Se#tor Banks
;e" -ri,ate Se#tor Banks 1/
BABASAB PATIL
Credit Risk Management in State Bank Of India
Chart Sho"ing Three =ifferent Se#tors of Banks
iE iiE
-$! i# Se#tor Banks -ri,ate Se#tor Banks
-$! i# Se#tor Banks
SBI and SUBSI=IARIES ;ationa i3ed Banks Regiona R$ra Banks
SBI and s.2sidiaries
This gro$p #omprises of the State Bank of India and its se,en s$!sidiaries ,i3)& State Bank of -atia a& State Bank of >%dera!ad& State Bank of Tra,an#ore& State Bank of Bikaner and Laip$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$m!er of !ran#h offi#es and emp o%ees& SBI is the argest !ank in the "or d) Esta! ished in 1I89as Bank of Benga it is the o dest #ommer#ia !ank in the Indian s$!#ontinent) SBI pro,ides ,ario$s domesti#& internationa and ;RI prod$#ts and ser,i#es& thro$gh its ,ast net"ork in India and o,erseas) 6ith an asset !ase of O1.9 !i ion and its rea#h& it is a regiona !anking !ehemoth) The go,ernment nationa i3ed the
BABASAB PATIL
10
Credit Risk Management in State Bank Of India !ank in1J22& "ith the Reser,e !ank of India taking a 98: o"nership stake) In re#ent %ears the !ank has fo#$sed on t"o priorities& 1E& red$#ing its h$ge staff thro$gh 1o den 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)
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 ama gamatted 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 par iament of India& a$thori3ed the Reser,e Bank of India& "hi#h is the #entra Banking Organisationof India& to a#*$ire a #ontro ing 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$re in the top 188 "or d !anks in the Mort$ne 1 o!a 288 rating and ,ario$s other rankings) A##ording to the Mor!es .888 isting it tops a Indian #ompanies)
;ationa i3ed !anks
This gro$p #onsists of pri,ate se#tor !anks that "ere nationa i3ed) The 1o,ernment of India nationa i3ed 10 pri,ate !anks in 1J9J and another 9 in the %ear 1JI8) In ear % 1JJ/& there "ere .I nationa i3ed !anks i)e)& SBI and its H s$!sidiaries p $s .8 nationa i3ed
BABASAB PATIL
12
Credit Risk Management in State Bank Of India !anks) In 1JJ/& the oss making ne" !ank of India "as merged "ith profit making -$n+a! ;ationa Bank) >en#e& no" on % .H nationa i3ed !anks e(ist in 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#i ities 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
O d pri,ate Se#tor Banks ne" pri,ate Se#tor Banks
O d -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 professiona s for the #a$se of e#onomi# !etterment in their operations) Initia %& their operations "ere #on#entrated in a fe" regiona areas) >o"e,er& their !ran#hes s o" % spread thro$gho$t the nation as the% gro")
;e" pri,ate Se#tor Banks
These !anks "ere started as profit orient #ompanies after the RBI opened the !anking se#tor to the pri,ate se#tor) These !anks are most % te#hno og% dri,en and !etter managed than other !anks)
BABASAB PATIL
19
Credit Risk Management in State Bank Of India
Moreign !anks
These are the !anks that "ere registered o$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 termF ending instit$tions& in,estment
instit$tions& spe#ia i3ed finan#ia instit$tions and the stateF e,e de,e opment !anks& ;onF Bank Minan#ia Companies D;BMCsE and other market intermediaries s$#h as the sto#k !rokers and mone%F enders) The #ommer#ia !anks and #ertain ,ariants of ;BMCs are among the o dest of the market parti#ipants) The MIs& on the other hand& are re ati,e % ne" entities in the finan#ia market p a#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 #omp i#ated and #r$#ia ser,i#es ike& mer#hant !anking& ho$sing finan#e& !i dis#o$nting et#) This se#tor has !e#ome more a#ti,e "ith the entr% of ne" p a%ers ike pri,ate and foreign !anks) It has a so e,o ,ed as a prime !$i der of the e#onom% !% $nderstanding the needs of the same and en#o$raging the de,e opment !% "a% of gi,ing oans& pro,iding infrastr$#t$re fa#i ities and finan#ing a#ti,ities for the promotion of entreprene$rs and other !$siness esta! ishments) Mor a fast de,e oping e#onom% ike o$rs& presen#e of a so$nd finan#ia s%stem to mo!i i3e and a o#ate sa,ings of the p$! i# to"ards prod$#ti,e a#ti,ities is ne#essar%) Commer#ia !anks p a% a #r$#ia ro e in this regard)
BABASAB PATIL
1H
Credit Risk Management in State Bank Of India The Banking se#tor in re#ent %ears has in#orporated ne" prod$#ts in their !$sinesses& "hi#h are he pf$ 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!$siness entities et#)At the same time& the !anks are rea#hing o$t to other end of #$stomer re*$irements ike& ins$ran#e premi$m pa%ment& ta( pa%ment et#) It has #hanged itse f from transa#tion t%pe of !anking into re ationship !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 $e to the !ank& et#) This is possi! e "ith the he p of "e organi3ed staff& #omp$ter !ased net"ork for speed% transa#tions& prod$#ts ike #redit #ard& de!it #ard& hea th #ard& ATM et#) These are the present trend of ser,i#es) The #$stomers at present ask for #on,enien#e of !anking transa#tions& ike .0 ho$rs !anking& "here the% "ant to $ti i3e the ser,i#es "hene,er there is a need) The re ationship !anking p a%s a ma+or and important ro e in gro"th& !e#a$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 p a% #a$tio$s %& e se the% ma% ose o$t the p a#e in the market d$e to #ompetition& "here s ightest of opport$nities are #apt$red fast) Another ma+or ro e p a%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$ntries& "hi#h he p in #$rren#% transfer and earn e(#hange o,er it) These !anks p a% a ma+or ro e in #ommer#ia import and e(port !$siness& !et"een parties of t"o #o$ntries) This foreign presen#e a so he ps in !ringing in the internationa standards of operations and ideas) The i!era i3ation po i#% of 1JJ1 has a o"ed man% foreign !anks to enter the Indian market and esta! ish their !$siness) This has he ped arge amo$nt of foreign #apita inf o" 4 in#rease o$r Moreign e(#hange reser,e)
BABASAB PATIL
1I
Credit Risk Management in State Bank Of India Another emerging #hange happening a o,er the !anking ind$str% is #onso idation thro$gh mergers and a#*$isitions) This he ps the !anks in strengthening their empire and e(panding their net"ork of !$siness in terms of ,o $me and effe#ti,eness)
EMER I"
SCE"ARIO I" THE BA"KI"
SECTOR
The Indian !anking s%stem has passed thro$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,e oped "or d& "as !anking or the ser,i#e ind$str% nationa i3ed) B$t this "as pra#ti#ed in India) Those "ere the da%s "hen !ankers has no # $e "hatsoe,er as to ho" to determine the s#a e of finan#e to ind$str%) The third era of !anking "hi#h is in e(isten#e toda% is #a ed 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)
BABASAB PATIL
1J
Credit Risk Management in State Bank Of India
"ati)na+isati)n/
The ne(t signifi#ant mi estone in Indian Banking happened in ate 1J98s "hen the then Indira 1andhi go,ernment nationa i3ed on 1Jth L$ % 1J0J& 10 ma+or #ommer#ia Indian !anks fo o"ed !% nationa isation of 9 more #ommer#ia Indian !anks in 1JI8) The stated reason for the nationa isation "as more #ontro of #redit de i,er%) After this& $nti 1JJ8s& the nationa ised !anks gre" at a eis$re % pa#e of aro$nd 0: a so #a ed as the >ind$ gro"th of the Indian e#onom%)After the ama gamation of ;e" Bank of India "ith -$n+a! ;ationa Bank& #$rrent % there are 1J nationa ised !anks in India)
Li2era+i9ati)n/
In the ear % 1JJ8's the then ;arasimha rao go,ernment em!arked a po i#% of i!era i3ation 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# $ded !anks ike ICICI and >=MC) This mo,e a ong "ith the rapid gro"th of the e#onom% of India& ki#k started the !anking se#tor in India& "hi#h has seen rapid gro"th "ith strong #ontri!$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##$ps for these ne" !anks "ith man% either !eing taken o,er ike 1 o!a Tr$st Bank "hi e others ike Cent$rion Bank ha,e fo$nd the going to$gh) The ne(t stage for the Indian Banking has !een set $p "ith the proposed re a(ation in the norms for Moreign =ire#t In,estment& "here a Moreign In,estors in Banks ma% !e gi,en ,oting rights "hi#h #o$ d e(#eed the present #ap of 18:& at pesent it has gone $p to 0J: "ith some restri#tions)
BABASAB PATIL
.8
Credit Risk Management in State Bank Of India The ne" po i#% shook the Banking se#tor in India #omp ete %) 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 $shered in a modern o$t ook and te#hFsa,,% methods of "orking for traditiona !anks)A this ed to the retai !oom in India) -eop e not +$st demanded more from their !anks !$t a so re#ei,ed more)
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 #ha enge for the pri,ate se#tor and foreign !anks) E,en in terms of *$a it% of assets and #apita ade*$a#%& Indian !anks are #onsidered to ha,e # ean& strong and transparent !a an#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$re from the go,ernment) The stated po i#% of the Bank on the Indian R$pee is to manage ,o ati it%F"itho$t an% stated e(#hange rateFand this has most % !een tr$e)
BABASAB PATIL
.1
Credit Risk Management in State Bank Of India 6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$ite some timeF espe#ia % in its ser,i#es se#tor& the demand for !anking ser,i#esFespe#ia % retai !anking& mortgages and in,estment ser,i#es are e(pe#ted to !e strong) M4As& takeo,ers& asset sa es and m$#h more a#tion Das it is $nra,e ing in ChinaE "i happen on this front in India) In Mar#h .889& the Reser,e Bank of India a o"ed 6ar!$rg -in#$s to in#rease its stake in Gotak Mahindra Bank Da pri,ate se#tor !ankE to 18
This is the first time an in,estor has !een a o"ed to ho d more than 2: in a pri,ate se#tor !ank sin#e the RBI anno$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$! i# se#tor !anks Dthat is "ith the 1o,ernment of India ho ding a stakeE& .J pri,ate !anks Dthese do not ha,e go,ernment stakeK the% ma% !e p$! 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$! i# se#tor !anks ho d o,er H2 per#ent of tota assets of the !anking ind$str%& "ith the pri,ate and foreign !anks ho ding 1I).: and 9)2: respe#ti,e %)Banking in India
1
Centra Bank
Reser,e Bank of India State Bank of India& A aha!ad Bank& Andhra Bank& Bank of Baroda& Bank of India& Bank of Maharastra&Canara Bank& Centra Bank of India&
.
;ationa ised Banks
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) Bank of Ra+astan& Bharath o,erseas Bank& Catho i#
BABASAB PATIL
..
Credit Risk Management in State Bank Of India S%rian Bank& Cent$rion Bank of -$n+a!& Cit% Union Bank& =e,e opment Credit Bank& =hana a(mi Bank& / -ri,ate Banks 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$r V%s%a Bank& Gotek Mahindra Bank& ?akshmi,i as Bank& ?ord Grishna Bank& ;ainitak Bank& Ratnakar Bank&Sang i Bank& SBI Commer#ia and Internationa Bank& So$th Indian Bank& Tami ;ad$ Mer#hanti e Bank ?td)& United 6estern Bank& UTI Bank& YES Bank)
BABASAB PATIL
./
Credit Risk Management in State Bank Of India
COM-A;Y -ROMI?E
STATE BA"K OF I"#IA
;ot on % man% finan#ia instit$tion in the "or d toda% #an # aim the anti*$it% and ma+est% of the State Bank Of India fo$nded near % t"o #ent$ries ago "ith primari % intent of imparting sta!i it% to the mone% market& the !ank from its in#eption mo!i i3ed 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 *$i#kened "or d #omm$ni#ations and ingenio$s method of ind$stria and
BABASAB PATIL
.0
Credit Risk Management in State Bank Of India 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 A tho$gh arge E$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$ra distri#ts against g ad ornaments) Added to these the !ank ti the #reation of the Reser,e Bank in 1J/2 #arried o$t n$mero$s Centra 7 Banking f$n#tions) Adaptation "or d and the needs of the ho$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$#tions "ere re ined to ens$re that good !$siness did not go post) Yet se dom did the !ank #ontra,enes its ,a $e as depart from so$nd !anking prin#ip es to retain as e(pand its !$siness) An inno,ati,e arra% of offi#e& $nkno"n to the "or d then& "as de,ised in the form of !ran#hes& s$! !ran#hes& treas$r% pa% offi#e& pa% offi#e& s$! pa% offi#e and o$t st$dents to e(p oit the opport$nities of an e(panding e#onom%) ;e" !$siness strateg% "as a so 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) A high % effi#ient and e(perien#ed management f$n#tioning in a "e defined
organi3ationa str$#t$re did not take ong to p a#e the !ank an e(e#$ted pedesta in the areas of !$siness& profita!i it%& interna dis#ip ine and a!o,e a #redi!i it% A impe##a! e finan#ia stat$s #onsistent maintenan#e of the oft% traditions if !anking an o!ser,ation of a high standard of integrit% in its operations he ped 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*$es "ere a so ,er% m$#h e,ident in the good o d da%s %ears !efore #orporate go,ernan#e had !e#ome a p$33 ed the !anks !o$nd f$n#tioned "ith a high degree of responsi!i it% and #on#erns for the shareho ders) An $n!roken
BABASAB PATIL
.2
Credit Risk Management in State Bank Of India re#ords of profits and a fair % high rate of profit and fair % high rate of di,idend a thro$gh ens$red satisfa#tion& pr$dentia management and asset ia!i it% management not on % prote#ted the interests of the Bank !$t a so ens$red that the o! igations to #$stomers "ere not met) The traditions of the past #ontin$ed to !e $phe d e,en to this da% as the State Bank %ears itse f to meet the emerging #ha enges of the mi enni$m)
ABO!T LO O
BABASAB PATIL
.9
Credit Risk Management in State Bank Of India THE PLACE TO SHARE THE "E,S 666:: SHARE THE %IE,S :: Togetherness is the theme of this #orporate oge of SBI "here the "or d of !anking ser,i#es meet the e,er #hanging #$stomers needs and esta! ishes a ink that is ike a #ir# e& it indi#ates #omp ete ser,i#es to"ards #$stomers) The ogo a so denotes a !ank that it has prepared to do an%thing to go to an% engths& for #$stomers) The ! $e pointer represent the phi osoph% of the !ank that is a "a%s ooking for the gro"th and ne"er& more #ha enging& more promising dire#tion) The ke% ho e indi#ates safet% and se#$rit%)
MISSIO"1 %ISIO" A"# %AL!ES
MISSIO" STATEME"T$ To retain the Bank's position as premiere Indian Minan#ia Ser,i#e 1ro$p& "ith "or d # ass standards and signifi#ant g o!a #ommitted to e(#e en#e in #$stomer& shareho der and emp o%ee satisfa#tion and to p a% a eading ro e in e(panding and di,ersif%ing finan#ia ser,i#e se#tors "hi e #ontaining emphasis on its de,e opment !anking r$ e) %ISIO" STATEME"T$ ? -remier Indian Minan#ia Ser,i#e 1ro$p "ith prospe#ti,e "or dF# ass Standards of effi#ien#% and professiona ism and instit$tiona ,a $es)
BABASAB PATIL
.H
Credit Risk Management in State Bank Of India ? Retain its position in the #o$ntr% as pioneers in =e,e opment !anking) ? Ma(imi3e the shareho ders ,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(#e en#e in #$stomer ser,i#e ? -rofit orientation ? Be onging #ommitment to Bank ? Mairness in a dea ings and re ations ? Risk taking and inno,ati,e ? Team p a%ing ? ?earning and rene"a ? Integrit% ? Transparen#% and =is#ip ine in po i#ies and s%stems)
BABASAB PATIL
.I
Credit Risk Management in State Bank Of India
OR A"ISATIO" STR!CT!RE MA"A I" #IRECTOR
CHIEF
E"ERAL MA"A ER
BABASAB PATIL
.J
Credit Risk Management in State Bank Of India
6M ;O0erati)ns<
6M ;C=B<
6M ;F=S<
6M ;I< = C%O
6M ;P=#<
9)na+ )ffi(ers
Functional Heads
Regiona offi#ers
-RO=UCTS A;= SERVICES
BABASAB PATIL
/8
Credit Risk Management in State Bank Of India
PRO#!CTS$
State Bank Of India renders ,arieties of ser,i#es to #$stomers thro$gh the fo o"ing prod$#ts<
-ersona ?oan -rod$#t<
• • • • • SBI Term =eposits SBI Re#$rring =eposits SBI >o$sing ?oan SBI Car ?oan SBI Ed$#ationa ?oan
BABASAB PATIL
/1
Credit Risk Management in State Bank Of India • SBI -ersona ?oan • • • • • • SBI ?oan Mor -ensioners ?oan Against Mortgage Of -ropert% ?oan Against Shares 4 =e!ent$res Rent - $s S#heme MediF- $s S#heme Rates Of Interest
SBI H).sing +)an SBI >o$sing oan or Mortgage ?oan s#hemes are designed to make it simp e 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 f at Option to # $! in#ome of %o$r spo$se and #hi dren to #omp$te e igi! e oan amo$nt -ro,ision to # $! e(pe#ted rent a##r$a s from propert% proposed to #omp$te e igi! e oan amo$nt
•
BABASAB PATIL
/.
Credit Risk Management in State Bank Of India -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 app ied on dai % diminishing !a an#e !asis P- $sP s#hemes "hi#h offer attra#ti,e pa#kages "ith #on#essiona interest rates to 1o,t) Emp o%ees& Tea#hers& Emp o%ees in -$! 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,e opment A$thorit%A >o$sing Board& et#) in respe#t of a otment of sitesA ho$seA f at
• •
•
• •
;o Administrati,e Charges or app i#ation fee -repa%ment pena t% is re#o,ered on % if the oan is preF# osed !efore ha f of the origina ten$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 f oating rate !orro"ers "ho a,ai >o$sing ?oans of Rs)2 a#s and a!o,e& to a,ai the !enefit of do"n"ard re,ision of interest rate !% 1: or more
•
•
InFprin#ip e appro,a iss$ed to gi,e %o$ f e(i!i it% "hi e negotiating p$r#hase of a propert% ROption to a,ai oan at the p a#e of emp o%ment or at the p a#e of #onstr$#tion Attra#ti,e pa#kages in respe#t of oans granted $nder tieF$p "ith Centra A State 1o,ernmentsA -SUsA rep$ted #orporates and tieF$p "ith rep$ted !$i ders D- ease #onta#t %o$r nearest !ran#h for detai sE
• •
SER%ICES$ =OMESTIC TREASURY SBI VIS>6A YATRA MOREI1; TRAVE? CAR=
? ?
BABASAB PATIL
//
Credit Risk Management in State Bank Of India ? 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
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
BABASAB PATIL
/0
Credit Risk Management in State Bank Of India >%dera!ad& State Bank of Indore& State Bank of M%sore& State Bank of -atia a& 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$mF =e!it Cards fo o"ing #ards are a so a##epted at State Bank ATMs< F 1E State Bank Credit Card .E ATM Cards iss$ed !% Banks $nder !i atera sharing ,i3) Andhra Bank&A(is Bank& Bank of India& The Bank of Ra+asthan ?td)& Canara Bank& Corporation Bank& =ena Bank& >=MC Bank& Indian Bank& Ind$s Ind Bank& -$n+a! ;ationa Bank& UCO Bank and Union Bank of India) /E Cards iss$ed !% !anks Dother than !anks $nder !i atera sharingE disp a%ing Maestro& Master Card& Cirr$s& VISA and VISA E e#tron ogos
0E A =e!itA Credit Cards iss$ed !% an% !ank o$tside India disp a%ing Maestro& Master Card& Cirr$s& VISA and VISA E e#tron ogos ;ote< If %o$ are a #ardho der of !ank other than State Bank 1ro$p& kind % #onta#t %o$r Bank for the #harges re#o,era! e for $sage of State Bank ATMs)
BABASAB PATIL
/2
Credit Risk Management in State Bank Of India
STATE BA"K I"TER"ATIO"AL ATM/C!M/#EBIT CAR#
E+igi2i+it'$ A Sa,ing Bank and C$rrent A##o$nt ho ders ha,ing a##o$nts "ith net"orked !ran#hes and are< • • • 1I %ears of age 4 a!o,e A##o$nt t%pe< So e or Loint "ith BEither or S$r,i,orC A BAn%one or S$r,i,orC ;RE a##o$nt ho ders are a so e igi! e !$t ;RO a##o$nt ho ders are not)
Benefits$
• • • • • • TCon,enien#e to the #$stomers tra,e ing o,erseas TCan !e $sed as =omesti# ATMF#$mF=e!it Card ?A,ai a! e at a nomina +oining fee of Rs) .88AF T=ai % imit of US O 1888 or e*$i,a ent at the ATM and US O 1888 or e*$i,a ent at -oint of Sa e 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%)
BABASAB PATIL
/9
Credit Risk Management in State Bank Of India
State Bank ATM/(.m/#e2it ;State Bank Cas- 0+.s< Card< India's argest !ank is pro$d to offer %o$ $npara e ed #on,enien#e ,i3) State Bank ATMF #$mF=e!itDCash - $sE #ard) 6ith this #ard& there is no need to #arr% #ash in %o$r "a et) 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$ntr%)
SBI
OL# I"TER"ATIO"AL #EBIT CAR#S
E/PA& Bi -a%ment at On ine SBI DeF-a%E "i et %o$ to pa% %o$r Te ephone& Mo!i e&
E e#tri#it%& Ins$ran#e and Credit Card !i s e e#troni#a % o,er o$r On ine SBI "e!site
BABASAB PATIL
/H
Credit Risk Management in State Bank Of India
E/RAIL
B))k ').r Rai+3a's Ti(ket On+ine6 The fa#i it% has !een a$n#hed "ef Ist Septem!er .88/ in asso#iation "ith IRCTC) The s#heme fa#i itates Booking of Rai "a%s Ti#ket On ine) T-e sa+ient feat.res )f t-e s(-eme are as .nder$ • • A Internet !anking #$stomers #an $se the fa#i it%)
On gi,ing pa%ment option as SBI& the $ser "i !e redire#ted to on ines!i)#om) After ogging on to the site %o$ "i !e disp a%ed pa%ment amo$nt& TI= ;o) and Rai "a% referen#e no)
•
) The ti#ket #an !e de i,ered or #o e#ted !% the #$stomer)
•
The $ser #an #o e#t the ti#ket persona % at ;e" =e hi reser,ation #o$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
BABASAB PATIL
/I
Credit Risk Management in State Bank Of India fa#i ities at a arge n$m!er of o$r !ran#hes) There is a nomina ann$a #harge& "hi#h depends on the si3e of the o#ker and the #entre in "hi#h the !ran#h is o#ated)
"RI HOME LOA"
SALIE"T FEAT!RES P.r0)se )f L)an ?oans to ;RIs 4 -IOs #an !e e(tended for the fo o"ing p$rposes)
• • • • •
To p$r#haseA#onstr$#t a ne" ho$se A f at To repair& reno,ate or e(tend an e(isting ho$seAf at To p$r#hase an e(isting ho$seAf at To p$r#hase a p ot for #onstr$#tion of a d"e ing $nit) To p$r#hase f$rnishings and #ons$mer d$ra! es& as a part of the pro+e#t #ost
A RIC!LT!RE ? R!RAL
State Bank )f India Caters to the needs of agri#$ t$rists and and ess agri#$ t$ra a!o$rers thro$gh a net"ork of 9988 r$ra and semiF$r!an !ran#hes) here are JH. spe#ia i3ed !ran#hes "hi#h ha,e !een set $p in different parts of the #o$ntr% e(# $si,e % for the de,e opment of agri#$ t$re thro$gh #redit dep o%ment) These !ran#hes in# $de 0.H Agri#$ t$ra =e,e opment Bran#hes DA=BsE and 20H !ran#hes "ith =e,e opment Banking =epartment D=B=sE "hi#h #ater to agri#$ 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$ra pro+e#ts)
T>EORETICA? BACG1ROU;= OM CRE=IT RISG MA;A1EME;T
BABASAB PATIL
/J
Credit Risk Management in State Bank Of India CRE#IT$ The "ord 5#redit' #omes from the ?atin "ord 5#redere'& meaning 5tr$st') 6hen se ers transfer his "ea th to a !$%er "ho has agreed to pa% ater& there is a # ear imp i#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 se er 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 $np anned #ost erodes the p anned net profit) RISK $ Risk is defined as $n#ertain res$ ting in ad,erse o$t #ome& ad,erse in re ation to p anned o!+e#ti,e or e(pe#tation) It is ,er% diffi#$ t o find a risk free in,estment) An important inp$t to risk management is risk assessment) Man% p$! i# !odies s$#h as ad,isor% #ommittees #on#erned "ith risk management) There are main % three t%pes of risk the% are fo o"s • • • Market risk Credit Risk sOperationa risk
Risk ana %sis and a o#ation is #entra to the design of an% pro+e#t finan#e& risk management is of paramo$nt #on#ern) Th$s *$antif%ing risk a ong "ith profit pro+e#tions is $s$a % the first step in ga$ging the feasi!i it% of the pro+e#t) on#e risk ha,e !een identified the% #an !e a o#ated to parti#ipants and appropriate me#hanisms p$t in p a#e)
BABASAB PATIL
08
Credit Risk Management in State Bank Of India
T%pes of Minan#ia Risks
Market Risk Financial Risks Credit Risk Operational Risk
Market risk is the risk of ad,erse de,iation of the mark to market ,a $e of the trading portfo io& d$e to market mo,ement& d$ring the period re*$ired to i*$idate the transa#tions)
MARKET RISK$
OPERTIO"AL RISK$
Operationa risk is one area of risk that is fa#ed !% a organi3ation s) More #omp e( the organi3ation more e(posed it "o$ d !e operationa risk) This risk arises d$e to de,iation from norma and p anned f$n#tioning of the s%stem pro#ed$res& te#hno og% and h$man fai $re of omission and #ommission) Res$ t of de,iation from norma f$n#tioning is ref e#ted in the re,en$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
BABASAB PATIL
01
Credit Risk Management in State Bank Of India
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$pt#%) CO;TRIBUTORS OM CRE=IT RISG< • • • • • • • Corporate assets Retai assets ;onFS?R portfo io Ma% res$ t from trading and !anking !ook Inter !ank transa#tions =eri,ati,es Sett ement& et#
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$gh #redit po i#%)
BABASAB PATIL
0.
Credit Risk Management in State Bank Of India
T"o f$ndamenta approa#hes to #redit risk managemento" #redit osses "i !e reported !% the mode ) Mode s genera % report either a defa$ t or market ,a $e distri!$tion) The o!+e#ti,e of #redit risk mode ing is to identif% e(pos$res that #reate an $na##epta! e riskAre"ard profi e) S$#h as might arise from #redit #on#entration) Credit risk management seeks to red$#e the $ns%stemati# risk of a portfo io !% di,ersif%ing risks) As !anks and finan#ia instit$tions gain greater #onfiden#e in their portfo io mode ing #apa!i ities) It is ike % that #redit deri,ati,es "i !e#ome a more signifi#ant ,ehi# e in to manage portfo io #redit risk) 6hi e 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) APPRAISAL OF THE FIRMS POSITIO" O" BASIS OF FOLLO,I" PARAMETERS 1) Manageria Competen#e .) Te#hni#a Measi!i it% /) Commer#ia ,ia!i it% 0) Minan#ia Via!i it% OTHER
Manageria+ C)m0eten(e $
? Ba#k gro$nd of promoters ? E(perien#e ? Te#hni#a ski s& Integrit% 4 >onest% ? ?e,e of interest A #ommitment in pro+e#t ? Asso#iate #on#erns
BABASAB PATIL
2I
Credit Risk Management in State Bank Of India
Te(-ni(a+ Feasi2i+it' <
? ?o#ation ? Si3e of the -ro+e#t ? Ma#tor% !$i ding ? - ant 4 Ma#hiner% ? -ro#ess 4 Te#hno og% ? Inp$ts A $ti ities ) C)mmer(ia+ %ia2i+it' < ? =emand fore#asting A Ana %sis ? Market s$r,e% ? -ri#ing po i#ies ? Competition ? ? E(port po i#ies
Finan(ia+ %ia2i+it'$
? 6hether ade*$ate f$nds are a,ai a! e at afforda! e #ost to imp ement the pro+e#t ? 6hether s$ffi#ient profits "i !e a,ai a! e ? 6hether BE- or margin of safet% are satisfa#tor% ? 6hat "i !e the o,era finan#ia position of the !orro"er in #oming %ears)
Credit in*estigati)n re0)rt
Bran#h prepares Credit in,estigation report in order to a,oid #onse*$en#e in ater stage Credit in,estigation report sho$ d !e a part of #redit proposa ) Bank has to s$!mit the d$ % #omp eted #redit in,estigation reports after #ond$#ting a detai ed #redit in,estigation as per g$ide ines)
BABASAB PATIL
2J
Credit Risk Management in State Bank Of India
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 f agships #on#erns of the gro$p& then s$#h s$pport sho$ d a so !e #ompi ed in respe#t of s$!+e#t f agship in #on#ern !esides the app i#ant #ompan%) ? In regard of proposa s fa ing !e%ond the po"er of rating offi#er& the !ran#h sho$ d ens$re parti#ipation of rating offi#er in #ompi ation of this report) ? The #redit in,estigation report sho$ d a##ompan% a the proposa s "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) ? The part% ma% !e s$ita! % kept informed that the #ompi ation of this report is one of the re*$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,ationsA apses in the fo o"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 high ighted) ? 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 e i#it information on #ond$#t of a##o$nt et#)
BABASAB PATIL
98
Credit Risk Management in State Bank Of India ? Care sho$ d !e taken in se e#tion of #$stomers or #reditors "ho a#ts as the representati,e) The% sho$ d !e inter,ie"ed and #ompi ation of opinion sho$ d !e done) ? En*$iries sho$ d !e made regarding the *$a it% of prod$#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$s of trading of the app i#ant and to kno" their #apa!i it% to meet their #ommitments in time) ? To kno" the market trend !ran#h sho$ 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 app i#ant as to < i) ii) iii) i,) ,) ,i) ,ii) "hether the $nit is "orking in f$ s"ing n$m!er of shifts and n$m!er of emp o%ees an% o!so ete sto#ks "ith the $nit #apa#it% of the $nit nat$re and #onditions of the ma#hiner% insta ed Information on po"er& "ater and po $tion #ontro et#) information on ind$stria re ation and marketing strateg%
CRE#IT FILES$/
It's the fi e& "hi#h pro,ides important so$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 fi e #omp$ sori % in #ase of ?oans e(#eeding Rs 28 ?akhs "hi#h sho$ d !e maintained for *$i#k a##ess of the re ated information)
C)ntents )f t-e (redit fi+eome ?oans D?TV ] H2:E [ [ [ [ [ ?ess than Rs .8 akhs 7 28: Rs .8 akhs and a!o,e 7 H2:
>ome ?oans D?TV ^ H2:E 7 188: Commer#ia Rea estate oans 7 128: -ersona ?oans and #redit #ard re#ei,a! esF 1.2:
[ [
Staff >ome ?oansA-M ?ien noted oans 7 .8: Cons$mer #redit D-ersona ?oansA Credit Card Re#ei,a! esE 7 1.2:
BABASAB PATIL
9H
Credit Risk Management in State Bank Of India [ 1o d oans $p to Rs 1 akh 7 28: [ ;-As "ith pro,isions ].8: è 128: .8 to ] 28: è 188: 28: and a!o,e è 28:
FdoF FdoF [ [ [ ? ? ?
Restr$#t$redA res#hed$ ed ad,an#es 7 1.2: Credit Con,ersion Ma#tors DCCMsE to !e app ied on off !a an#e sheet items W;MBX 4 $n$ti ised imits !efore app %ing risk "eights) Some important CCMs 7 =o#$mentar% ?Cs 7 .8: D;onF do#$mentar% F 188:EK -erf) 1$arantees 7 28:& Min) 1teesF 188:& Un$ti ised imits 7 .8: D$p to 1 %earE& 28: D!e%ond 1 %earE
Standardised Approa#h 7 ?ong term
Rating
Risk ,eig-t
AAA
AA
A
BBB BB 4 !e o" Unrated
.8 /8 28 188 128 188
BABASAB PATIL
9I
Credit Risk Management in State Bank Of India Mrom 1)0).88J& $nrated e(pos$re more than Rs 18 #rores "i attra#t a Risk 6eight of 128: 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
CARE
CRISIL
FITCH
ICRA
RISK ,EI HT
-R1V
-1V -1 -. -/ -04-2
M1V M1 M. M/ B&C&=
A1V A1 A. A/ A0AA2
.8: /8: 28: 188: 128:
-R1
-R.
-R/ -R0 4-R2
Co atera s re#ognised !% Base II $nder Standardised Approach BABASAB PATIL
9J
Credit Risk Management in State Bank Of India
? Cash ? 1o d ? Se#$rities iss$ed !% Centra and State 1o,t ? GV-s and ;SCs Dnot o#ked inE ? ?ife -o i#ies ? Spe#ified i*$id =e!t Se#$rities ? E*$ities forming part of inde( ? MMs 7 S$oted and in,esting in Base II #o atera Components of Credit Risk
Si3e Si3e of of E(pe#ted E(pe#ted ?oss ?oss
BE(pe#ted BE(pe#ted ?ossB ?ossB
\
E? \
1) 1)
of of a a defa$ defa$ tt D;-AEY D;-AEY
6hat 6hat is is the the pro!a!i pro!a!i it% it%
-ro!a!i -ro!a!i it% it% of of =efa$ =efa$ tt DMre*$en#%E DMre*$en#%E
\
-= X Ea=
.) .)
>o" >o" m$#h m$#h "i "i !e !e the the ike ike % % e(pos$re e(pos$re in in the the #ase #ase the the ad,an#e ad,an#e !e#omes !e#omes ;-AY ;-AY
E(pos$re E(pos$re at at =efa$ =efa$ tt \ \ ?oss 1i,en =efa$ t BSe,erit%C
X ?1=
/) >o" /) >o" m$#h m$#h of of that that e(pos$re e(pos$re is is the the !ank !ank going going to to oseY oseY
BABASAB PATIL
H8
Credit Risk Management in State Bank Of India
S-)rt/term and L)ng/Term Ratings$
• 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 app i#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$res of o,er 1 %ear& ?ong Term Ratings gi,en !% ECAIs "i !e app i#a! e) • Mor O,erseas e(pos$res& irrespe#ti,e of the #ontra#t$a mat$rit%& ?ong Term Ratings gi,en !% IRAs "i !e app i#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)
BABASAB PATIL
H1
Credit Risk Management in State Bank Of India
COMPETITORS #ETAILS
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 fo o"s)