Finance Project Report on Credit Risk Management in State Bank Of India

Description
The project helps in understanding the clear meaning of credit Risk Management In State Bank Of India. It explains about the credit risk scoring and Rating of the Bank.


Credit Risk Management in State Bank Of India
EXECUTIVE SUMMARY

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

BACKRO!"# OF PROJECT TOPIC$
Credit risk is defined as the potential that a ank orro!er or "o#nterpart$ !ill
fail to meet its oligations 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 lent mone$ !ill fail to
make promised pa$ments is kno!n as "redit risk
The e'pos#re to the "redit risks large in "ase of finan"ial instit#tions% s#"h
"ommer"ial anks !hen firms orro! mone$ the$ in t#rn e'pose lenders to "redit risk%
the risk that the firm !ill defa#lt on its promised pa$ments( As a "onse)#en"e% orro!ing
e'poses the firm o!ners to the risk that firm !ill e #nale to pa$ its det and th#s e
for"ed to ankr#pt"$(
IMPORTA"CE OF THE PROJECT
The pro*e"t helps in #nderstanding the "lear meaning of "redit Risk Management In State
Bank Of India( It e'plains ao#t the "redit risk s"oring and Rating of the Bank( And also
St#d$ of "omparati+e st#d$ of Credit ,oli"$ !ith that of its "ompetitor helps in
#nderstanding the fair "redit poli"$ of the Bank and Credit Re"o+er$ management of the
Banks and also its ke$ "ompetitors(

Credit Risk Management in State Bank Of India
OBJECTI%ES OF PROJECT
-( To St#d$ the "omplete str#"t#re and histor$ of State Bank Of India(
.( To kno! the different methods a+ailale 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#idelines regarding "redit rating and risk anal$sis(
2( St#d$ing the "redit poli"$ adopted Comparati+e anal$ses of ,#li" se"tor and
pri+ate se"tor(
METHO#OLO&$
#ATA COLLECTIO" METHO#
To f#lfill 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 "olle"ted thro#gh personal inter+ie! $ dire"t
"onta"t method( The method !hi"h !as adopted to "olle"t the information is 5,ersonal
Inter+ie!’ method(
,ersonal inter+ie! and dis"#ssion !as made !ith manager and other personnel in
the organi3ation for this p#rpose(
Se()ndar' data$ The data is "olle"ted from the Maga3ines% Ann#al reports% Internet%
Te't ooks(
The +ario#s so#r"es that !ere #sed for the "olle"tion of se"ondar$ data are

Credit Risk Management in State Bank Of India
o Internal files 4 materials
o 6esites 7 Vario#s sites like !!!( sharekhan("om
!!!(indiainfoline("om
!!!(si("o(in
!!!(in+estopedia("om
!!!((!ikepedia("om and other site
Findings$
• ,ro*e"t findings re+eal that SBI is san"tioning less Credit to agri"#lt#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 $ear .889 is 9.(0:
Compared to other Banks SBI 5s re"o+er$ poli"$ is +er$ good% hen"e this red#"es
;,A
• T)ta+ Ad*an(es$ As "ompared total ad+an"es of SBI is in"reased $ear $ $ear(
• State Bank Of India is granting "redit in all se"tors in an E)#ated Monthl$
Installments so that an$ od$ "an orro! mone$ easil$
• ,ro*e"t findings re+eal that State Bank Of India is lending more "redit or
san"tioning more loans as "ompared to other Banks(
• State ank Of India is e'panding its Credit in the follo!ing fo"#s areas<
-( SBI Term =eposits
.( SBI Re"#rring =eposits
/( SBI >o#sing ?oan
0( SBI Car ?oan
2( SBI Ed#"ational ?oan

Credit Risk Management in State Bank Of India
9( SBI ,ersonal ?oan @et"
• In "ase of indire"t agri"#lt#re ad+an"es% SBI is granting /(-: of ;et Banks
Credit% !hi"h is less as "ompared to Canara Bank% S$ndi"ate Bank and
Corporation Bank( SBI has to entertain indire"t se"tors of agri"#lt#re so that it
"an ha+e more n#mer of orro!ers for the Bank(
• SBI&s dire"t agri"#lt#re ad+an"es as "ompared to other anks is -8(2: of the ;et
Bank&s Credit% !hi"h sho!s that Bank has not lent eno#gh "redit to dire"t
agri"#lt#re se"tor(
• Credit risk management pro"ess of SBI #sed is +er$ effe"ti+e as "ompared !ith
other anks(
RECOMME"#ATIO"S$
• The Bank sho#ld keep on re+ising its Credit ,oli"$ !hi"h !ill help Bank&s effort to
"orre"t the "o#rse of the poli"ies
• The Chairman and Managing =ire"torAE'e"#ti+e =ire"tor sho#ld make
modifi"ations to the pro"ed#ral g#idelines re)#ired for implementation of the
Credit ,oli"$ as the$ ma$ e"ome ne"essar$ from time to time on a""o#nt of
organi3ational needs(
• Banks has to grant the loans for the estalishment of #siness at a moderate rate of
interest( Be"a#se of this% the people "an repa$ the loan amo#nt to ank reg#larl$
and promptl$(
• Bank sho#ld not iss#e entire amo#nt of loan to agri"#lt#re se"tor at a time% it
sho#ld release the loan in installments( If the "limati" "onditions are good then
the$ ha+e to release remaining amo#nt(
• SBI has to red#"e the Interest Rate(

Credit Risk Management in State Bank Of India
• SBI has to entertain indire"t se"tors of agri"#lt#re so that it "an ha+e more n#mer
of orro!ers for the Bank(
CO"CL!SIO"$
The pro*e"t #ndertaken has helped a lot in gaining kno!ledge of the BCredit ,oli"$ and
Credit Risk ManagementC in ;ationali3ed Bank !ith spe"ial referen"e to State Bank Of
India( Credit ,oli"$ and Credit Risk ,oli"$ of the Bank has e"ome +er$ +ital in the
smooth operation of the anking a"ti+ities( Credit ,oli"$ of the Bank pro+ides the
frame!ork to determine DaE !hether or not to e'tend "redit to a "#stomer and DE ho!
m#"h "redit to e'tend( The ,ro*e"t !ork has "ertainl$ enri"hed the kno!ledge ao#t the
effe"ti+e management of BCredit ,oli"$C and BCredit Risk ManagementC in anking
se"tor(
• BCredit ,oli"$C and BCredit Risk ManagementC is a +ast s#*e"t and it is +er$
diffi"#lt to "o+er all 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"ial performan"e of Banking Ind#str$
• To s#m #p% it !o#ld not e o#t of !a$ to mention here that the State Bank Of
India has gi+en spe"ial inp#ts on BCredit ,oli"$C and BCredit Risk
ManagementC( In p#rs#an"e of the instr#"tions and g#idelines iss#ed $ the
Reser+e Bank of India% the State ank Of India is granting and e'panding "redit
to all se"tors(
• The "on"erted efforts p#t in $ the Management and Staff of State Bank Of
India has helped the Bank in a"hie+ing remarkale progress in almost all the
important parameters( The Bank is mar"hing ahead in the dire"tion of a"hie+ing
the ;#merF- position in the Banking Ind#s

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

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 elie+ed that the
transition from mone$ lending 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
laid do!n r#les relating to the interest( =#ring the mogal period% the indigeno#s ankers
pla$ed a +er$ important role in lending 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 general ank of India !as the first *oint sto"k ank
to e estalished in the $ear -HI9(The others !hi"h follo!ed !ere the Bank of >ind#stan
and the Bengal Bank( The Bank of >ind#stan is reported to ha+e "ontin#ed till -J89%
!hile the other t!o failed in the meantime( In the first half of the -J
th
Cent#r$ the East
India Compan$ estalished three anksK The Bank of Bengal in -I8J% The Bank of
Boma$ in -I08 and The Bank of Madras in -I0/(These three anks also kno!n as
presiden"$ anks and !ere independent #nits and f#n"tioned !ell( These three anks
!ere amalgamated in -J.8 and The Imperial Bank of India !as estalished on the .H
th
Lan -J.-% !ith the passing of the SBI A"t in -J22% the #ndertaking of The Imperial Bank
of India !as taken o+er $ the ne!l$ "onstit#ted SBI( The Reser+e Bank !hi"h is the
Central Bank !as "reated in -J/2 $ passing of RBI A"t -J/0% in the !ake of s!adeshi
mo+ement% a n#mer of anks !ith Indian Management !ere estalished in the "o#ntr$
namel$ ,#n*a ;ational Bank ?td% Bank of India ?td% Canara Bank ?td% Indian Bank ?td%
The Bank of Baroda ?td% The Central Bank of India ?td (On L#l$ -J
th
-J9J% -0 Ma*or
Banks of the "o#ntr$ !ere nationali3ed and in -2
th
April -JI8 si' more "ommer"ial
pri+ate se"tor anks !ere also taken o+er $ the go+ernment( The Indian Banking
ind#str$% !hi"h is go+erned $ the Banking Reg#lation A"t of India -J0J% "an e roadl$
"lassified into t!o ma*or "ategories% nonFs"hed#led anks and s"hed#led anks(
S"hed#led Banks "omprise "ommer"ial anks and the "oFoperati+e anks(

Credit Risk Management in State Bank Of India
The first phase of finan"ial reforms res#lted in the nationali3ation of -0 ma*or anks in
-J9J and res#lted in a shift from "lass anking to mass anking( This in t#rn res#lted in
the signifi"ant gro!th in the geographi"al "o+erage of anks( E+er$ ank had to earmark
a min per"entage of their loan portfolio to se"tors identified as Bpriorit$ se"torsC the
man#fa"t#ring se"tor also gre! d#ring the -JH8&s in prote"ted en+ironments and the
anking se"tor !as a "riti"al so#r"e( The ne't !a+e of reforms sa! the nationali3ation of
9 more "ommer"ial anks in -JI8 sin"e then the n#mer of s"hed#led "ommer"ial anks
in"reased fo#rF fold and the n#mer of ank ran"hes in"reased to eight fold(
After the se"ond phase of finan"ial se"tor reforms and lierali3ation of the se"tor in the
earl$ nineties( The ,SB&s fo#nd it e'tremel$ diffi"#lt to "omplete !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#idelines permitting them !ere iss#ed in Lan#ar$ -JJ/(
T-e Indian Banking S'stem$
Banking in o#r "o#ntr$ is alread$ !itnessing the sea "hanges as the anking se"tor seeks
ne! te"hnolog$ and its appli"ations( The est port is that the enefits are eginning to
rea"h the masses( Earlier this domain !as the preser+e of +er$ fe! organi3ations( Moreign
anks !ith hea+$ in+estments in te"hnolog$ started gi+ing some BO#t of the !orldC
"#stomer ser+i"es( B#t% s#"h ser+i"es !ere a+ailale onl$ to sele"ted fe!F the +er$ large
a""o#nt holders( Then "ame the lierali3ation and !ith it a m#ltit#de of pri+ate anks% a
large segment of the #ran pop#lation no! re)#ires minimal time and spa"e for its
anking needs(

Credit Risk Management in State Bank Of India
A#tomated teller ma"hines or pop#larl$ kno!n as ATM are the three alphaets that ha+e
"hanged the "on"ept of anking like nothing efore( Instead of tellers handling $o#r o!n
"ash% toda$ there are effi"ient ma"hines that don&t talk #t *#st dispense "ash( Under the
Reser+e Bank of India A"t -J/0% anks are "lassified as s"hed#led anks and nonF
s"hed#led anks( The s"hed#led anks are those% !hi"h are entered in the Se"ond
S"hed#le of RBI A"t% -J/0( S#"h anks are those% !hi"h ha+e paidF #p "apital and
reser+es of an aggregate +al#e of not less then Rs(2 la"s and !hi"h satisf$ RBI that their
affairs are "arried o#t in the interest of their depositors( All "ommer"ial anks Indian and
Moreign% regional r#ral anks and state "oFoperati+e anks are S"hed#led anks( ;on
S"hed#led anks are those% !hi"h ha+e not een in"l#ded in the Se"ond S"hed#le of the
RBI A"t% -J/0(
The organi3ed anking s$stem in India "an e roadl$ "lassified into three "ategories< DiE
Commer"ial Banks DiiE Regional R#ral 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
responsiilit$ to "ontrol the anking s$stem in the "o#ntr$( It keeps the reser+es of all
"ommer"ial anks and hen"e is kno!n as the BReser*e BankC(
C.rrent s(enari)$/
C#rrentl$ D.88HE% the o+erall anking in India is "onsidered as fairl$ mat#re in terms of
s#ppl$% prod#"t range and rea"h F e+en tho#gh rea"h in r#ral India still remains a
"hallenge for the pri+ate se"tor and foreign anks( E+en in terms of )#alit$ of assets and
Capital ade)#a"$% Indian anks are "onsidered to ha+e "lean% strong and transparent
alan"e sheets F as "ompared to other anks in "omparale e"onomies in its region( The
Reser+e Bank of India is an a#tonomo#s od$% !ith minimal press#re from the
1o+ernment

Credit Risk Management in State Bank Of India
6ith the gro!th in the Indian e"onom$ e'pe"ted to e strong for )#ite some time
espe"iall$ in its ser+i"es se"tor% the demand for anking ser+i"es espe"iall$ retail
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 "lassi"al e"onomi" f#n"tions of the anking ind#str$ that has remained
+irt#all$ #n"hanged o+er the "ent#ries is lending( On the one hand% "ompetition has had
"onsiderale ad+erse impa"t on the margins% !hi"h lenders ha+e en*o$ed% #t on the other
hand te"hnolog$ has to some e'tent red#"ed the "ost of deli+er$ of +ario#s prod#"ts and
ser+i"es(
Bank is a finan"ial instit#tion that orro!s mone$ from the p#li" and lends mone$ to the
p#li" for prod#"ti+e p#rposes( The Indian Banking Reg#lation A"t of -J0J 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 pla$ important role in e"onomi" de+elopment of a "o#ntr$% like<

• Banks moilise the small sa+ings of the people and make them a+ailale for
prod#"ti+e p#rposes(
• ,romotes the hait of sa+ings among the people there$ offering attra"ti+e rates of
interests on their deposits(
• ,ro+ides safet$ and se"#rit$ to the s#rpl#s mone$ of the depositors and as !ell
pro+ides a "on+enient and e"onomi"al method of pa$ment(

• Banks pro+ide "on+enient means of transfer of f#nd from one pla"e to another(
• >elps the mo+ement of "apital from regions !here it is not +er$ #sef#l to regions
!here it "an e more #sef#l(

Credit Risk Management in State Bank Of India
• Banks ad+an"es e'pos#re in trade and "ommer"e% ind#str$ and agri"#lt#re $
kno!ing their finan"ial re)#irements and prospe"ts(
• Bank a"ts as an intermediar$ et!een the depositors and the in+estors( Bank also a"ts
as mediator et!een e'porter and importer !ho does foreign trades(
Th#s Indian anking has "ome from a long !a$ from eing a sleep$ #siness instit#tion
to a highl$ proFa"ti+e and d$nami" entit$( This transformation has een largel$ ro#ght
ao#t $ the large dose of lierali3ation and e"onomi" reforms that allo!ed anks to
e'plore ne! #siness opport#nities rather than generating re+en#es from "on+entional
streams Di(e( orro!ing and lendingE( The anking in India is highl$ fragmented !ith /8
anking #nits "ontri#ting to almost 28: of deposits and 98: of ad+an"es(

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#lator$ A#thorit$( This
is a mi' of the ,#li" se"tor% ,ri+ate se"tor% CoFoperati+e anks and foreign anks( The
pri+ate se"tor anks are again split into old anks and ne! anks(
Reser*e Bank )f India
7Centra+ Bank8
S(-ed.+ed Banks
S"hed#led CoFoperati+e Banks
S"hed#led
Commer"ial Banks
,#li" Se"tor
Banks
;ationali3ed
Banks
SBI 4 its
Asso"iates
,ri+ate Se"tor
Banks
Old ,ri+ate
Se"tor Banks
Moreign
Banks
Regional
R#ral Banks
S"hed#led Uran
CoFOperati+e
Banks
S"hed#led State
CoFOperati+e Banks
;e! ,ri+ate
Se"tor Banks

Credit Risk Management in State Bank Of India
Chart Sho!ing Three =ifferent Se"tors of Banks
iE ,#li" Se"tor Banks
iiE ,ri+ate Se"tor Banks
,#li" Se"tor Banks
SBI and ;ationali3ed Regional R#ral
SUBSI=IARIES Banks Banks
SBI and s.2sidiaries
This gro#p "omprises of the State Bank of India and its se+en s#sidiaries +i3(%
State Bank of ,atiala% State Bank of >$deraad% State Bank of Tra+an"ore% State Bank of
Bikaner and Laip#r% State Bank of M$sore% State Bank of Sa#rashtra% State Bank of India
State Bank )f India DSBIE is the largest ank in India( If one meas#res $ the
n#mer of ran"h offi"es and emplo$ees% SBI is the largest ank in the !orld(
Estalished in -I89as Bank of Bengal it is the oldest "ommer"ial ank in the Indian
s#"ontinent( SBI pro+ides +ario#s domesti"% international and ;RI prod#"ts and
ser+i"es% thro#gh its +ast net!ork in India and o+erseas( 6ith an asset ase of O-.9
illion and its rea"h% it is a regional anking ehemoth( The go+ernment nationali3ed the
ank in-J22% !ith the Reser+e ank of India taking a 98: o!nership stake( In re"ent
$ears the ank has fo"#sed on t!o priorities% -E% red#"ing its h#ge staff thro#gh 1olden
handshakes"hemes kno!n as the Vol#ntar$ 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(

Credit Risk Management in State Bank Of India
The State Bank of India tra"es its roots to the first de"ade of-Jth "ent#r$% !hen the Bank
of "#l"#tta% later renamed theBank of engal% !as estalished on . *#n -I89( The
go+ernment amalgamatted Bank of Bengal and t!o other ,residen"$ anks% namel$% the
Bank of Boma$ and the ank of Madras% and named the reorgani3ed anking entit$ the
Imperial Bank of India( All these ,residen"$ anks !ere in"orporated as"ompanies% and
!ere the res#lt of thero$al "harters( The Imperial Bank of India "ontin#ed to remain a
*oint sto"k "ompan$( Until the estalishment of a "entral ank in India the Imperial Bank
and its earl$ prede"essors ser+ed as the nationPs "entral ank printing "#rren"$(
The State Bank of India A"t -J22% ena"ted $ the parliament of India% a#thori3ed the
Reser+e Bank of India% !hi"h is the "entral Banking Organisationof India% to a")#ire a
"ontrolling interest in the Imperial Bank of India% !hi"h !as renamed the State Bank of
India on/8th April -J22(
In re"ent $ears% the ank has so#ght to e'pand its o+erseas operations $ #$ing foreign
anks( It is the onl$ Indian ank to feat#re in the top -88 !orld anks in the Mort#ne
1loal 288 rating and +ario#s other rankings( A""ording to the Mores .888 listing it tops
all Indian "ompanies(
;ationali3ed anks
This gro#p "onsists of pri+ate se"tor anks that !ere nationali3ed( The 1o+ernment of
India nationali3ed -0 pri+ate anks in -J9J and another 9 in the $ear -JI8( In earl$ -JJ/%
there !ere .I nationali3ed anks i(e(% SBI and its H s#sidiaries pl#s .8 nationali3ed
anks( In -JJ/% the loss making ne! ank of India !as merged !ith profit making
,#n*a ;ational Bank( >en"e% no! onl$ .H nationali3ed anks e'ist in India(

Credit Risk Management in State Bank Of India
Regional R#ral anks
These !ere estalished $ the RBI in the $ear -JH2 of anking "ommission( It !as
estalished to operate e'"l#si+el$ in r#ral areas to pro+ide "redit and other fa"ilities to
small and marginal farmers% agri"#lt#ral laorers% artisans and small entreprene#rs(
Pri*ate Se(t)r Banks
Pri*ate Se(t)r Banks
Old pri+ate ne! pri+ate
Se"tor Banks Se"tor Banks
Old ,ri+ate Se"tor Banks
This gro#p "onsists of the anks that !ere estalishes $ the pri+$ se"tors% "ommittee
organi3ations or $ gro#p of professionals for the "a#se of e"onomi" etterment in their
operations( Initiall$% their operations !ere "on"entrated in a fe! regional areas( >o!e+er%
their ran"hes slo!l$ 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 mostl$ te"hnolog$ dri+en and etter managed
than other anks(
Moreign anks
These are the anks that !ere registered o#tside India and had originated in a foreign
"o#ntr$( The ma*or parti"ipants of the Indian finan"ial s$stem are the "ommer"ial anks%
the finan"ial instit#tions DMIsE% en"ompassing termFlending instit#tions% in+estment

Credit Risk Management in State Bank Of India
instit#tions% spe"iali3ed finan"ial instit#tions and the stateFle+el de+elopment anks% ;onF
Bank Minan"ial Companies D;BMCsE and other market intermediaries s#"h as the sto"k
rokers and mone$Flenders( The "ommer"ial anks and "ertain +ariants of ;BMCs are
among the oldest of the market parti"ipants( The MIs% on the other hand% are relati+el$
ne! entities in the finan"ial market pla"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$% anking has e+ol+ed as a prime se"tor pro+iding finan"ial
ser+i"es to gro!ing needs of the e"onom$(
Banking ind#str$ has #ndergone a paradigm shift from pro+iding ordinar$ anking
ser+i"es in the past to pro+iding s#"h "ompli"ated and "r#"ial ser+i"es like% mer"hant
anking% ho#sing finan"e% ill dis"o#nting et"( This se"tor has e"ome more a"ti+e !ith
the entr$ of ne! pla$ers like pri+ate and foreign anks( It has also e+ol+ed as a prime
#ilder of the e"onom$ $ #nderstanding the needs of the same and en"o#raging the
de+elopment $ !a$ of gi+ing loans% pro+iding infrastr#"t#re fa"ilities and finan"ing
a"ti+ities for the promotion of entreprene#rs and other #siness estalishments(
Mor a fast de+eloping e"onom$ like o#rs% presen"e of a so#nd finan"ial s$stem to
moili3e and allo"ate sa+ings of the p#li" to!ards prod#"ti+e a"ti+ities is ne"essar$(
Commer"ial anks pla$ a "r#"ial role in this regard(
The Banking se"tor in re"ent $ears has in"orporated ne! prod#"ts in their #sinesses%
!hi"h are helpf#l for gro!th( The anks ha+e started to pro+ide feeFased ser+i"es like%
treas#r$ operations% managing deri+ati+es% options and f#t#res% a"ting as ankers to the
ind#str$ d#ring the p#li" offering% pro+iding "ons#ltan"$ ser+i"es% a"ting as an
intermediar$ et!een t!oF#siness entities et"(At the same time% the anks are rea"hing

Credit Risk Management in State Bank Of India
o#t to other end of "#stomer re)#irements like% ins#ran"e premi#m pa$ment% ta' pa$ment
et"( It has "hanged itself from transa"tion t$pe of anking into relationship anking%
!here $o# find friendl$ and )#i"k ser+i"e s#ited to $o#r needs( This is possile !ith
#nderstanding the "#stomer needs their +al#e to the ank% et"( This is possile !ith the
help of !ell organi3ed staff% "omp#ter ased net!ork for speed$ transa"tions% prod#"ts
like "redit "ard% deit "ard% health "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% like .0 ho#rs
anking% !here the$ !ant to #tili3e the ser+i"es !hene+er there is a need( The
relationship anking pla$s a ma*or and important role in gro!th% e"a#se the "#stomers
no! ha+e eno#gh n#mer of opport#nities% and the$ "hoose a""ording to their
satisfa"tion of responses and re"ognition the$ get( So the anks ha+e to pla$ "a#tio#sl$%
else the$ ma$ lose o#t the pla"e in the market d#e to "ompetition% !here slightest of
opport#nities are "apt#red fast(
Another ma*or role pla$ed $ anks is in transnational #siness% transa"tions and
net!orking( Man$ leading Indian anks ha+e spread o#t their net!ork to other "o#ntries%
!hi"h help in "#rren"$ transfer and earn e'"hange o+er it(
These anks pla$ a ma*or role in "ommer"ial import and e'port #siness% et!een parties
of t!o "o#ntries( This foreign presen"e also helps in ringing in the international
standards of operations and ideas( The lierali3ation poli"$ of -JJ- has allo!ed man$
foreign anks to enter the Indian market and estalish their #siness( This has helped
large amo#nt of foreign "apital inflo! 4 in"rease o#r Moreign e'"hange reser+e(
Another emerging "hange happening all o+er the anking ind#str$ is "onsolidation
thro#gh mergers and a")#isitions( This helps the anks in strengthening their empire and
e'panding their net!ork of #siness in terms of +ol#me and effe"ti+eness(

Credit Risk Management in State Bank Of India
EMERI" SCE"ARIO I" THE BA"KI" SECTOR
The Indian anking s$stem has passed thro#gh three distin"t phases from the time of
in"eption( The first !as eing the era of "hara"ter anking% !here $o# !ere re"ogni3ed as
a "redile depositor or orro!er of the s$stem( This era "ome to an end in the si'ties( The
se"ond phase !as the so"ial anking( ;o!here in the demo"rati" de+eloped !orld% !as
anking or the ser+i"e ind#str$ nationali3ed( B#t this !as pra"ti"ed in India( Those !ere
the da$s !hen ankers has no "l#e !hatsoe+er as to ho! to determine the s"ale of finan"e
to ind#str$( The third era of anking !hi"h is in e'isten"e toda$ is "alled the era of
,r#dential Banking( The main fo"#s of this phase is on pr#dential norms a""epted
internationall$(
SBI r).0/
The Bank of Bengal% !hi"h later e"ame the State Bank of India( State Bank of India
!ith its se+en asso"iate anks "ommands the largest anking reso#r"es in India(
"ati)na+isati)n/
The ne't signifi"ant milestone in Indian Banking happened in late -J98s !hen the then
Indira 1andhi go+ernment nationali3ed on -J
th
L#l$ -J0J% -0 ma*or "ommer"ial Indian
anks follo!ed $ nationalisation of 9 more "ommer"ial Indian anks in -JI8(
The stated reason for the nationalisation !as more "ontrol of "redit deli+er$( After this%
#ntil -JJ8s% the nationalised anks gre! at a leis#rel$ pa"e of aro#nd 0: also "alled as
the >ind# gro!th of the Indian e"onom$(After the amalgamation of ;e! Bank of India
!ith ,#n*a ;ational Bank% "#rrentl$ there are -J nationalised anks in India(

Credit Risk Management in State Bank Of India
Li2era+i9ati)n/
In the earl$ -JJ8&s the then ;arasimha rao go+ernment emarked a poli"$ of
lierali3ation and ga+e li"en"es to a small n#mer of pri+ate anks% !hi"h "ame to e
kno!n as ;e! generation te"hFsa++$ anks% !hi"h in"l#ded anks like ICICI and >=MC(
This mo+e along !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 all the se"tors
of anks% namel$ 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 like
1loal Tr#st Bank !hile others like 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 rela'ation in the
norms for Moreign =ire"t In+estment% !here all Moreign In+estors in Banks ma$ e gi+en
+oting rights !hi"h "o#ld e'"eed the present "ap of -8:% at pesent it has gone #p to 0J:
!ith some restri"tions(
The ne! poli"$ shook the Banking se"tor in India "ompletel$( Bankers% till this time%
!ere #sed to the 0F9F0 method DBorro! at 0:K?end at 9:K1o home at 0E of f#n"tioning(
The ne! !a+e #shered in a modern o#tlook and te"hFsa++$ methods of !orking for
traditional anks(All this led to the retail oom in India( ,eople not *#st demanded more
from their anks #t also re"ei+ed more(

Credit Risk Management in State Bank Of India
C!RRE"T SCE"ARIO/
C#rrentl$ D.88HE% o+erall% anking in India is "onsidered as fairl$ mat#re in terms of
s#ppl$% prod#"t range and rea"hFe+en tho#gh rea"h in r#ral India still remains a "hallenge
for the pri+ate se"tor and foreign anks( E+en in terms of )#alit$ of assets and "apital
ade)#a"$% Indian anks are "onsidered to ha+e "lean% strong and transparent alan"e
sheetsFas "ompared to other anks in "omparale e"onomies in its region( The Reser+e
Bank of India is an a#tonomo#s od$% !ith minimal press#re from the go+ernment( The
stated poli"$ of the Bank on the Indian R#pee is to manage +olatilit$F!itho#t an$ stated
e'"hange rateFand this has mostl$ een tr#e(
6ith the gro!th in the Indian e"onom$ e'pe"ted to e strong for )#ite some timeF
espe"iall$ in its ser+i"es se"tor% the demand for anking ser+i"esFespe"iall$ retail
anking% mortgages and in+estment ser+i"es are e'pe"ted to e strong( M4As% takeo+ers%
asset sales and m#"h more a"tion Das it is #nra+elling in ChinaE !ill happen on this front
in India(
In Mar"h .889% the Reser+e Bank of India allo!ed 6ar#rg ,in"#s to in"rease its stake in
Gotak Mahindra Bank Da pri+ate se"tor ankE to -8 This is the first time an in+estor
has een allo!ed to hold 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#ld need to e
+etted $ them( C#rrentl$% India has II s"hed#led "ommer"ial anks DSCBsE F .I p#li"
se"tor anks Dthat is !ith the 1o+ernment of India holding a stakeE% .J pri+ate anks
Dthese do not ha+e go+ernment stakeK the$ ma$ e p#li"l$ listed and traded on sto"k
e'"hangesE and /- foreign anks( The$ ha+e a "omined net!ork of o+er 2/%888
ran"hes and -H%888 ATMs( A""ording to a report $ ICRA ?imited% a rating agen"$% the
p#li" se"tor anks hold o+er H2 per"ent of total assets of the anking ind#str$% !ith the
pri+ate and foreign anks holding -I(.: and 9(2: respe"ti+el$(

Credit Risk Management in State Bank Of India
Banking in India
- Central Bank Reser+e Bank of India
.
;ationalised Banks
State Bank of India% Allahaad Bank% Andhra Bank%
Bank of Baroda% Bank of India% Bank of
Maharastra%Canara Bank% Central Bank of India%
Corporation Bank% =ena Bank% Indian Bank% Indian
o+erseas Bank%Oriental Bank of Commer"e% ,#n*a and
Sind Bank% ,#n*a ;ational Bank% S$ndi"ate Bank%
Union Bank of India% United Bank of India% UCO
Bank%and Vi*a$a Bank(
/
,ri+ate Banks
Bank of Ra*astan% Bharath o+erseas Bank% Catholi"
S$rian Bank% Cent#rion Bank of ,#n*a% Cit$ Union
Bank% =e+elopment Credit Bank% =hanala'mi Bank%
Mederal 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+ilas Bank% ?ord Grishna Bank% ;ainitak Bank%
Ratnakar Bank%Sangli Bank% SBI Commer"ial and
International Bank% So#th Indian Bank% Tamil ;ad#
Mer"hantile Bank ?td(% United 6estern Bank% UTI
Bank% YES Bank(

Credit Risk Management in State Bank Of India
COM,A;Y ,ROMI?E

Credit Risk Management in State Bank Of India
STATE BA"K OF I"#IA
;ot onl$ man$ finan"ial instit#tion in the !orld toda$ "an "laim the anti)#it$ and
ma*est$ of the State Bank Of India fo#nded nearl$ t!o "ent#ries ago !ith primaril$ intent
of imparting stailit$ to the mone$ market% the ank from its in"eption moili3ed f#nds
for s#pporting oth the p#li" "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 ao#t -I98s !hen the Indian e"onom$ ook a signifi"ant leap for!ard #nder the
imp#lse of )#i"kened !orld "omm#ni"ations and ingenio#s method of ind#strial and
agri"#lt#ral prod#"tion the Bank e"ame intimatel$ in +al#ed in the finan"ing of
pra"ti"all$ and mining a"ti+it$ of the S#F Continent Altho#gh large E#ropean and Indian
mer"hants and man#fa"t#rers !ere #ndo#tedl$ thee prin"ipal enefi"iaries% the small
man ne+er ignored loans as lo! as Rs(-88 !ere dis#rsed in agri"#lt#ral distri"ts against
glad ornaments( Added to these the ank till the "reation of the Reser+e Bank in -J/2
"arried o#t n#mero#s Central 7 Banking f#n"tions(
Adaptation !orld 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'tremel$
restri"ted% r#les laid do!n in the ook of instr#"tions !ere relined to ens#re that good
#siness did not go post( Yet seldom did the ank "ontra+enes its +al#e as depart from
so#nd anking prin"iples to retain as e'pand its #siness( An inno+ati+e arra$ of offi"e%
#nkno!n to the !orld 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'ploit the opport#nities of an
e'panding e"onom$( ;e! #siness strateg$ !as also e+aded !a$ a"k in -J/H to render
the est anking ser+i"e thro#gh prompt and "o#rteo#s attention to "#stomers(

Credit Risk Management in State Bank Of India
A highl$ effi"ient and e'perien"ed management f#n"tioning in a !ell defined
organi3ational str#"t#re did not take long to pla"e the ank an e'e"#ted pedestal in the
areas of #siness% profitailit$% internal dis"ipline and ao+e all "rediilit$ A impe""ale
finan"ial stat#s "onsistent maintenan"e of the loft$ traditions if anking an oser+ation of
a high standard of integrit$ in its operations helped the ank gain a preF eminent stat#s(
;o !onders the administration for the ank !as #ni+ersal 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 "hamer of "ommer"ial sho!ered e"onomi"s on it(
Modern da$ management te"hni)#es !ere also +er$ m#"h e+ident in the good old da$s
$ears efore "orporate go+ernan"e had e"ome a p#33led the anks o#nd f#n"tioned
!ith a high degree of responsiilit$ and "on"erns for the shareholders( An #nroken
re"ords of profits and a fairl$ high rate of profit and fairl$ high rate of di+idend all
thro#gh ens#red satisfa"tion% pr#dential management and asset liailit$ management not
onl$ prote"ted the interests of the Bank #t also ens#red that the oligations to "#stomers
!ere not met( The traditions of the past "ontin#ed to e #pheld e+en to this da$ as the
State Bank $ears itself to meet the emerging "hallenges of the millenni#m(


Credit Risk Management in State Bank Of India

ABO!T LOO

THE PLACE TO SHARE THE "E,S 666::
SHARE THE %IE,S ::
Togetherness is the theme of this "orporate loge of SBI !here the !orld of anking
ser+i"es meet the e+er "hanging "#stomers needs and estalishes a link that is like a
"ir"le% it indi"ates "omplete ser+i"es to!ards "#stomers( The logo also denotes a ank
that it has prepared to do an$thing to go to an$ lengths% for "#stomers(
The l#e pointer represent the philosoph$ of the ank that is al!a$s looking for the
gro!th and ne!er% more "hallenging% more promising dire"tion( The ke$ hole indi"ates
safet$ and se"#rit$(

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

To retain the Bank&s position as premiere Indian Minan"ial Ser+i"e 1ro#p% !ith !orld
"lass standards and signifi"ant gloal "ommitted to e'"ellen"e in "#stomer% shareholder
and emplo$ee satisfa"tion and to pla$ a leading role in e'panding and di+ersif$ing
finan"ial ser+i"e se"tors !hile "ontaining emphasis on its de+elopment anking r#le(
%ISIO" STATEME"T$
? ,remier Indian Minan"ial Ser+i"e 1ro#p !ith prospe"ti+e !orldF"lass
Standards of effi"ien"$ and professionalism and instit#tional +al#es(
? Retain its position in the "o#ntr$ as pioneers in =e+elopment anking(
? Ma'imi3e the shareholders +al#e thro#gh highFs#stained earnings per
Share(
? An instit#tion !ith "#lt#ral m#t#al "are and "ommitment% satisf$ing and
1ood !ork en+ironment and "ontin#es learning opport#nities(
%AL!ES$
? E'"ellen"e in "#stomer ser+i"e
? ,rofit orientation
? Belonging "ommitment to Bank
? Mairness in all dealings and relations

Credit Risk Management in State Bank Of India
? Risk taking and inno+ati+e
? Team pla$ing
? ?earning and rene!al
? Integrit$
? Transparen"$ and =is"ipline in poli"ies and s$stems(

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

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

9)na+ )ffi(ers
Functional Heads


CHIEF E"ERAL MA"AER

Credit Risk Management in State Bank Of India
Regional offi"ers
,RO=UCTS A;= SERVICES

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
follo!ing prod#"ts<
,ersonal ?oan ,rod#"t<

• SBI Term =eposits
• SBI Re"#rring =eposits
• SBI >o#sing ?oan
• SBI Car ?oan
• SBI Ed#"ational ?oan
• SBI ,ersonal ?oan
• SBI ?oan Mor ,ensioners
• ?oan Against Mortgage Of ,ropert$
• ?oan Against Shares 4 =eent#res
• Rent ,l#s S"heme
• MediF,l#s S"heme
• Rates Of Interest
SBI H).sing +)an

Credit Risk Management in State Bank Of India
SBI >o#sing loan or Mortgage ?oan s"hemes are designed to make it simple for $o# to
make a "hoi"e at least as far as finan"ing goesQ
>SBI/H)me L)ans>
feat.res$
• ;o "ap on ma'im#m loan amo#nt for p#r"haseA "onstr#"tion of ho#seA flat
• Option to "l# in"ome of $o#r spo#se and "hildren to "omp#te eligile loan
amo#nt
• ,ro+ision to "l# e'pe"ted rent a""r#als from propert$ proposed to "omp#te
eligile loan amo#nt
,ro+ision to finan"e "ost of f#rnishing and "ons#mer d#rales as part of pro*e"t
"ost
• Repa$ment permitted #pto H8 $ears of age
• Mree personal a""ident ins#ran"e "o+er
• Optional 1ro#p Ins#ran"e from SBI ?ife at "on"essional premi#m DUpfront
premi#m finan"ed as part of pro*e"t "ostE
• Interest applied on dail$ diminishing alan"e asis
• P,l#sP s"hemes !hi"h offer attra"ti+e pa"kages !ith "on"essional interest rates to
1o+t( Emplo$ees% Tea"hers% Emplo$ees in ,#li" Se"tor Oil Companies(
• Spe"ial s"heme to grant loans to finan"e Earnest Mone$ =eposits to e paid to
Uran =e+elopment A#thorit$A >o#sing Board% et"( in respe"t of allotment of
sitesA ho#seA flat
• ;o Administrati+e Charges or appli"ation fee

Credit Risk Management in State Bank Of India
• ,repa$ment penalt$ is re"o+ered onl$ if the loan is preF"losed efore half of the
original ten#re Dnot re"o+ered for #lk pa$ments pro+ided the loan is not "losedE
• ,ro+ision for do!n!ard refi'ation of EMI in respe"t of floating rate orro!ers
!ho a+ail >o#sing ?oans of Rs(2 la"s and ao+e% to a+ail the enefit of
do!n!ard re+ision of interest rate $ -: or more
• InFprin"iple appro+al iss#ed to gi+e $o# fle'iilit$ !hile negotiating p#r"hase of a
propert$
• ROption to a+ail loan at the pla"e of emplo$ment or at the pla"e of "onstr#"tion
• Attra"ti+e pa"kages in respe"t of loans granted #nder tieF#p !ith CentralA State
1o+ernmentsA ,SUsA rep#ted "orporates and tieF#p !ith rep#ted #ilders D,lease
"onta"t $o#r nearest ran"h for detailsE
SER%ICES$
? =OMESTIC TREASURY
? SBI VIS>6A YATRA MOREI1; TRAVE? CAR=
? BROGI;1 SERVICES
? REVISE= SERVICE C>AR1ES
? ATM SERVICES
? I;TER;ET BA;GI;1
? EF,AY
? EFRAI?
? RBIEMT
? SAME =E,OSIT ?OCGER
? 1IMT C>ESUES
? MICR CO=ES
MOREI1; I;6AR= REMITTA;CES

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

STATE BA"K "ET,ORKE# ATM SER%ICES
State Bank offers $o# the "on+enien"e of o+er I888 ATMs in India% the largest net!ork in
the "o#ntr$ and "ontin#ing to e'pand fastQ This means that $o# "an transa"t free of "ost at
the ATMs of State Bank 1ro#p DThis in"l#des the ATMs of State Bank of India as !ell as
the Asso"iate Banks 7 namel$% State Bank of Bikaner 4 Laip#r% State Bank of >$deraad%
State Bank of Indore% State Bank of M$sore% State Bank of ,atiala% State Bank of
Sa#rashtra% and State Bank of Tra+an"oreE and !holl$ o!ned s#sidiar$ +i3( SBI
Commer"ial and International Bank ?td(% #sing the State Bank ATMF"#mF=eit DCash
,l#sE "ard(
KI"#S OF CAR#S ACCEPTE# AT STATE BA"K ATMs
Besides State Bank ATMFC#mF=eit Card and State Bank International ATMFC#mF=eit
Cards follo!ing "ards are also a""epted at State Bank ATMs< F
-E State Bank Credit Card
.E ATM Cards iss#ed $ Banks #nder ilateral sharing +i3( Andhra Bank%A'is
Bank% Bank of India% The Bank of Ra*asthan ?td(% Canara Bank% Corporation Bank% =ena

Credit Risk Management in State Bank Of India
Bank% >=MC Bank% Indian Bank% Ind#s Ind Bank% ,#n*a ;ational Bank% UCO Bank
and Union Bank of India(
/E Cards iss#ed $ anks Dother than anks #nder ilateral sharingE displa$ing Maestro%
Master Card% Cirr#s% VISA and VISA Ele"tron logos
0E All =eitA Credit Cards iss#ed $ an$ ank o#tside India displa$ing Maestro% Master
Card% Cirr#s% VISA and VISA Ele"tron logos
;ote< If $o# are a "ardholder of ank other than State Bank 1ro#p% kindl$ "onta"t $o#r
Bank for the "harges re"o+erale for #sage of State Bank ATMs(
STATE BA"K I"TER"ATIO"AL ATM/C!M/#EBIT CAR#
E+igi2i+it'$
All Sa+ing Bank and C#rrent A""o#nt holders ha+ing a""o#nts !ith net!orked ran"hes
and are<

Credit Risk Management in State Bank Of India
• -I $ears of age 4 ao+e
• A""o#nt t$pe< Sole or Loint !ith BEither or S#r+i+orC A BAn$one or S#r+i+orC
• ;RE a""o#nt holders are also eligile #t ;RO a""o#nt holders are not(
Benefits$
• TCon+enien"e to the "#stomers tra+eling o+erseas
• TCan e #sed as =omesti" ATMF"#mF=eit Card
• ?A+ailale at a nominal *oining fee of Rs( .88AF
• T=ail$ limit of US O -888 or e)#i+alent at the ATM and US O -888 or e)#i+alent at
,oint of Sale D,OSE terminal for deit transa"tion
• ,#r"hase ,rote"tionU#p to Rs( 2888AF and ,ersonal A""ident "o+erU#p to Rs(
.%88%888AF
• TCharges for #sage aroad< Rs( -28V Ser+i"e Ta' per "ash !ithdra!al Rs( -2 V
Ser+i"e Ta' per en)#ir$(
State Bank ATM/(.m/#e2it ;State Bank Cas- 0+.s< Card<
India&s largest ank is pro#d to offer $o# #nparalleled "on+enien"e +i3( State Bank ATMF
"#mF=eitDCash ,l#sE "ard( 6ith this "ard% there is no need to "arr$ "ash in $o#r !allet(
Yo# "an no! !ithdra! "ash and make p#r"hases an$time $o# !ish to !ith $o#r ATMF
"#mF=eit Card(
1et an ATMF"#mF=eit "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

Credit Risk Management in State Bank Of India

E/PA&
Bill ,a$ment at Online SBI DeF,a$E !ill let $o# to pa$ $o#r Telephone% Moile%
Ele"tri"it$% Ins#ran"e and Credit Card ills ele"troni"all$ o+er o#r Online SBI !esite
E/RAIL
B))k ').r Rai+3a's Ti(ket On+ine6
The fa"ilit$ has een la#n"hed !ef Ist Septemer .88/ in asso"iation !ith IRCTC(
The s"heme fa"ilitates Booking of Rail!a$s Ti"ket Online(
T-e sa+ient feat.res )f t-e s(-eme are as .nder$
• All Internet anking "#stomers "an #se the fa"ilit$(

• On gi+ing pa$ment option as SBI% the #ser !ill e redire"ted to onlinesi("om(
After logging on to the site $o# !ill e displa$ed pa$ment amo#nt% TI= ;o( and
Rail!a$ referen"e no(

Credit Risk Management in State Bank Of India


• ( The ti"ket "an e deli+ered or "olle"ted $ the "#stomer(

• The #ser "an "olle"t the ti"ket personall$ at ;e! =elhi reser+ation "o#nter (
• The ,a$ment amo#nt !ill in"l#de ti"ket fare in"l#ding reser+ation "harges%
"o#rier "harges and Bank Ser+i"e fee of Rs -8A( The Bank ser+i"e fee has een
!ai+ed #nto /-st L#l$ .889(
SAFE #EPOSIT LOCKER
Mor the safet$ of $o#r +al#ales !e offer o#r "#stomers safe deposit +a#lt or lo"ker
fa"ilities at a large n#mer of o#r ran"hes( There is a nominal ann#al "harge% !hi"h
depends on the si3e of the lo"ker and the "entre in !hi"h the ran"h is lo"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 follo!ing p#rposes(
• To p#r"haseA"onstr#"t a ne! ho#se A flat
• To repair% reno+ate or e'tend an e'isting ho#seAflat

Credit Risk Management in State Bank Of India
• To p#r"hase an e'isting ho#seAflat
• To p#r"hase a plot for "onstr#"tion of a d!elling #nit(
• To p#r"hase f#rnishings and "ons#mer d#rales% as a part of the pro*e"t "ost
ARIC!LT!RE ? R!RAL
State Bank )f India Caters to the needs of agri"#lt#rists and landless agri"#lt#ral
lao#rers thro#gh a net!ork of 9988 r#ral and semiF#ran ran"hes( here are JH.
spe"iali3ed ran"hes !hi"h ha+e een set #p in different parts of the "o#ntr$ e'"l#si+el$
for the de+elopment of agri"#lt#re thro#gh "redit deplo$ment( These ran"hes in"l#de
0.H Agri"#lt#ral =e+elopment Bran"hes DA=BsE and 20H ran"hes !ith =e+elopment
Banking =epartment D=B=sE !hi"h "ater to agri"#lt#rists and . Agri"#lt#ral B#siness
Bran"hes at Chennai and >$deraad "atering to the needs of hite"h "ommer"ial
agri"#lt#ral pro*e"ts(
T>EORETICA? BACG1ROU;= OM CRE=IT RISG MA;A1EME;T
CRE#IT$
The !ord 5"redit& "omes from the ?atin !ord 5"redere&% meaning 5tr#st&( 6hen
sellers transfer his !ealth to a #$er !ho has agreed to pa$ later% there is a "lear
impli"ation of tr#st that the pa$ment !ill e made at the agreed date( The "redit period
and the amo#nt of "redit depend #pon the degree of tr#st(
Credit is an essential marketing tool( It ears a "ost% the "ost of the seller ha+ing to
orro! #ntil the "#stomers pa$ment arri+es( Ideall$% that "ost is the pri"e #t% as most
"#stomers pa$ later than agreed% the e'tra #nplanned "ost erodes the planned net profit(
RISK $
Risk is defined as #n"ertain res#lting in ad+erse o#t "ome% ad+erse in relation to
planned o*e"ti+e or e'pe"tation( It is +er$ diffi"#lt o find a risk free in+estment( An

Credit Risk Management in State Bank Of India
important inp#t to risk management is risk assessment( Man$ p#li" odies s#"h as
ad+isor$ "ommittees "on"erned !ith risk management( There are mainl$ three t$pes
of risk the$ are follo!s
• Market risk
• Credit Risk
• sOperational risk
Risk anal$sis and allo"ation is "entral to the design of an$ pro*e"t finan"e% risk
management is of paramo#nt "on"ern( Th#s )#antif$ing risk along !ith profit
pro*e"tions is #s#all$ the first step in ga#ging the feasiilit$ of the pro*e"t( on"e
risk ha+e een identified the$ "an e allo"ated to parti"ipants and appropriate
me"hanisms p#t in pla"e(
MARKET RISK$
Market risk is the risk of ad+erse de+iation of the mark to market +al#e of the trading
portfolio% d#e to market mo+ement% d#ring the period re)#ired to li)#idate the
transa"tions(
Financial
Risks
Operational Risk
Market Risk
Credit Risk


T$pes of Minan"ial Risks

Credit Risk Management in State Bank Of India
OPERTIO"AL RISK$
Operational risk is one area of risk that is fa"ed $ all organi3ation s( More "omple' the
organi3ation more e'posed it !o#ld e operational risk( This risk arises d#e to de+iation
from normal and planned f#n"tioning of the s$stem pro"ed#res% te"hnolog$ and h#man
fail#re of omission and "ommission( Res#lt of de+iation from normal f#n"tioning is
refle"ted in the re+en#e of the organi3ation% either $ the !a$ of additional e'penses or
$ !a$ of loss of opport#nit$(
CRE#IT RISK$
Credit risk is defined as the potential that a ank orro!er or "o#nterpart$ !ill fail to
meet its oligations 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 lent mone$ !ill fail to make
promised pa$ments is kno!n as "redit risk
The e'pos#re to the "redit risks large in "ase of finan"ial instit#tions% s#"h "ommer"ial
anks !hen firms orro! mone$ the$ in t#rn e'pose lenders to "redit risk% the risk that
the firm !ill defa#lt on its promised pa$ments( As a "onse)#en"e% orro!ing e'poses the
firm o!ners to the risk that firm !ill e #nale to pa$ its det and th#s e for"ed to
ankr#pt"$(
CO;TRIBUTORS OM CRE=IT RISG<
• Corporate assets
• Retail assets
• ;onFS?R portfolio
• Ma$ res#lt from trading and anking ook
• Inter ank transa"tions
• =eri+ati+es
• Settlement% et"

Credit Risk Management in State Bank Of India
GEY E?EME;TS OM CRE=IT RISG MA;A1EME;T<
• Estalishing 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 "ontrol o+er "redit risk
• Banks sho#ld ha+e a "redit risk strateg$ !hi"h in o#r "ase is "omm#ni"ated
thro#gho#t the organi3ation thro#gh "redit poli"$(
T!o f#ndamental approa"hes to "redit risk management<F
F The internall$ oriented approa"h "enters on estimating oth the e'pe"ted "ost and
+olatilit$ of f#t#re "redit losses ased on the firm&s est assessment(
F M#t#re "redit losses on a gi+en loan are the prod#"t of the proailit$ that the
orro!er !ill defa#lt and the portion of the amo#nt lent !hi"h !ill e lost in the
e+ent of defa#lt( The portion !hi"h !ill e lost in the e+ent of defa#lt is
dependent not *#st on the orro!er #t on the t$pe of loan Deg(% some onds ha+e
greater rights of seniorit$ than others in the e+ent of defa#lt and !ill re"ei+e
pa$ment efore the more *#nior ondsE(
F To the e'tent that losses are predi"tale% e'pe"ted losses sho#ld e fa"tored into
prod#"t pri"es and "o+ered as a normal and re"#rring "ost of doing #siness( i(e(%

Credit Risk Management in State Bank Of India
the$ sho#ld e dire"t "harges to the loan +al#ation( Volatilit$ of loss rates aro#nd
e'pe"ted le+els m#st e "o+ered thro#gh riskFad*#sted ret#rns(
F So total "harge for "redit losses on a single loan "an e represented $ DWe'pe"ted
proailit$ of defa#ltX U We'pe"ted per"entage loss in e+ent of defa#ltXE V risk
ad*#stment U the +olatilit$ of DWproailit$ of defa#lt U per"entage loss in the
e+ent of defa#ltXE(
Minan"ial instit#tions are *#st eginning to reali3e the enefits of "redit risk
management models( These models are designed to help the risk manager to pro*e"t
risk% ens#re profitailit$% and re+eal ne! #siness opport#nities( The model s#r+e$s
the "#rrent state of the art in "redit risk management( It pro+ides the tools to
#nderstand and e+al#ate alternati+e approa"hes to modeling( This also des"ries !hat
a "redit risk management model sho#ld do% and it anal$ses some of the pop#lar
models(
The s#""ess of "redit risk management models depends on so#nd design%
intelligent implementation% and responsile appli"ation of the model( 6hile there
has een signifi"ant progress in "redit risk management models% the ind#str$ m#st
"ontin#e to ad+an"e the state of the art( So far the most s#""essf#l models ha+e
een "#stom designed to sol+e the spe"ifi" prolems of parti"#lar instit#tions(
A "redit risk management model tells the "redit risk manager ho! to allo"ate s"ar"e
"redit risk "apital to +ario#s #sinesses so as to optimi3e the risk and ret#rn
"hara"teristi"s of the firm( It is important or #nderstand that optimi3e does not mean
minimi3e risk other!ise e+er$ firm !o#ld simpl$ in+est its "apital in risk less
assets( A "redit risk management model !orks $ "omparing the risk and ret#rn
"hara"teristi"s et!een indi+id#al assets or #sinesses( One f#n"tion is to )#antif$
the di+ersifi"ation of risks( Being !ellFdi+ersified means that the firms has no
"on"entrations of risk to sa$% one geographi"al lo"ation or one "o#nterpart$(

Credit Risk Management in State Bank Of India
CRE#IT RATI"
#efiniti)n$/
Credit rating is the pro"ess of assigning a letter rating to orro!er indi"ating
that "redit!orthiness of the orro!er(
Rating is assigned ased on the ailit$ of the orro!er D"ompan$E( To repa$ the det and
his !illingness to do so( The higher rating of "ompan$ the lo!er the proailit$ of its
defa#lt(
!se in de(isi)n making$/
Credit rating helps the ank in making se+eral ke$ de"isions regarding "redit in"l#ding
Standardized Standardized
Internal Ratings Internal Ratings
Credit Risk Models Credit Risk Models
Credit Mitigation Credit Mitigation
Market Risk Market Risk
Credit Risk Credit Risk
Other Risks Other Risks
Risks Risks
Trading Book Trading Book
Banking Book Banking Book
Operational Operational
Other Other
Ste0s t) f)++)3 t) minimi9e different t'0e )f risks$/

Credit Risk Management in State Bank Of India
-( !hether to lend to a parti"#lar orro!er or notK !hat pri"e to "hargeY
.( !hat are the prod#"t to e offered to the orro!er and for !hat ten#reY
/( at !hat le+el sho#ld san"tioning e done% it sho#ld ho!e+er e noted that "redit
rating is one of inp#ts #sed in "redit de"isions(
There are +ario#s fa"tors Dade)#a"$ of orro!ers% "ash flo!% "ollateral pro+ided% and
relationship !ith the orro!erE
,roailit$ of the orro!ers defa#lt ased on past data(
Main feat#res of the rating tool<F
? "omprehensi+e "o+erage of parameters
? e'tensi+e data re)#irement
? mi' of s#*e"ti+e and o*e"ti+e parameters
? in"l#des trend anal$sis
? -/ parameters are en"hmarked against other pla$ers in the segment
? "aptions of ind#str$ o#tlook
? I grade ratings roadl$ mapped !ith e'ternal rating agen"ies pre+ailing data(
Rating t))+ f)r SME$/
Internal "redit ratings are the s#mmar$ indi"ators of risk for the ank&s indi+id#al "redit
e'pos#res( It pla$s a "r#"ial role in "redit risk management ar"hite"t#re of an$ ank and
forms the "ornerstone of appro+al pro"ess(
Based on the g#idelines pro+ided $ Boston Cons#ltan"$ 1ro#p DBC1E% SBI adopted
"redit rating tool(
The rating tool for SME orro!er assigns the follo!ing 6eight ages to ea"h one of the
fo#r main "ategories i(e(%
DiE s"enario DIE !itho#t monitoring tool
S ;o ,arameters 6eightages D:E
- finan"ial performan"e XXXX
. operating performan"e XXXX

Credit Risk Management in State Bank Of India
/ )#alit$ of management XXXX
0 ind#str$ o#tlook XXXX
DiiE( S"enario DIIE !ith monitoring tool W"ond#"t of a""o#ntX<F the !eight age !o#ld e
"on+e$ed separatel$ on roll o#t of the tool(In the ao+e parameters first three parameters
#sed to kno! the orro!er "hara"teristi"s( In fo#rth en"aps#lates the risk emanating from
the en+ironment in !hi"h the orro!er operates and depends on the past performan"e of
the ind#str$ its f#t#re o#tlook and ma"ro e"onomi" fa"tors(
Finan(ia+ 0erf)rman(e$/
S ;o S# parameters 6eightages
Din :E
- ;et sales gro!th rateD:E X'''
.( ,B=IT 1ro!th rate D:E X'''
/( ,B=IT ASales D:E X'''
0( TO?AT;6 X'''
2( C#rrent ratio X'''
9( Operating "ash flo! X'''
H( =SCR X'''
I( Moreign e'"hange ratio X'''
J( E'pe"ted +al#es of =AE of 28: of ;MB "redit de+ol+es X'''

Credit Risk Management in State Bank Of India
-8( Realisailit$ of =etors X'''
--( State of e'port "o#ntr$ e"onom$ X'''
-.( M#nd dep#tation risk X'''
Total X'''''
O0erating 0erf)rman(e
S ;o S# parameters 6eightage
D:E
-( "redit period allo!ed X'''
.( "redit period a+ailed X'''
/( !orking "apital "$"le X'''
0( Ta' in"enti+es X'''
2( prod#"tion related risk X'''
9( prod#"t related risk X'''
H( pri"e related risk X'''
I( "lient risk X'''
J( fi'ed asset t#rno+er X'''
Total X'''''
@.a+it' )f management
S ;o s# parameters 6eightages D:E
-( >R ,oli"$ A Tra"k re"ord of ind#strial #nrest X'''
. market report of management rep#tation X'''
/ histor$ of MERA +iolation A E= en)#ir$ X'''
0 Too optimisti" pro*e"tions of sales and other finan"ials X'''
2 te"hni"al and managerial e'pertise X'''
9 "apailit$ to raise mone$ X'''
Total X'''''

Credit Risk Management in State Bank Of India
I; STATE BA;G OM I;=IA =MMERE;T ,ARAMETERS
USE=TO 1IVE RATI;1S ARE AS MO?O6S<F
MI;A;CIA? ,ARAMETERS
S(;O Indi"atorAratio S"ore
M-DaE A#dited net sales in last $ear X'''
M.DE A#dited net sales in $ear efore last X'''
M-D"E A#dited net sales in . $ear efore last X'''
M-DdE A#dited net sales in / $ear efore last X'''
M-DeE Estimated or pro*e"ted net sales in ne't $ear X'''
M. ;ET SA?ES 1RO6T> RATED:E X'''
M/ ,B=IT gro!th rateD:E X'
M0 ;et salesD:E X'
M2 ROCED:E X'
M9 TO?AT;6 X''
MH C#rrent ratio X''
MI =SCR X''
MJ Interest "o+erage ratio X'
M-8 Moreign e'"hange risk X'
M-- Reliailit$ of detors X'
M-. Operating "ash flo! X'
M-/ Trend in "ash a""r#als '

Credit Risk Management in State Bank Of India
BUSI;ESS ,ARAMETERS
S(;O Indi"atorAratio S"ore
B- Credit period allo!edDda$sE X'
B. Credit period a+ailedDda$sE X'
B/ 6orking "apital "$"leDtimesE X'
B0 ,rod#"tion related risks X'
B2 ,rod#"t related risks X
B9 ,ri"e related risks X
BH Mi'ed assets t#rno+er X
BI ;o( of $eas in #siness X
BJ ;at#re of "lientele ase X
MA;A1EME;T ,ARAMETERS
SR( ;O I;=ICATORARATIO SCORE
M- >R poli"$ X
M. Tra"k re"ord in pa$ment of stat#tor$ and other d#es X
M/ Market report of management rep#tation X
M0 Too optimisti" pro*e"tions of sales and other finan"ials X
M2 Capailit$ to raise reso#r"es X
M9 Te"hni"al and managerial e'pertise X
MH Repa$ment tra"k re"ord X
CO;=UCT ,ARAMETERS

Credit Risk Management in State Bank Of India
A- Creation of "harges on primar$ se"#rit$ X
A. Creation of "harges on "ollateral and e'e"#tion of personal
or "orporate g#arantee
X
A/ ,roper e'e"#tion of do"#ments X
A0 A+ailailit$ of sear"h report X
A2 Other terms and "onditions not "omplied !ith X
A9 Re"eipt of periodi"al data X
AH Re"eipt of alan"e sheet X
B- ;egati+e de+iation in half $earl$ net sales +isFZF+is
proportionate estimates
X
B. ;egati+e de+iation in ann#al net sales +isFZF+is estimates X
B/ ;egati+e de+iation in half $earl$ net profit +isFZF+is
proportionate estimates
X
B0 Ad+erse de+iation in in+entor$ le+el in months +isFZF+is
estimate le+el
X
B2 Ad+erse de+iation in re"ei+ales le+el in months +isFZF+is
estimated le+el
X
B9 S#alit$ of re"ei+ale assess from profile of detors X
BH Ad+erse de+iation in "reditors le+el in months +isFZF+is
estimated le+el
X
BI Complian"e of finan"ial "o+nants X
BJ ;egati+e de+iation in ann#al net profit +isFZF+is estimates X
Unit inspe"tion report oser+ations X
C. A#dit report internalAstat#tor$A"on"#rrentARBI X
C/ Cond#"t of a""o#nt !ith other anksAlenders and information
on "onsorti#m
X
=- Ro#ting of proportionate t#rno+erA#siness X
=. Utili3ation of fa"ilitiesDnot appli"ale for term loanE X
=/ O+er d#e dis"o#nted ills d#ring the period #nder re+ie! !ithin the X

Credit Risk Management in State Bank Of India
san"tioned terms then not appli"ale
=0 =e+ol+ed ill #nder ?A" o#tstanding d#ring the period #nder re+ie! X
=2 In+oked B1s iss#ed o#tstanding d#ring the period #nder re+ie! X
=9 Intergro#p transfers not a"ked $ trade transa"tions d#ring the
period #nder re+ie!
X
=H Mre)#en"$ of ret#rn of "he)#es per )#arter deposited $ orro!er X
=I Mre)#en"$ of iss#ing "he)#es per )#arter !itho#t s#ffi"ient alan"e
and ret#rned
X
=J ,a$ment of interest or installments X
=-8 Mre)#en"$ of re)#est for A= >OC I;CREASE OM ?IMIS d#ring
the last one $ear
X
=-- Mre)#en"$ of o+er dra!ings CC a""o#nt X
E- Stat#s of deterioration in +al#e of primar$ se"#rit$ or sto"k
depletion
X
E. Stat#s of deterioration in +al#e of "ollateral se"#rit$ X
E/ Stat#s of deterioration in personal net !orth and T;6 X
E0 Ade)#a"$ of ins#ran"e for the primar$ A"ollateral se"#rit$ X
M- ?aor sit#ationAind#strial relations X
M. =ela$ or defa#lt in pa$ments of salaries and stat#tor$ d#es X
M/ ;on "oFoperation $ the orro!er X
M0 Intended endF#se of finan"ing X
M2 An$ other ad+erse feat#reAsnon finan"ial in"l#ding "orporate
go+ernan"e iss#es s#"hasad+erse p#li"it$% stri"t#res from
reg#lators% piti"al risk and ad+erse trade en+ironment not "o+ered
X
#iffi(.+t' )f meas.ring (redit risk$/

Credit Risk Management in State Bank Of India
Meas#ring "redit risk on a portfolio asis is diffi"#lt( Banks and finan"ial instit#tions
traditionall$ meas#re "redit e'pos#res $ oligor and ind#str$( The$ ha+e onl$ re"entl$
attempted to define risk )#antitati+el$ in a portfolio "onte't e(g(% a +al#eFatFrisk DVaRE
frame!ork( Altho#gh anks and finan"ial instit#tions ha+e eg#n to de+elop internall$% or
p#r"hase% s$stems that meas#re VaR for "redit% ank managements do not $et ha+e
"onfiden"e in the risk meas#res the s$stems prod#"e( In parti"#lar% meas#red risk le+els
depend hea+il$ on #nderl$ing ass#mptions and risk managers often do not ha+e great
"onfiden"e in those parameters( Sin"e "redit deri+ati+es e'ist prin"ipall$ to allo! for the
effe"ti+e transfer of "redit risk% the diffi"#lt$ in meas#ring "redit risk and the asen"e of
"onfiden"e in the res#lt of risk meas#rement ha+e appropriatel$ made anks "a#tio#s
ao#t the #se of anks and finan"ial instit#tions internal "redit risk models for reg#lator$
"apital p#rposes(
Meas#rement diffi"#lties e'plain !h$ anks and finan"ial instit#tions ha+e not% #ntil
+er$ re"entl$% tried to implement meas#res to "al"#late Val#eFatFRisk DVaRE for "redit(
The VaR "on"ept% #sed e'tensi+el$ for market risk% has e"ome so !ell a""epted that
anks and finan"ial instit#tions s#per+isors allo! s#"h meas#res to determine "apital
re)#irements for trading portfolios( The models "reated to meas#re "redit risk are ne!%
and ha+e $et to fa"e the test of an e"onomi" do!nt#rn( Res#lts of different "redit risk
models% #sing the same data% "an !idel$( Until anks ha+e greater "onfiden"e in
parameter inp#ts #sed to meas#re the "redit risk in their portfolios( The$ !ill% and sho#ld%
e'er"ise "a#tion in #sing "redit deri+ati+es to manage risk on a portfolio asis( S#"h
models "an onl$ "omplement% #t not repla"e% the so#nd *#dgment of seasoned "redit risk
managers(
Credit Risk$/

Credit Risk Management in State Bank Of India
The most o+io#s risk deri+ati+es parti"ipants& fa"e is "redit risk( Credit risk is the risk to
earnings or "apital of an oligor&s fail#re to meet the terms of an$ "ontra"t the ank or
other!ise to perform as agreed( Mor oth p#r"hasers and sellers of prote"tion% "redit
deri+ati+es sho#ld e f#ll$ in"orporated !ithin "redit risk management pro"ess( Bank
management sho#ld integrate "redit deri+ati+es a"ti+it$ in their "redit #nder!riting and
administration poli"ies% and their e'pos#re meas#rement% limit setting% and risk
ratingA"lassifi"ation pro"esses( The$ sho#ld also "onsider "redit deri+ati+es a"ti+it$ in
their assessment of the ade)#a"$ of the allo!an"e for loan and lease losses DA???E and
their e+al#ation of "on"entrations of "redit(
There a n#mer of "redit risks for oth sellers and #$ers of "redit prote"tion% ea"h of
!hi"h raises separate risk management iss#es( Mor anks and finan"ial instit#tions selling
"redit prote"tion the primar$ so#r"e of "redit is the referen"e asset or entit$(
Managing (redit risk$/
Mor anks and finan"ial instit#tions selling "redit prote"tion thro#gh a "redit
deri+ati+e% management sho#ld "omplete a finan"ial anal$sis of oth referen"e oligorDsE
and the "o#nterpart$ Din oth defa#lt s!aps and TRSsE% estalish separate "redit limits for
ea"h% and assign appropriate risk rating( The anal$sis of the referen"e oligor sho#ld
in"l#de the same le+el of s"r#tin$ that a traditional "ommer"ial orro!er !o#ld re"ei+e(
=o"#mentation in the "redit file sho#ld s#pport the p#rpose of the transa"tion and "redit
!orthiness of the referen"e oligor( =o"#mentation sho#ld e s#ffi"ient to s#pport the
referen"e oligor( =o"#mentation sho#ld e s#ffi"ient to s#pport the referen"e oligor&s
risk rating( It is espe"iall$ important for anks and finan"ial instit#tions to #se rigoro#s
d#e diligen"e pro"ed#re in originating "redit e'pos#re +ia "redit deri+ati+e( Banks and
finan"ial instit#tions sho#ld not allo! the ease !ith !hi"h the$ "an originate "redit

Credit Risk Management in State Bank Of India
E'pos#re in the "apital markets +ia deri+ati+es to lead to la' #nder!riting standards% or to
ass#me e'pos#res indire"tl$ that the$ !o#ld not originate dire"tl$(
Mor anks and finan"ial instit#tions p#r"hasing "redit prote"tion thro#gh a "redit
deri+ati+e% management sho#ld re+ie! the "redit!orthiness of the "o#nterpart$% estalish
a "redit limit% and assign a risk rating( The "redit anal$sis of the "o#nterpart$ sho#ld e
"onsistent !ith that "ond#"ted for other orro!ers or trading "o#nterparties( Management
sho#ld "ontin#e to monitor the "redit )#alit$ of the #nderl$ing "redits hedged( Altho#gh
the "redit deri+ati+es ma$ pro+ide defa#lt prote"tion% in man$ instan"es the ank !ill
retain the #nderl$ing "redits after settlement or mat#rit$ of the "redit deri+ati+es( In the
e+ent the "redit )#alit$ deteriorates% as legal o!ner of the asset% management m#st take
a"tions ne"essar$ to impro+e the "redit(
Banks and finan"ial instit#tions sho#ld meas#re "redit e'pos#res arising from "redit
deri+ati+es transa"tions and aggregate !ith other "redit e'pos#res to referen"e entities
and "o#nterparties( These transa"tions "an "reate highl$ "#stomi3ed e'pos#res and the
le+el of riskAprote"tion "an +ar$ signifi"antl$ et!een transa"tions( Meas#rement sho#ld
do"#ment and s#pport their e'pos#res meas#rement methodolog$ and #nderl$ing
ass#mptions(
The "ost of prote"tion% ho!e+er% sho#ld refle"t the proailit$ of enefiting from this
asis risk( More generall$% #nless all the terms of the "redit deri+ati+es mat"h those of the
#nderl$ing e'pos#re% some asis risk !ill e'ist% "reating an e'pos#re for the terms and
"onditions of prote"tion agreements to ens#re that the "ontra"t pro+ides the prote"tion
desired% and that the hedger has identified so#r"es of asis risk(
A 0)rtf)+i) a00r)a(- t) (redit risk management$/
Sin"e the -JI8s% Banks and finan"ial instit#tions ha+e s#""essf#ll$ applied modern
portfolio theor$ DM,TE to market risk( Man$ anks and finan"ial instit#tions are no!
#sing earnings at risk DEaRE and Val#e at Risk DVaRE models to manage their interest rate

Credit Risk Management in State Bank Of India
and market RISG EX,OSURES( Unfort#natel$% ho!e+er% e+en thro#gh "redit risk
remains the largest risk fa"ing most anks and finan"ial instit#tions% the appli"ation of
M,T to "redit risk has lagged(
The slo! de+elopment to!ard a portfolio approa"h for "redit risk res#lts for the
follo!ing fa"tors<
F The traditional +ie! of loans as holdFtoFmat#rit$ assets(
F The asen"e of tools enaling the effi"ient transfer of "redit risk to in+estors !hile
"ontin#ing to maintain ank "#stomer relationships(
F The la"k of effe"ti+e methodologies to meas#re portfolio "redit risk(
F =ata prolems
Banks and finan"ial instit#tions re"ogni3e ho! "redit "on"entrations "an ad+ersel$
impa"t finan"ial performan"e( As a res#lt% a n#mer of sophisti"ated instit#tions are
a"ti+el$ p#rs#ing )#antitati+e approa"hes to "redit risk meas#rement( 6hile date
prolems remain an osta"le% these ind#str$ pra"titioners are making signifi"ant progress
to!ard de+eloping tools that meas#re "redit risk in a portfolio "onte't( The$ are also
#sing "redit deri+ati+es to transfer risk effi"ientl$ !hile preser+ing "#stomer
relationships( The "omination of these t!o de+elopments has pre"ipitated +astl$
a""elerated progress in managing "redit risk in a portfolio "onte't o+er the past se+eral
$ears(
Asset A 2' A asset a00r)a(-$/
Traditionall$% anks ha+e taken an asset 7 $ 7 asset approa"h to "redit risk
management( 6hile ea"h ank&s method +aries% in general this approa"h in+ol+es
periodi"all$ e+al#ating the "redit )#alit$ of loans and other "redit e'pos#res( Appl$ing a
a""redit risk rating and aggregating the res#lts of this anal$sis to identif$ a portfolio&s
e'pe"ted losses(

Credit Risk Management in State Bank Of India
The fo#ndation of thee assetF$Fasst approa"h is a so#nd loan re+ie! and internal "redit
risk rating s$stem( A loan re+ie! and "redit risk rating s$stem enales management to
identif$ "hanges in indi+id#al "redits% or portfolio trends% in a timel$ manner( Based on
the res#lts of its prolem loan identifi"ation% loan re+ie! and "redit risk rating s$stem
management "an make ne"essar$ modifi"ations to portfolio strategies or in"rease the
s#per+ision of "redits in a timel$ manner(
Banks and finan"ial instit#tions m#st determine the appropriate le+el of the allo!an"es
for loan and losses DA???E on a )#arterl$ asis( On large prolem "redits% the$ assess
ranges of e'pe"ted losses ased on their e+al#ation of a n#mer of fa"tors% s#"h as
e"onomi" "onditions and "ollateral( On smaller prolem "redits and on 5pass& "redits%
anks "ommonl$ assess the defa#lt proailit$ from histori"al migration anal$sis(
Comining the res#lts of the e+al#ation of indi+id#al large prolem "redits and histori"al
migration anal$sis% anks estimate e'pe"ted losses for the portfolio and determine
pro+isions re)#irements for the A???(
=efa#lt proailities do not% ho!e+er indi"ate loss se+erit$< i(e(% ho! m#"h the ank !ill
lose if a "redit defa#lts( A "redit ma$ defa#lt% $et e'pose a ank to a minimal loss risk if
the loan is !ell se"#red( On the other hand% a defa#lt might res#lt in a "omplete loss(
Therefore% anks and finan"ial instit#tions "#rrentl$ #se histori"al migration matri"es
!ith information on re"o+er$ rates in defa#lt sit#ations to assess the e'pe"ted potential in
their portfolios(
P)rtf)+i) a00r)a(-$/
6hile the assetF$Fasset approa"h is a "riti"al "omponent to managing "redit risk% it
does not pro+ide a "omplete +ie! of portfolio "redit risk !here the term 5risk& refers to
the possiilit$ that losses e'"eed e'pe"ted losses( Therefore% to again greater insights into
"redit risk% anks in"reasingl$ look to "omplement the assetF$Fasset approa"h !ith the
)#antitati+e portfolio re+ie! #sing a "redit model(

Credit Risk Management in State Bank Of India
6hile anks e'tending "redit fa"e a high proailit$ of a small gain Dpa$ment of
interest and ret#rn of prin"ipalE% the$ fa"e a +er$ lo! proailit$ of large losses(
=epending% #pon risk toleran"e% in+estor ma$ "onsider a "redit portfolio !ith a larger
+arian"e less risk$ than one !ith a smaller +arian"e if the small +arian"e portfolio has
some proailit$ of an #na""eptal$ large loss( One !eakness !ith the assetF$Fasset
approa"h is that it has diffi"#lt$ and meas#ring "on"entration risk( Con"entration risk
refers to additional portfolio risk res#lting from in"reased e'pos#re to a orro!er or to a
gro#p of "orrelated orro!ers( for e'ample the high "orrelation et!een energ$ and real
estate pri"es pre"ipitated a large n#mer of fail#res of anks that had "redit
"on"entrations in those se"tors in the mid -JI8s(
T!o important ass#mptions of portfolio "redit risk models are<
-( the holding period of planning hori3on o+er !hi"h losses are predi"ted
.( >o! "redit losses !ill e reported $ the model(
Models generall$ report either a defa#lt or market +al#e distri#tion(
The o*e"ti+e of "redit risk modeling is to identif$ e'pos#res that "reate an #na""eptale
riskAre!ard profile( S#"h as might arise from "redit "on"entration( Credit risk
management seeks to red#"e the #ns$stemati" risk of a portfolio $ di+ersif$ing risks( As
anks and finan"ial instit#tions gain greater "onfiden"e in their portfolio modeling
"apailities( It is likel$ that "redit deri+ati+es !ill e"ome a more signifi"ant +ehi"le in to
manage portfolio "redit risk( 6hile some anks "#rrentl$ #se "redit deri+ati+es to hedge
#ndesired e'pos#res m#"h of that a"ti+el$ in+ol+es a desire to red#"e "apital
re)#irements(

Credit Risk Management in State Bank Of India
APPRAISAL OF THE FIRMS POSITIO" O" BASIS OF FOLLO,I" OTHER
PARAMETERS
-( Managerial Competen"e
.( Te"hni"al Measiilit$
/( Commer"ial +iailit$
0( Minan"ial Viailit$
Manageria+ C)m0eten(e $
? Ba"k gro#nd of promoters
? E'perien"e
? Te"hni"al skills% Integrit$ 4 >onest$
? ?e+el of interest A "ommitment in pro*e"t
? Asso"iate "on"erns

Te(-ni(a+ Feasi2i+it' <
? ?o"ation
? Si3e of the ,ro*e"t
? Ma"tor$ #ilding
? ,lant 4 Ma"hiner$
? ,ro"ess 4 Te"hnolog$
? Inp#ts A #tilities
( C)mmer(ia+ %ia2i+it' <
? =emand fore"asting A Anal$sis
? Market s#r+e$
? ,ri"ing poli"ies
? Competition
?

Credit Risk Management in State Bank Of India
? E'port poli"ies
Finan(ia+ %ia2i+it'$
? 6hether ade)#ate f#nds are a+ailale at affordale "ost to implement the pro*e"t
? 6hether s#ffi"ient profits !ill e a+ailale
? 6hether BE, or margin of safet$ are satisfa"tor$
? 6hat !ill e the o+erall finan"ial position of the orro!er in "oming $ears(
Credit in*estigati)n re0)rt
Bran"h prepares Credit in+estigation report in order to a+oid "onse)#en"e in later stage
Credit in+estigation report sho#ld e a part of "redit proposal( Bank has to s#mit the
d#l$ "ompleted "redit in+estigation reports after "ond#"ting a detailed "redit in+estigation
as per g#idelines(
S)me )f t-e g.ide+ines in t-is regards as f)++)3$
? 6here+er a proposal is to e "onsidered ased onl$ on merits of flagships
"on"erns of the gro#p% then s#"h s#pport sho#ld also e "ompiled in respe"t of
s#*e"t flagship in "on"ern esides the appli"ant "ompan$(
? In regard of proposals falling e$ond the po!er of rating offi"er% the ran"h
sho#ld ens#re parti"ipation of rating offi"er in "ompilation of this report(
? The "redit in+estigation report sho#ld a""ompan$ all the proposals !ith the f#nd
ased limit of ao+e .2 ?akhs and or non f#nd ased of ao+e Rs( 28 ?akhs(

Credit Risk Management in State Bank Of India
? The part$ ma$ e s#ital$ kept informed that the "ompilation of this report is one
of the re)#irements in the "onne"tion !ith the pro"essing for "onsideration of the
proposal(
? The ran"h sho#ld otain a "op$ of latest san"tion letter $ e'isting anker or the
finan"ial instit#tion to the part$ and terms and "onditions of the san"tion sho#ld
st#died in detail(
? Comments sho#ld e made !here+er ne"essar$% after making the
oser+ationsAlapses in the follo!ing terms of san"tion(
? Some of the important fa"tors like f#nding of interest% re s"hed#le of loans et"
terms and "onditions sho#ld e highlighted(
? Cop$ of statement of a""o#nts for the latest 9 months period sho#ld e otained
$ the ank( To get the present "ondition of the part$(
? Remarks sho#ld e made $ the ank on ad+erse feat#res oser+ed( De(g(% e'"ess
dra!ings% ret#rn of "he)#es et"E(
? ,ersonal en)#ir$ sho#ld e made $ the ank offi"ial !ith responsile offi"ial of
part$&s present A other ankers and en)#iries sho#ld e made !ith a eli"it
information on "ond#"t of a""o#nt et"(
? Care sho#ld e taken in sele"tion of "#stomers or "reditors !ho a"ts as the
representati+e( The$ sho#ld e inter+ie!ed and "ompilation of opinion sho#ld e
done(
? En)#iries sho#ld e made regarding the )#alit$ of prod#"t% pa$ment terms% and
period of o+erd#e !hi"h sho#ld e mentioned "learl$ in the report( En)#ir$
sho#ld e aimed to as"ertain the stat#s of trading of the appli"ant and to kno!
their "apailit$ to meet their "ommitments in time(
? To kno! the market trend ran"h sho#ld en)#ire the person or ind#str$ that is in
the same line of #siness a"ti+it$(
? In depth oser+ation ma$ e made of the appli"ant as to <
i( !hether the #nit is !orking in f#ll s!ing
ii( n#mer of shifts and n#mer of emplo$ees
iii( an$ osolete sto"ks !ith the #nit

Credit Risk Management in State Bank Of India
i+( "apa"it$ of the #nit
+( nat#re and "onditions of the ma"hiner$ installed
+i( Information on po!er% !ater and poll#tion "ontrol et"(
+ii( information on ind#strial relation and marketing strateg$
CRE#IT FILES$/
It&s the file% !hi"h pro+ides important so#r"e material for loan s#per+ision in regard to
information for internal re+ie! and e'ternal a#dit( Bran"h has to maintain separate "redit
file "omp#lsoril$ in "ase of ?oans e'"eeding Rs 28 ?akhs !hi"h sho#ld e maintained
for )#i"k a""ess of the related information(
C)ntents )f t-e (redit fi+e<F
? asi" information report on the orro!er
? milestones of the orro!ing #nit
? "ompetiti+e anal$sis of the orro!er
? "redit appro+al memorand#m
? finan"ial statement
? "op$ of san"tion "omm#ni"ation
? se"#rit$ do"#mentation list
? =ossier of the se)#en"e of e+ents in the a""o#nts
? Collateral +al#ation report
? ?atest ledger page s#per+ision report
? >alf $earl$ "redit reporting of the orro!er
? S#arterl$ risk "lassifi"ation
? ,ress "lippings and ind#strial anal$sis appearing in ne!spaper

Credit Risk Management in State Bank Of India
? Min#tes of latest "onsorti#m meeting
? C#stomer profitailit$
? S#mmar$ of inspe"tion of a#dit oser+ation
Credit files pro+ide all information regarding present stat#s of the loan a""o#nt on asis
of "redit de"ision in the past( This file helps the "redit offi"er to monitor the a""o#nts and
pro+ides "on"ise information regarding a"kgro#nd and the "#rrent stat#s of the a""o#nt

Credit Risk Management in State Bank Of India
STU=Y O; CRE=IT RISG
MA;A1EME;T I; STATE BA;G
OM I;=IA

Credit Risk Management in State Bank Of India
THE TERMS

[ Credit is Mone$ lent for a period of Time at a Cost DinterestE
[ Credit Risk is inailit$ or #n!illingness of "#stomer or "o#nter part$ to meet
"ommitments è =efa#ltA 6illf#l defa#lt
[ ?osses d#e to fall in "redit )#alit$ èreal A per"ei+ed
Treatment )f ad*an(es
MaB)r Categ)ries$
[ 1o+ernments
[ ,SEs Dp#li" Se"tor EnterprisesE
[ Banks
[ Corporate
[ Retail
[ Claims against residential propert$
[ Claims against "ommer"ial real estate
T!o Approa"hes
7 Standardised Approa"h and
7 Internal Ratings Based Approa"h Din f#t#re 7 to e notified $ RBI laterE
7not to e "o+ered no!

Credit Risk Management in State Bank Of India
Standardised A00r)a(-
The standardi3ed approa"h is "on"ept#all$ the same as the present a""ord% #t is
more risk sensiti+e( The ank allo"ates risk to ea"h of its assets and off alan"e sheet
positions and prod#"es a s#m of risk !eighted asset +al#es( Arisk !eight of -88: means
that an e'pos#re is in"l#ded in the "al"#lation of risk !eighted assets +al#e% !hi"h
translates into a "apital "harge e)#al to J: of that +al#e( Indi+id#al risk !eight "#rrentl$
depends on the road "ategor$ of orro!er Di(e so+ereign% anks or "orporateE( Under the
ne! a""ord the risk !eights are to e refined $ referen"e rating pro+ided $ an e'ternal
"redit assessment instit#tionD s#"h as rating agen"$E that meets stri"t demands(
Standardi3ed
Approa"h
Internal Rating
Based Approa"h
Se"#riti3ation
Mrame!ork
Mo#ndation
IRB
Ad+an"ed
IRB
Credit Risk

Credit Risk Management in State Bank Of India
PROPOSE# RISK ,EIHT TABLE
Option - \ Risk 6eight ased on risk !eight of the "o#ntr$
Option .a \ Risk !eight ased on assessment of indi+id#al ank
Option . \ Risk 6eight ased on assessment of indi+id#al anks !ith "laims of original
mat#rit$ of less than 9 months(
Retail ,ortfolioD s#*e"t to )#alif$ing "riteriaE H2:
Claims Se"#red $ residential propert$ /2:
;on ,erforming Assets<
If spe"ifi" pro+ision is less than .8: -28:
If spe"ifi" pro+ision is more than .8: -88:
[ Simple approa"h similar to Basel I
[ Roll o#t from Mar"h .88I
[ Risk !eight for ea"h alan"e sheet 4 off alan"e sheet item( That is% MB 4 ;MB%
oth(
Credit
Assessment
AAA t)
AA/
AC t)
A/
BBBC
t) BBB/
BBC
T) B/
Be+)3
B/
!nrated
So+ereignD1o+t(4
Central BankE
8: .8: 28: -88: -28: -88:
Claims on Banks
Option - .8: 28: -88: -88: -28: -88:
Option .a .8: 28: 28: -88: -28: 28:
Option . .8: .8: .8: 28: -28: .8:
Corporate .8:

Credit Risk Management in State Bank Of India
[ Risk !eight for Retail red#"ed
[ Risk !eight for Corporate F a""ording to e'ternal rating $ agen"ies appro+ed $
RBI and registered !ith SEBI
[ ?o!er risk !eight for smaller home loans D] .8 la"sE
[ Risk !eight for #n#tili3ed limits \ D?imitF o#tstandingE ^8 è Importan"e of
reporting limit data "orre"tl$ DIf a limit of Rs(-8 la"s is reported in ?imit field as
Rs(-88 la"s% e+en !ith f#ll #tilisation of a"t#al limit% Rs( J8 la"s !ill e sho!n as
#n#tilised limit% and "apital allo"ated against s#"h fi"titio#s data at pres"ried
ratesE(
Risk 3eig-ts
[ Central 1o+ernment g#aranteed 7 8:
[ State 1o+t( 1#aranteed 7 .8:
[ S"hed#led anks Dha+ing min( CRARE 7 .8:
[ ;onFs"hed#led ank Dha+ing min( CRARE F-88:
[ >ome ?oans D?TV ] H2:E
[ ?ess than Rs .8 lakhs 7 28:
[ Rs .8 lakhs and ao+e 7 H2:
[ >ome ?oans D?TV ^ H2:E 7 -88:
[ Commer"ial Real estate loans 7 -28:
[ ,ersonal ?oans and "redit "ard re"ei+alesF -.2:
[ Staff >ome ?oansA,M ?ien noted loans 7 .8:
[ Cons#mer "redit D,ersonal ?oansA Credit Card Re"ei+alesE 7 -.2:
[ 1old loans #p to Rs - lakh 7 28:
[ ;,As !ith pro+isions ].8: è -28:

Credit Risk Management in State Bank Of India
FdoF .8 to ] 28: è -88:
FdoF 28: and ao+e è 28:
[ Restr#"t#redA res"hed#led ad+an"es 7 -.2:
[ Credit Con+ersion Ma"tors DCCMsE to e applied on off alan"e sheet items W;MBX
4 #n#tilised limits efore appl$ing risk !eights(
[ Some important CCMs 7
? =o"#mentar$ ?Cs 7 .8: D;onF do"#mentar$ F -88:EK
? ,erf( 1#arantees 7 28:% Min( 1teesF -88:%
? Un#tilised limits 7 .8: D#p to - $earE% 28: De$ond - $earE
Standardised Approa"h 7 ?ong term
Mrom -(0(.88J% #nrated e'pos#re more than Rs -8 "rores !ill attra"t a Risk 6eight of
-28:

Credit Risk Management in State Bank Of India
Mor .88IF.88J D!ef -(0(.88IE% #nrated e'pos#re more than Rs 28 "rores !ill attra"t a
Risk 6eight of -28:
Standardi3ed Approa"h 7 Short Term
Collaterals re"ognised $ Basel II #nder Standardised Approach
? Cash

Credit Risk Management in State Bank Of India
? 1old
? Se"#rities iss#ed $ Central and State 1o+t
? GV,s and ;SCs Dnot lo"ked inE
? ?ife ,oli"ies
? Spe"ified li)#id =et Se"#rities
? E)#ities forming part of inde'
? MMs 7 S#oted and in+esting in Basel II "ollateral
Components of Credit Risk
S-)rt/term and L)ng/Term Ratings$
Si3e of E'pe"ted ?oss
Si3e of E'pe"ted ?oss
BE'pe"ted ?ossB
BE'pe"ted ?ossB
,roailit$ of =efa#lt
DMre)#en"$E
,roailit$ of =efa#lt
DMre)#en"$E
E'pos#re at =efa#lt
E'pos#re at =efa#lt
\
\
\
-( 6hat is the proailit$
of a
defa#lt D;,AEY
-( 6hat is the proailit$
of a
defa#lt D;,AEY
/( >o! m#"h of that e'pos#re
is the ank going to loseY
/( >o! m#"h of that e'pos#re
is the ank going to loseY
?oss 1i+en =efa#lt
BSe+erit$C
E?
,=
Ea=
?1=
X
X
.( >o! m#"h !ill e the
likel$
e'pos#re in the "ase the ad+an"e
e"omes ;,AY
.( >o! m#"h !ill e the
likel$
e'pos#re in the "ase the ad+an"e
e"omes ;,AY
\
\

Credit Risk Management in State Bank Of India
• Mor E'pos#res !ith a "ontra"t#al mat#rit$ of less than or e)#al to one $ear
;eD(e0t Cas- Credit1 O*erdraft and )t-er Re*)+*ing Credits< ShortFterm
Ratings gi+en $ ECAIs !ill e appli"ale(
• Mor =omesti" Cash Credit% O+erdraft and other Re+ol+ing Credits irrespe"ti+e of
the period and Term ?oan e'pos#res of o+er - $ear% ?ong Term Ratings gi+en $
ECAIs !ill e appli"ale(
• Mor O+erseas e'pos#res% irrespe"ti+e of the "ontra"t#al mat#rit$% ?ong Term
Ratings gi+en $ IRAs !ill e appli"ale(
• Rating assigned to one parti"#lar entit$ !ithin a "orporate gro#p "annot e #sed
to risk !eight other entities !ithin the same gro#p(
COMPETITORS #ETAILS

Credit Risk Management in State Bank Of India
In =har!ad Main "ompetitors of State Bank of India are ICICI Bank in pri+ate
se"tor anks and S$ndi"ate Bank and Corporation Bank In p#li" se"tor(
In SBI% it "an e etter #nderstood !ith gi+en ,ie diagram as follo!s( <?
POSITIO" OF STATE BA"K OF I"#IA I" LE"#I"
;PRI%ATE SECTOR BA"K<$
BA"K LE"#I" I" Cr
State Bank Of India .J
ICICI ank -2
>=MC 2
UTI .2

POSITIO" OF STATE BA"K OF I"#IA I" LE"#I"

Credit Risk Management in State Bank Of India
;P!BLIC SECTOR BA"KS <$
BA"K LE"#I" I" Cr
State Bank Of India .J
S$ndi"ate Bank .9
Canara Bank ./
Corporation Bank .2

In t)ta+ +ending1 State Bank Of India is in first 0+a(e re+ati*e+' in P.2+i( Se(t)r
Banks6
Credit risk mitigati)n te(-ni4.es A .arantees

Credit Risk Management in State Bank Of India
• 6here g#arantees are dire"t% e'pli"it% irre+o"ale and #n"onditional anks ma$
take a""o#nt of s#"h "redit prote"tion in "al"#lating "apital re)#irements(
• A range of g#arantors are re"ognised( As #nder the -JII A""ord% a s#stit#tion
approa"h !ill e applied( Th#s onl$ g#arantees iss#ed $ entities !ith a lo!er
risk !eight than the "o#nterpart$ !ill lead to red#"ed "apital "harges sin"e the
prote"ted portion of the "o#nterpart$ e'pos#re is assigned the risk !eight of the
g#arantor% !hereas the #n"o+ered portion retains the risk !eight of the
#nderl$ing "o#nterpart$(
• =etailed operational re)#irements for g#arantees eligile for eing treated as a
CRM are as #nder<
O0erati)na+ re4.irements f)r g.arantees
DiE A g#arantee D"o#nterFg#aranteeE m#st represent a dire"t "laim on the prote"tion
pro+ider and m#st e e'pli"itl$ referen"ed to spe"ifi" e'pos#res or a pool of e'pos#res%
so that the e'tent of the "o+er is "learl$ defined and in"ontro+ertile( The g#arantee m#st
e irre+o"aleK there m#st e no "la#se in the "ontra"t that !o#ld allo! the prote"tion
pro+ider #nilaterall$ to "an"el the "o+er or that !o#ld in"rease the effe"ti+e "ost of "o+er
as a res#lt of deteriorating "redit )#alit$ in the g#aranteed e'pos#re( The g#arantee m#st
also e #n"onditionalK there sho#ld e no "la#se in the g#arantee o#tside the dire"t
"ontrol of the ank that "o#ld pre+ent the prote"tion pro+ider from eing oliged to pa$
o#t in a timel$ manner in the e+ent that the original "o#nterpart$ fails to make the
pa$mentDsEd#e(
DiiE All e'pos#res !ill e risk !eighted after taking into a""o#nt risk mitigation a+ailale
in the form of g#arantees( 6hen a g#aranteed e'pos#re is "lassified as nonFperforming%
the g#arantee !ill "ease to e a "redit risk mitigant and no ad*#stment !o#ld e

Credit Risk Management in State Bank Of India
permissile on a""o#nt of "redit risk mitigation in the form of g#arantees( The entire
o#tstanding% net of spe"ifi" pro+ision and net of realisale +al#e of eligile "ollaterals A
"redit risk mitigants% !ill attra"t the appropriate risk !eight
Additi)na+ )0erati)na+ re4.irements f)r g.arantees
In addition to the legal "ertaint$ re)#irements in paragraphs H(. ao+e% in order for a
g#arantee to e re"ognised% the follo!ing "onditions m#st es satisfied<
DiE On the )#alif$ing defa#ltAnonFpa$ment of the "o#nterpart$% the ank is ale in a timel$
manner to p#rs#e the g#arantor for an$ monies o#tstanding #nder the do"#mentation
go+erning the transa"tion( The g#arantor ma$ make one l#mp s#m pa$ment of all monies
#nder s#"h do"#mentation to the ank% or the g#arantor ma$ ass#me the f#t#re pa$ment
oligations of the "o#nterpart$ "o+ered $ the g#arantee( The ank m#st ha+e theright to
re"ei+e an$ s#"h pa$ments from the g#arantor !itho#t first ha+ing to take legal a"tions in
order to p#rs#e the "o#nterpart$ for pa$ment(
DiiEThe g#arantee is an e'pli"itl$ do"#mented oligation ass#med $ the g#arantor(
DiiiEE'"ept as noted in the follo!ing senten"e% the g#arantee "o+ers all t$pes of pa$ments
the #nderl$ing oligor is e'pe"ted to make #nder the do"#mentation go+erning the
transa"tion% for e'ample notional amo#nt% margin pa$ments et"( 6here a g#arantee
"o+ers pa$ment of prin"ipal onl$% interests and other #n"o+ered pa$ments(
@.a+itati*e #is(+)s.res

Credit Risk Management in State Bank Of India
DaE The general )#alitati+e dis"los#re re)#irement Dparagraph -8(-/ E !ith respe"t to
"redit risk% in"l#ding<
• =efinitions of past d#e and impaired Dfor a""o#nting p#rposesEK
• =is"#ssion of the ank&s "redit risk management poli"$K
@.antitati*e #is(+)s.res
DE Total gross "redit risk e'pos#res.0% M#nd ased and ;onFf#nd ased separatel$(
D"E 1eographi" distri#tion of e'pos#res.2% M#nd ased and ;onFf#nd ased separatel$
• O+erseas
• =omesti"
DdE Ind#str$.9 t$pe distri#tion of e'pos#res% f#nd ased and nonFf#nd ased separatel$
DeE Resid#al "ontra"t#al mat#rit$ reakdo!n of assets%.H
DgE Amo#nt of ;,As D1rossE
• S#standard
• =o#tf#l -
• =o#tf#l .
• =o#tf#l /
• ?oss
DhE ;et ;,As
DiE ;,A Ratios
• 1ross ;,As to gross ad+an"es
• ;et ;,As to net ad+an"es

Credit Risk Management in State Bank Of India
D*E Mo+ement of ;,As D1rossE
• Opening alan"e
• Additions
• Red#"tions
• Closing alan"e
DkE Mo+ement of pro+isions for ;,As
• Opening alan"e
• ,ro+isions made d#ring the period
• 6riteFoff
• 6riteFa"k of e'"ess pro+isions
• Closing alan"e
DlE Amo#nt of ;onF,erforming In+estments
DmE Amo#nt of pro+isions held for nonFperforming in+estments
DnE Mo+ement of pro+isions for depre"iation on in+estments Opening alan"e
• ,ro+isions made d#ring the period
• 6riteFoff
• 6riteFa"k of e'"ess pro+isions
• Closing alan"e

Credit Risk Management in State Bank Of India
STU=Y O; CRE=IT ,O?ICY

Credit Risk Management in State Bank Of India
• Intr)d.(ti)n t) Credit P)+i('6
Bank&s in+estments in a""o#nts re"ei+ale depends on< DaE the +ol#me of "redit
sales% and DE the "olle"tion period( There is one !a$ in !hi"h the finan"ial manager "an
affe"t the +ol#me of "redit sales and "olle"tion period and "onse)#entl$% in+estment in
a""o#nts re"ei+ales( That is thro#gh the "hanges in "redit poli"$( The term "redit poli"$
is #sed to refer to the "omination of three de"ision +ariales< D-E "redit standards% D.E
"redit terms% and D/E "olle"tion efforts% on !hi"h the finan"ial manager has infl#en"e(
;E< Credit Standards<
Credit Standards are "riteria to de"ide the t$pes of "#stomers to !hom goods "o#ld
e sold on "redit( If a firm has more slo!Fpa$ing "#stomers% its in+estment in a""o#nts
re"ei+ale !ill in"rease( The firm !ill also e e'posed to higher risk of defa#lt(
;F< Credit Terms$
Credit Terms spe"if$ d#ration of "redit and terms of pa$ment $ "#stomers(
In+estment in a""o#nts re"ei+ales !ill e high if "#stomers are allo!ed e'tended time
period for making pa$ments(
;G< C)++e(ti)n Eff)rts$
Colle"tion efforts determine the a"t#al "olle"tion period( The lo!er the "olle"tion
period% the lo!er the in+estment in a""o#nts re"ei+ale and higher the "olle"tion period%
the higher the in+estment in a""o#nts re"ei+ale(

Credit Risk Management in State Bank Of India
OALS OF CRE#IT POLIC&
A firm ma$ follo! a lenient or a stringent "redit poli"$( The firm follo!ing a lenient
"redit poli"$ tends to sell on "redit to "#stomers on +er$ lieral terms and standardsK
"redits are granted for longer periods e+en to those "#stomers !hose "redit!orthiness is
not f#ll$ kno!n or !hose finan"ial position is do#tf#l( In "ontrast% a firm follo!ing a
stringent "redit poli"$ sells on "redit on a highl$ sele"ti+e asis onl$ to those "#stomers
!ho ha+e pro+en "redit!orthiness and !ho are finan"iall$ strong( In pra"ti"e% follo!
"redit poli"ies are ranging et!een stringent to lenient(
Mirms #se "redit poli"$ as a marketing tool for e'panding sales( In de"lining
market% it ma$ e #sed to maintain the market share( Credit ,oli"$ helps to retain old
"#stomers and "reate ne! "#stomers $ !eaning them a!a$ from "ompetitors( In a
gro!ing market% it is #sed to in"rease the firm&s market share( Under a highl$ "ompetiti+e
sit#ation or re"essionar$ e"onomi" "onditions% a firm ma$ loose its "redit poli"$ to
maintain sales or to minimi3e erosion of sales(

Credit Risk Management in State Bank Of India
OBJECTI%ES
T-e main )2Be(ti*es )f BankHs Credit P)+i(' are$
• A alan"ed gro!th of the "redit portfolio !hi"h does not "ompromise safet$(
• Adoption of a for!ardFlooking and market responsi+e approa"h for mo+ing into
profitale ne! areas of lending !hish emerge% !ithin the pre determined e'pos#re
"eilings(
• So#nd risk management pra"ti"es to identif$% meas#re% monitor and "ontrol "redit
risks(
• Ma'imi3e interest $ields from the "redit portfolio thro#gh a *#di"io#s management of
+ar$ing spreads for loan assets ased #pon their si3e% "redit rating and ten#re
• Ens#re d#e "omplian"e of +ario#s reg#lator$ norms% in"l#ding CAR% In"ome
Re"ognition and Asset Classifi"ation(
• A""omplish alan"ed deplo$ment of "redit a"ross +ario#s se"tors and geographi"al
regions(
• A"hie+e gro!th of "redit to priorit$ se"tors A s# se"tors and "ontin#e to s#rpass the
targets stip#lated $ Reser+e Bank of India(
• Use pri"ing as a tool of "ompetiti+e ad+antage ens#ring ho!e+er that earnings are
prote"ted(
• =e+elop and maintain enhan"ed "ompeten"ies in "redit management at all le+els
thro#gh a "omination of training initiati+es and dissemination of est pra"ti"es(
s

Credit Risk Management in State Bank Of India
COMPARISO" OF LOA"S = A#%A"CES OF STATE BA"K OF I"#IA ,ITH
OTHER P!BLIC A"# PRI%ATE SECTOR BA"KS
F)r t-e 'ear FIIG$
"ame Of t-e Banks Amt )f ad*an(es
State Bank Of India -/HH2I(09
S$ndi"ate Bank -9/82(/2
Canara Bank 080H-(98
Corporation Bank -.8.J(-H
>=MC Bank --H20(I9
ICICI Bank 2.0H0(0I
UTI Bank H-HJ(J.

F)r t-e 'ear FIIJ$

Credit Risk Management in State Bank Of India
"ame Of t-e Banks Amt )f ad*an(es
State Bank Of India -2HJ//(20
S$ndi"ate Bank .8909(J/
Canara Bank 0H9/I(9.
Corporation Bank -/IIJ(H.
>=MC Bank -HH00(2-
ICICI Bank 98H2H(/9
UTI Bank J/9.(J2
F)r t-e 'ear FIIK$

Credit Risk Management in State Bank Of India
"ame Of t-e Banks Amt )f ad*an(es
State Bank Of India .8./H0(09
S$ndi"ate Bank .9H.J(.-
Canara Bank 980.-(08
Corporation Bank -I209(/H
>=MC Bank .2299(/8
ICICI Bank IIJJ-(H2
UTI Bank -298.(J.


Credit Risk Management in State Bank Of India
F)r t-e 'ear FIIL$
"ame Of t-e Banks Amt )f ad*an(es
State Bank Of India .9-90-(20
S$ndi"ate Bank /9099(.0
Canara Bank HJ0.2(9J
Corporation Bank ./J9.(0/
>=MC Bank /289-(.9
ICICI Bank -0/8.J(IJ
UTI Bank ../-0(./


Credit Risk Management in State Bank Of India
F)r t-e 'ear FIIM$
"ame Of t-e Banks Amt )f ad*an(es
State Bank Of India //H//9(0J
S$ndi"ate Bank 2-9H8(00
Canara Bank JI282(9J
Corporation Bank .JJ0J(92
>=MC Bank 09J00(HI
ICICI Bank -900I0(/I
UTI Bank /9IH9(0I



Credit Risk Management in State Bank Of India
Inter0retati)n$
Considering the ao+e data !e "an sa$ that $ear on $ear the amo#nt of ad+an"es lent $
State Bank of India has in"reased !hi"h indi"ates that the ank&s #siness is reall$
"ommendale and the Credit ,oli"$ it has maintained is asol#tel$ good( 6hereas other
anks do not ha+e s#"h good #siness SBI is ahead in terms of its #siness !hen
"ompared to oth ,#li" Se"tor and ,ri+ate Se"tor anks% this implies that SBI has
in"orporated so#nd #siness poli"ies in its ank(


Credit Risk Management in State Bank Of India
COMPARISO" ST!#& O" CRE#IT RECO%ER& MA"AEME"T
F)r t-e 'ear FIIJ$
"ame Of T-e Banks
L)ans Iss.ed Re()*ered O.tstanding
State Bank Of India -2HJ//(20 J-98-(0 99//.(8J
S$ndi"ate Bank .8909(9. --29.(-- J8I0(2
Canara Bank 0H9/I(9. .H82I(H0 .82HJ(II
Corporation Bank -0IIJ(H. H288 9/IJ(H.
>=MC Bank -HH00(2- J9H8(H2 I8H/(H9
ICICI Bank 98H2H%/9 /09/-(H8 .9-.2(99
UTI Bank J/9.(J. 09-2(22 000H(08
F)r t-e 'ear FIIK$

Credit Risk Management in State Bank Of India
"ame Of T-e Banks L)ans Iss.ed Re()*ered O.tstanding
State Bank Of India .8./H0(09 -.8.-8(0/ I.-90(8/
S$ndi"ate Bank .9H.J(.- -20..(H2 --/89(09
Canara Bank 980.-(08 /2800(0. .2/H9(J9
Corporation Bank -I209(/9 -80HI(H8 I89H(9H
>=MC Bank .2299(/8 -0.J-(29 --.H0(H0
ICICI Bank IIJJ-(H2 2./.H(-2 /9990(98
UTI Bank -298.(J. I228(08 H82.(2.

F)r t-e 'ear FIIL$

Credit Risk Management in State Bank Of India
"ame Of T-e Banks L)ans Iss.ed Re()*ered O.tstanding
State Bank Of India .9-90-(20 -9/.90(/. JI/HH(..
S$ndi"ate Bank /9099(.0 .-IHJ(H0 -0/I9(28
Canara Bank HJ0.2(9J 0I009(9H /8JH9(8.
Corporation Bank ./J9.(0/ -/IJI(.- -8890(..
>=MC Bank /289-(.9 .8-.2(9- -0J/9(-8
ICICI Bank -0/8.J(IJ II/J.(0H 209/H(09
UTI Bank ../-0(.0 -.0.J(8/ JII2(.8

F)r t-e 'ear FIIM$

Credit Risk Management in State Bank Of India
"ame Of T-e Banks L)ans Iss.ed Re()*ered O.tstanding
State Bank Of India //H//9(0J .9/.90(/. H08H.(-H
S$ndi"ate Bank 2-9H8(00 /-IHJ(H0 -JHJ8(H
Canara Bank JI282(9J 9I00J(9H /8829(8.
Corporation Bank .JJ0J(92 -2IJI(.- -082-(00
>=MC Bank 09J00(HI /8-.2(-9 -9I-J(9.
ICICI Bank -900I0(/I JI/J.(0H 998J-(J-
UTI Bank /9IH9(0I ..0.J(8/ -000H(02

PRIORIT& SECTOR A#%A"CES OF BA"KS

Credit Risk Management in State Bank Of India
COMPARISO" ,ITH OTHER P!BLIC SETOR BA"KS
S6") "ame )f t-e Bank
#ire(t
Agri(.+t.re
Ad*an(es
Indire(t
Agri(.+t.re
Ad*an(es
T)ta+
Agri(.+t.re
Ad*an(es
,eaker
Se(ti)n
Ad*an(es
T)ta+
Pri)rit'
Se(t)r
Ad*an(es
Am).nt Am).nt Am).nt Am).nt Am).nt
- STATE BA;G OM I;=IA ./0I0 H8/. /82-9 -JII/ I.IJ2
. SY;=ICATE BA;G 0089(// -090(90 2IH8(J0 /.9H(H- -09.9(9.
/ CA;ARA BA;G I/0I /9I0 -.8/. 00./ /8J/H
0 COR,ORATIO; BA;G J9/(2I JH-(.. -J/0(I8 992(/. J80/(H0


Credit Risk Management in State Bank Of India
PRIORIT& SECTOR A#%A"CES OF P!BLIC SECTOR BA"KS I"
PERCE"TAES ARE AS FOLLO,S$
S6") "ame )f t-e Bank
#ire(t
Agri(.+t.re
Ad*an(es
Indire(t
Agri(.+t.re
Ad*an(es
T)ta+
Agri(.+t.re
Ad*an(es
,eaker
Se(ti)n
Ad*an(es
T)ta+
Pri)rit'
Se(t)r
Ad*an(es
N "et
Banks
Credit
N "et
Banks
Credit
N "et
Banks
Credit
N "et
Banks
Credit
N "et
Banks
Credit
-
STATE BA;G OM
I;=IA
-8(2 /(- -/(9 I(J /H(8
. SY;=ICATE BA;G -/(2 0(2 -I(8 -8(8 00(J
/ CA;ARA BA;G --(. 0(J -2(H 2(J 0-(0
0 COR,ORATIO; BA;G 0(2 0(2 J(8 /(- 0-(J

Inter0retati)ns$


Credit Risk Management in State Bank Of India
• SBI&s dire"t agri"#lt#re ad+an"es as "ompared to other anks is -8(2: of the ;et
Bank&s Credit% !hi"h sho!s that Bank has not lent eno#gh "redit to dire"t agri"#lt#re
se"tor(
• In "ase of indire"t agri"#lt#re ad+an"es% SBI is granting /(-: of ;et Banks Credit%
!hi"h is less as "ompared to Canara Bank% S$ndi"ate Bank and Corporation Bank(
SBI has to entertain indire"t se"tors of agri"#lt#re so that it "an ha+e more n#mer of
orro!ers for the Bank(
• SBI has ad+an"ed -/(9: of ;et Banks Credit to total agri"#lt#re and I(J: to !eaker
se"tion and /H: to priorit$ se"tor% !hi"h is less as "ompared !ith other Bank(

Credit Risk Management in State Bank Of India
MI;=I;1S
Findings $

Credit Risk Management in State Bank Of India
• ,ro*e"t findings re+eal that SBI is san"tioning less Credit to agri"#lt#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 $ear .889 is 9.(0:
Compared to other Banks SBI 5s re"o+er$ poli"$ is +er$ good% hen"e this red#"es
;,A
• T)ta+ Ad*an(es$ As "ompared total ad+an"es of SBI is in"reased $ear $ $ear(
• State Bank Of India is granting "redit in all se"tors in an E)#ated Monthl$
Installments so that an$ od$ "an orro! mone$ easil$
• ,ro*e"t findings re+eal that State Bank Of India is lending more "redit or
san"tioning more loans as "ompared to other Banks(
• State ank Of India is e'panding its Credit in the follo!ing fo"#s areas<
- SBI Term =eposits
. SBI Re"#rring =eposits
/ SBI >o#sing ?oan
0 SBI Car ?oan
2 SBI Ed#"ational ?oan
9 SBI ,ersonal ?oan @et"
• In "ase of indire"t agri"#lt#re ad+an"es% SBI is granting /(-: of ;et Banks
Credit% !hi"h is less as "ompared to Canara Bank% S$ndi"ate Bank and
Corporation Bank( SBI has to entertain indire"t se"tors of agri"#lt#re so that it
"an ha+e more n#mer of orro!ers for the Bank(

Credit Risk Management in State Bank Of India
• SBI&s dire"t agri"#lt#re ad+an"es as "ompared to other anks is -8(2: of the ;et
Bank&s Credit% !hi"h sho!s that Bank has not lent eno#gh "redit to dire"t
agri"#lt#re se"tor(
• Credit risk management pro"ess of SBI #sed is +er$ effe"ti+e as "ompared !ith
other anks(
LIMITATIO"S$
-( The time "onstraint !as a limiting fa"tor% as more in depth anal$sis "o#ld not e
"arried(
.( Some of the information is of "onfidential in nat#re that "o#ld not e di+#lged for
the st#d$(
/( Emplo$ees !ere not "o operati+e(


Credit Risk Management in State Bank Of India
RECOMME;=ATIO;S

Credit Risk Management in State Bank Of India
RECOMMENDATIONS
• The Bank sho#ld keep on re+ising its Credit ,oli"$ !hi"h !ill help Bank&s effort to
"orre"t the "o#rse of the poli"ies
• The Chairman and Managing =ire"torAE'e"#ti+e =ire"tor sho#ld make
modifi"ations to the pro"ed#ral g#idelines re)#ired for implementation of the
Credit ,oli"$ as the$ ma$ e"ome ne"essar$ from time to time on a""o#nt of
organi3ational needs(
• Banks has to grant the loans for the estalishment of #siness at a moderate rate of
interest( Be"a#se of this% the people "an repa$ the loan amo#nt to ank reg#larl$
and promptl$(
• Bank sho#ld not iss#e entire amo#nt of loan to agri"#lt#re se"tor at a time% it
sho#ld release the loan in installments( If the "limati" "onditions are good then
the$ ha+e to release remaining amo#nt(
• SBI has to red#"e the Interest Rate(
• SBI has to entertain indire"t se"tors of agri"#lt#re so that it "an ha+e more n#mer
of orro!ers for the Bank(

Credit Risk Management in State Bank Of India
CO;C?USIO;

Credit Risk Management in State Bank Of India

CONCLUSION
The pro*e"t #ndertaken has helped a lot in gaining kno!ledge of the BCredit ,oli"$ and
Credit Risk ManagementC in ;ationali3ed Bank !ith spe"ial referen"e to State Bank Of
India( Credit ,oli"$ and Credit Risk ,oli"$ of the Bank has e"ome +er$ +ital in the
smooth operation of the anking a"ti+ities( Credit ,oli"$ of the Bank pro+ides the
frame!ork to determine DaE !hether or not to e'tend "redit to a "#stomer and DE ho!
m#"h "redit to e'tend( The ,ro*e"t !ork has "ertainl$ enri"hed the kno!ledge ao#t the
effe"ti+e management of BCredit ,oli"$C and BCredit Risk ManagementC in anking
se"tor(
• BCredit ,oli"$C and BCredit Risk ManagementC is a +ast s#*e"t and it is +er$
diffi"#lt to "o+er all 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"ial performan"e of Banking Ind#str$
• To s#m #p% it !o#ld not e o#t of !a$ to mention here that the State Bank Of
India has gi+en spe"ial inp#ts on BCredit ,oli"$C and BCredit Risk
ManagementC( In p#rs#an"e of the instr#"tions and g#idelines iss#ed $ the
Reser+e Bank of India% the State ank Of India is granting and e'panding "redit
to all se"tors(
• The "on"erted efforts p#t in $ the Management and Staff of State Bank Of
India has helped the Bank in a"hie+ing remarkale progress in almost all the
important parameters( The Bank is mar"hing ahead in the dire"tion of a"hie+ing
the ;#merF- position in the Banking Ind#str$(

Credit Risk Management in State Bank Of India

Credit Risk Management in State Bank Of India
BIB?IO1RA,>
BOOKS REFERRE#$

Credit Risk Management in State Bank Of India
-( M(Y(Ghan and ,(G(Lain% Management A""o#nting DThird EditionE% Tata M"1ra!
>ill(
.( M(Y(Ghan and ,(G(Lain% Minan"ial Management DMo#rth EditionE% Tata M"1ra!
>ill(
/( =(M(Mittal% Mone$% Banking% International Trade and ,#li" Minan"e DEle+enth
EditionE% >imala$a ,#lishing >o#se(
,EB SITES
-( !!!(si("o(in
.( !!!(i"i"idire"t("om
/( !!!(ri(org
0( !!!(indiainfoline("om
2( !!!(google("om
BA"KS I"TER"AL RECORE#S$
-( Ann#al Reports of State ank Of India D.88/F.88HE
.( State ank Of India Man#als
/( Cir"#lars sent to all Bran"hes% Regional Offi"es and all the =epartments of
Corporate Offi"es(

doc_720787353.doc