risk management in canara bank

8/13/2019 Risk Management in Canara Bank

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Study of Risk Management Practices in CanaraBank

Dissertation Submitted to thePadmashree Dr. D.Y. Patil University

in artial fulfillment of the re!uirements for the a"ard ofthe Degree of

M#S$%RS &' BUS&'%SS #DM&'&S$R#$&('

Submitted by)Prathvish.R.*athana

+Roll 'o.,-,-/

Research 0uide)

Ms. S"eta 1umari

Deartment of Business ManagementPadmashree Dr. D.Y. Patil University

CBD Belaur2 'avi Mumbai

1


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March 3,44

DECLARATION

I hereby declare that the dissertation Study of Risk Management Practices in

Canara Bank submitted for the MBA Degree at Padmashree Dr.D.Y. Patil

Universitys Deartment of Business Management is my original !or" and the

dissertation has not formed the basis for thea!ard of any degree# associate shi#

fello!shi or any other similartitles.

Place$ Mumbai

Date$

%ignature of the %tudent

&Prathvish.'.(athana)

*


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Certificate+his is to certify that the dissertation entitled ,Study of Risk Management

Practices in Canara Bank is the bona fide research !or" carried out by Mr.

Prathvish 'amchandra (athana student of MBA# at Padmashree Dr. D.Y. Patil

Universitys Deartment of Business Managementduring the year *-- /*-11# in

artial fulfillment of the re0uirements for the a!ard of the Degree of Master in

BusinessManagement and that the dissertation has not formed the basis for the

a!ard reviously of any degree# diloma# associate shi# fello!shi or any other

similar title.

&Ms.%!eta umari)

Dr! R! "o#a$#Director#

Deartment of Business Mgt#

Padmashree Dr. D.Y. Patil University

Place$ Mumbai

Date$

2


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AC%NO&LED"EMENT

In the first lace# I than" Ms. %!eta umari# Deartment of Business

Management# Padmashree Dr. D.Y. Patil University# 3avi Mumbai for having

given me her valuable guidance for the ro4ect. 5ithout her hel it !ould have

been imossible for me to comlete the ro4ect. I !ould also li"e to than" the

various eole from 6anara Ban" !ho have rovided me !ith a lot of information

and in fact even sharing some of the confidential comany documents and data 7many of !hich I have used in this reort and !ithout !hich this ro4ect could not

have been comleted. I !ould be failing in my duty if I do not ac"no!ledge !ith a

dee sense of gratitude the sacrifices made by my arents and thus have heled me

in comleting the ro4ect !or" successfully.

Place$ Mumbai

Date$

%ignature of the

%tudent&Prathvish.'.(athana)

8


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Executive Summary

Background of project topic:

'is" is defined as the otential that a ban" borro!er or counterarty !ill fail to

meet its obligations in accordance !ith agreed terms# or in other !ords it is

defined as the ris" that a firms customer and the arties to !hich it has lentmoney !ill fail to ma"e romised ayments is "no!n as ris".

+he e9osure to the ris"s is large in case of financial institutions# such

commercial ban"s !hen firms borro! money they in turn e9ose lenders to credit

ris"# the ris" that the firm !ill default on its romised ayments. As a

conse0uence# borro!ing e9oses the firm o!ners to the ris" that firm !ill be

unable to ay its debt and thus be forced to ban"rutcy.

'is" management is the analysis of ris" couled !ith the imlementation of

0uality ris" controls. 'is" management is needed for ban"s and financial

institutions# mainly because it insures a margin of safety that guarantees a levered

financial firm:s solvency.

+he unredictability and inherent ris"s associated !ith the financial mar"ets

ma"es it vital for financial institutions and ban"s to imlement ris" management

controls. +he level of 0uality ris" management olicy and controls can ma"e or

brea" &literally) ban"s or financial institutions.

;


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"#B$E %& C%'"E'"S

C!apter(

'o

"it)e Page(

'o# $ist of "a*)es '(

B $ist of #**reviations ''

'! Introduction ')*+'

'!' Risk Management ',

'!+ Risk Management Process '-

'!) .inancia$ Risk Management '/

'!, Ty#es of Risk '0

'!1 Credit Risk +(

'!2 Market Risk +(

'!2 O#erationa$ Risk +'

+( %*jectives of study ++*+)

,( Researc! Met!odo)ogy +,*+-

2.1 Data %ource +1

2.* Area of %tudy +1

2.2 %amling Plan +-2.8 'esearch Instrument +-

2.; Analysis of Data +-

-( $iterature Revie. +2*)/

1! Com#any Profi$e*Canara Bank )0*,)

1!' Introduction ,(

1!+ 3istory ,+

1!) .ounding Princi#$es ,+

-! Base$ II ,,*1'

-!' Introduction ,1-!+ O45ecti6e ,1

-!) Conce#t ,-

-!, Tire I and Tire II Ca#ita$ 1(

2! Risk Management Practices in Canara Bank 1+*2-

2!' Credit Risk 1)

2!+ Strategies and Processes 11


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2!) +he structure and organi@ation of the 6redit 'is"Management


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0!' Introduction 0(

0!+ Rating Mode$s 0(

0!) Draft value statements for industrial accounts undermanual model for 6MCDM E AFM o!er account

0,

0!, Rating S7eet for Industria$ account '()0!1 Draft value statements for ne! accounts under

manual model for 6MCDM E AFM o!er account

'(2

0!- Rating S7eet for Ne: account '''

0!2 Draft value statements for +rading accounts undermanual model for 6MCDM E AFM o!er account

'')

0!/ Rating S7eet for Trading account '+(

0!0 An aroach to value statements given in manualmodel for credit ris" rating of 6MCDM E AFM

o!er account

'+)

0!'( .or #ortfo$io under t7e standardi;ed a##roac7 '+-

'(! Data Ana$ysis and Inter#retation '+0*')0

''! Conc$usion ',(*',)

C Reference Section ',,*'1(

A##endi< ' =uestionnaire ',1

A##endi< + Bi4$iogra#7y ',0


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#( $S" %& "#B$ES

"a*)e(

'o

"it)e Page(

'o/( Significant Mi)estones -,

+( Credit Risk 0uantitative 1isc)osure 2-

,( "ota) 3ross Credit Exposure 4,

-( 3eograp!ic 1istri*ution of exposures 4,

2( ndustry type distri*ution of exposures 4,

4( Residua) Maturity *reakdo.n of assets 44

5( 'onperforming assets 45

6( Mitigation of Credit risk 0uantitative disc)osure 57

8( Market Risk 0uantitative disc)osure 52

/7( CR& at Canara Bank 6-

//( Risk graduation sca$e for Manua$ Rating Mode$ 8,

/+( =uantitati6e disc$osure of /+6

1-


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B( $S" %& #BBRE9#"%'S

#"M #sync!ronous "ransfer Mode #utomated "e))er Mac!ine

" nformation "ec!no)ogy

MB nternet and Mo*i)e Banking

R"3S Rea) "ime 3ross Sett)ement

'E&" 'ationa) E)ectronic &und "ransfer

Mo; Memorandum of ;nderstanding


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#$C% #sset $ia*i)ity Management Committee

31P 3ross 1omestic Product

%RM1 %perationa) Risk Management 1epartment

?% ?ead office

RM% Risk Management %fficeRB Reserve Bank of ndia

CR& Credit Risk &rame.ork

BCS Business Consu)ting Services

R#M Risk #ssessment Mode)

13M 1eputy 3enera) Manager

#3M #ssistant 3enera) Manger

CRS$ Credit Rating and nformation Services of ndia $td(

"$ "erm $oans

P1 Pro*a*i)ity of 1efau)t$C $etter of Credit

R#R%C Risk #djustment Return on Capita)

#BS #sset Backed Securities

1*


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C7a#ter '

'"R%1;C"%'

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/( ntroduction

Human beings have tried to manage ris"s faced in their day/to/day life. eeing

inflammable material a!ay from fire# saving for ossible future needs# creation of

a legal !ill are all e9amles of attemts at managing ris". 'is" is the ossibility of

the actual outcome being different from the e9ected outcome. It includes both the

do!nside and the uside otential. Do!nside otential is the ossibility of the

actual results being adverse comared to the e9ected results. =n the other hand#

uside otential is the ossibility of the actual results being better than the

e9ected results.

/(/ Risk Management

'is" is the ossibility of something unleasant haening or the chance of

encountering loss or harm. 'is" rovides the basis for oortunity. +he terms ris"

and e9osure have subtle differences in their meaning. 'is" refers to the

robability of loss# !hile e9osure is the ossibility of loss# although they are

often used interchangeably. 'is" arises as a result of e9osure.

9osure to financial mar"ets affects most organi@ations# either directly or

indirectly. 5hen an organi@ation has financial mar"et e9osure# there is a

ossibility of loss but also an oortunity for gain or rofit.


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troublesome because they are often not anticiated. Put another !ay# ris" is the

robable variability of returns. %ince it is not al!ays ossible or desirable to

eliminate ris"# understanding it is an imortant ste in determining ho! to manage

it. Identifying e9osures and ris"s forms the basis for an aroriate financial ris"

management strategy.


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develo cometitive advantage. +he ob4ective of ris" management needs to

be decided uon by the management. %o that the ris" manager may fulfill

his resonsibilities in accordance !ith the set ob4ectives.

*. dentifying Risks $/ very organi@ation faces different ris"s# based on its

business# the economic# social and olitical factors# the features of the

industry it oerates in 7 li"e the degree of cometition# the strengths and

!ea"ness of its cometitors# availability of ra! material# factors internal to

the comany li"e the cometence and outloo" of the management# state of

industry relations# deendence on foreign mar"ets for inuts# sales orfinances# caabilities of its staff and other innumerable factors.

2. Risk Eva)uation:-=nce the ris"s are identified# they need to be evaluated

for ascertaining their significance. +he significance of a articular ris"

deends uon the si@e of the loss that it may result in# and the robability of

the occurrence of such loss. =n the basis of these factors# the various ris"s

faced by the cororate need to be classified as critical ris"s# imortant ris"s

and not/so/imortant ris"s. 6ritical ris"s are those that may result in

ban"rutcy of the firm. Imortant ris"s are those that may not result in

ban"rutcy# but may cause severe financial distress.

8. 1eve)opment of po)icy:-Based on the ris" tolerance level of the firm# the

ris" management olicy needs to be develoed. +he time frame of the

olicy should be comaratively long# so that the olicy is relatively stable.

A olicy generally ta"es the form of a declaration as to ho! much ris"

should be covered.

1


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;. 1eve)opment of strategy: -Based on the olicy# the firm then needs to

develo the strategy to be follo!ed for managing ris". A strategy is

essentially an action lan# !hich secifies the nature of ris" to be managed

and the timing. It also secifies the tools# techni0ues and instruments that

can be used to manage these ris"s. A strategy also deals !ith ta9 and legal

roblems. Another imortant issue that needs to be secified by the strategy

is !hether the comany !ould try to ma"e rofits out of ris" management

or !ould it stic" to covering the e9isting ris"s.

. mp)ementation:-=nce the olicy and the strategy are in lace# they are tobe imlemented for actually managing the ris"s. +his is the oerational art

of ris" management. It includes finding the best deal in case of ris" transfer#

roviding for contingencies in case of ris" retention# designing and

imlementing ris" control rograms etc.

. Revie.: - +he function of ris" management needs to be revie!ed

eriodically# deending on the costs involved. +he factors that affect the

ris" management decisions "ee changing# thus necessitating the need to

monitor the effectiveness of the decisions ta"en reviously.

/(, &inancia) Risk Management

Broadly sea"ing# ris" management can be defined as a disciline for ,?iving

!ith the ossibility that future events may cause adverse effectsK. In the conte9t of

ris" management in financial institutions such as ban"s or insurance comanies

these adverse effects usually corresond to large losses on a ortfolio of assets.

%ecific e9amles include$ losses on a ortfolio of mar"et/traded securities such

1G


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as stoc"s and bonds due to falling mar"et rices &a so/called mar"et ris" event)L

losses on a ool of bonds or loans# caused by the default of some issuers or

borro!ers &credit ris")L losses on a ortfolio of insurance contracts due to the

occurrence of large claims &insurance/ or under!riting ris"). An additional ris"

category is oerational ris"# !hich includes losses resulting from inade0uate or

failed internal rocesses# fraud or litigation.

In financial mar"ets# there is in general no so/called ,free lunchK or# in other

!ords# no rofit !ithout ris". +his is the reason !hy financial institutions actively

ta"e on ris"s. +he role of financial ris" management is to measure and manage

these ris"s. Hence ris" management canbe seen as a core cometence of an insurance comany or a ban"$ by using its

e9ertise and its caital# a financial institution can ta"e on ris"s and manage them

by various techni0ues such as diversification# hedging# or reac"aging ris"s and

transferring them bac" to mar"ets# etc.

/(- "ypes of Risk:

'is" faced by the ban" can be segmented into three searable tyes from the

management ersective vi@.

a. 'is"s that can be eliminated or avoided by simle business ractices

b. 'is"s that can be transferred to other business articiants &eg. Insurance

olicy) and

c. 'is"s that can be actively managed at the Ban" level.

'is" is any real or otential event# action or omission# internal or e9ternal# !hich

!ill have an adverse imact on the achievement of Ban"s defined ob4ectives.

'is" is inherent in every business. 'is" cannot be totally eliminated but is to be

managed. 'is"s are to be categori@ed into high ris"# medium ris" and lo! ris" and

then managed.

'is"s can be classified into three broad categories$

1


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1. 6redit 'is"

*. Mar"et 'is" &Interest 'ate 'is"# ?i0uidity 'is")

2. =erational 'is"

/(2 Credit Risk

6redit 'is" is defined as the ossibility of losses associated !ith diminution in

the credit 0uality of borro!ers or counterarties. In a ban"s ortfolio# losses stem

from outright default due to inability or un!illingness of a customer or

counterarty to meet commitments in relation to lending# trading# settlement and

other financial transactions. 6redit ris" emanates from ban"s dealings !ith

individuals# cororate# ban"# financial institution or a sovereign.6redit 'is" may ta"e the follo!ing forms$

J In the case of direct lendingL rincial C and or interest amount may not be

'eaid.

J In the case of treasury oerationsL the ayment or series of ayments due

from the counter arties under the resective contracts may not be

forthcoming or ceases

J In the case of securities trading businesses$ funds C securities settlement

may not be effected

J In the case of cross/border e9osure$ the availability and free transfer of

foreign currency funds may either cease or restrictions may be imosed by

the sovereign.

/(4 Market Risk

Mar"et 'is" may be defined as the ossibility of loss to a ban" caused by changes

in the mar"et variables. Mar"et 'is" is the ris" to the ban"s earnings and caital

due to changes in the mar"et level of interest rates or rices of securities# foreign

e9change and e0uities# as !ell as the volatilities of those rices.

*-


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Segments of Market Risk

1. Liquidity Risk$ ?i0uidity ris" is the otential inability to meet the ban"s

liabilities as they become due. It arises !hen the ban"s are unable to generate cash

to coe !ith a decline in deosits or increase in assets. It originates from the

mismatches in the maturity attern of assets and liabilities.

2. Interest Rate Risk:Interest rate ris" is the ris" !here changes in mar"et interest

rates might adversely affect a ban"s financial condition. +he immediate imact of

changes in interest rates is on the 3et Interest Income.

3. Foreign Exchange Risk:


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C7a#ter +

%B


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+( %*jectives of study

+o study broad outline of management of credit# mar"et and oerational

ris"s associated !ith 6anara Ban".

+o understand the imortance of ris" management in 6anara Ban".

+o study the roblem related to ris" management in 6anara Ban".

+he study aims at learning the techni0ues involved to manage the various

tyes 'is" of 6anara Ban".


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C7a#ter )

RESE#RC?ME"?%1%$%3@

*8


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,( Researc! Met!odo)ogy

,(/ 1ata Source

1. Secondary data:

+he secondary data is derived from the 'BI !ebsite and also from various site

ertaining to credit ris" management. +he secondary data study comrises of

understanding credit ris" management as a sub4ect and its various arameters.

+hese arameters comrise of the various guidelines framed by 'BI for all ban"s

for better credit ris" management.

2. Primary data:

+he ro4ect commences !ith collecting information as regards the 'is"

Management Practices in 6anara Ban" from Manager ofCreditdet.


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6anara Ban" branches in Mumbai and 3avi Mumbai region !as underta"en for

the research urose.

,(, Samp)ing p)an

/(Samp)ing "ec!niAue

6onvenience samling techni0ue to be used.

+(Samp)e Si=e

+he samle si@e to be ta"en !ill be 2- Managers from different banches all over

Mumbai.

,(- Researc! instrument

Data !as collected !ith the hel of 0uestionnaire having close /ended 0uestions.

Intervie!ees !ere rovided a 0uestionnaire !hich they could fill u as er their

choice.

,(2 #na)ysis of data

6ollected data !ill be coded# classified# tabulated and interreted# based on the

resonse received from resondent aroriate statistical tools li"e average#

ercentage# ran"ing !ill be used and inferences be made.


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C7a#ter ,

$"ER#";RE RE9E>

*


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-( $iterature Revie.

1. "it)e $ 'is" Management

#ut!or : IIB"C

5orld +rade 6entre &5+6) brings together business and government agencies

involved in international trade# rovides essential trade services and stimulates the

economy of the region it serves. 5+6 uts all the services associated !ith global

commerce under one roof and it:s address gives a business rime and continuous

access to resources essential for success in !orld trade. A 5orld +rade 6enter inany city is a business shoing center# comlementing and suorting the e9isting

services of rivate and government agencies. A 5+6 offers its members and

tenants a !ide range of facilities and services.

#*out t!e #ut!or

2
http://www.crossword.in/home/search?q=Ramesh%20Lakshmanhttp://www.crossword.in/home/search?q=Ramesh%20Lakshman


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'amesh ?a"shman graduated !ith a bachelor of commerce degree from

University of Mumbai in the year 1;# ?ater he !ent to add additional

0ualifications of 6hartered Accountancy# 6ost Accountancy and ?a! all in the

year 1G-## resectively from Institute of 6hartered Accountants of India# Institute

of 6ost and 5or"s Accountants of India and University of Mumbai.He established his o!n ractice under the firm name 'amesh ?a"shman and

6omany# 6hartered Accountants in the year 1G1# having !or"ed briefly !ith

%har and +annan# 6hartered Accountants and .6.hanna and 6omany#

6hartered Accountants. Bet!een 1G1 and 1* he !as involved in traditional

ractice of audit# assurance# certification and ta9. He regularly aeared before the

Income +a9 Aellate +ribunal as counsel for his clients and recorded substantial

success in the matters reresented by him.

%ince 1* he chose to diversify into non traditional areas of international finance#

valuation# derivatives# ris" management# cross border ac0uisitions and due

diligence# advising clients on inta"e of rivate e0uity investments etc. +oday hisractice is substantially comrised of these areas. He is also an e9ert on

accounting for financial instruments# the area of great future otential due to the

comle9ity surrounding the standards.

Most of his "no!ledge and learning on these sub4ects is derived from self

education and by attending short term courses or seminars. An Introduction to


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C7a#ter 1

6=MPA3Y P'=


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2( C%MP#'@ PR%&$E F C#'#R# B#'G

2(/ ntroduction:

5idely "no!n for customer centricity# 6anara Ban" !as founded by %hri

Ammembal %ubba 'ao Pai# a great visionary and hilanthroist# in (uly 1-# at

Mangalore# then a small ort in arnata"a. +he Ban" has gone through the various

hases of its gro!th tra4ectory over hundred years of its e9istence. Fro!th of

6anara Ban" !as henomenal# esecially after nationali@ation in the year 1#

attaining the status of a national level layer in terms of geograhical reach and

clientele segments. ighties !as characteri@ed by business diversification for the

Ban". In (une *--# the Ban" comleted a century of oeration in the Indian

ban"ing industry. +he eventful 4ourney of the Ban" has been characteri@ed by

several memorable milestones. +oday# 6anara Ban" occuies a remier osition in

the comity of Indian ban"s. 5ith an unbro"en record of rofits since its incetion#

6anara Ban" has several firsts to its credit. +hese include$

?aunching of Inter/6ity A+M 3et!or"

=btaining I%= 6ertification for a Branch

Articulation of Food Ban"ing 7 Ban"s 6iti@en 6harter 6ommissioning of 9clusive Mahila Ban"ing Branch

?aunching of 9clusive %ubsidiary for I+ 6onsultancy

Issuing credit card for farmers

Providing Agricultural 6onsultancy %ervices

8-


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=ver the years# the Ban" has been scaling u its mar"et osition to emerge as a

ma4or H&inancia) Cong)omerateH !ith as many as nine subsidiariesCsonsored

institutionsC4oint ventures in India and abroad. As at (une *-1-# the Ban" has

further e9anded its domestic resence# !ith 2-; branches sread across all

geograhical segments. eeing customer convenience at the forefront# the Ban"

rovides a !ide array of alternative delivery channels that include over *---

A+Ms/ one of the highest among nationali@ed ban"s/ covering 2* centres# *G1

branches roviding Internet and Mobile Ban"ing &IMB) services and *-1

branches offering :Any!here Ban"ing: services. Under advanced ayment andsettlement system# all branches of the Ban" have been enabled to offer 'eal +ime

Fross %ettlement &'+F%) and 3ational lectronic


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believe that the ne9t century is going to be e0ually re!arding and eventful not

only in service of the nation but also in heling the Ban" emerge as a I3)o*a)

Bank .it! Best PracticesI. +his 4ustifiable belief is founded on strong

fundamentals# customer centricity# enlightened leadershi and a family li"e !or"

culture.

2(+ ?istory:


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. +o develo a concern for fello! human being and sensitivity to the

surroundings !ith a vie! to ma"e changesCremove hardshis and

sufferings.

%ound founding rinciles# enlightened leadershi# uni0ue !or" culture and

remar"able adatability to changing ban"ing environment have enabled Canara

Bank to *e a front)ine *anking institution of g)o*a) standards(

+he Ban" is a Fovernment of India underta"ing# and carries on all ban"ing

business. +he Ban" !as brought into e9istence by an ordinance assed on the 1th

(uly 1 by the 6entral Fovernment. In terms of the ordinance the underta"ing

of the 6anara Ban" ?td !as vested to and transferred to the ne! ban". +his

ordinance !as relaced by the Ban"ing 6omanies &Ac0uisition and +ransfer of

Underta"ing) Act# 1. +his Act !as declared null E void by the %ureme 6ourt

on the 1-th of


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1G 6anban" >enture 6aital s in Insurance and Asset

Management !ith international ma4ors vi@.# H%B6

&Asia Pacific) Holding and 'obeco Froe 3.> resectively

*--/-G

?aunching of 3e! Brand Identity

Incororation of Insurance and Asset Management (>s

?aunching of :=nline +rading: ortal?aunching of a 6all 6entre

%!itchover to Basel II 3e! 6aital Ade0uacy


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C7a#ter -

B#SE$

8;


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4( Base)

4(/ ntroduction:

Base) is the second of the Basel Accords# !hich are recommendations on

ban"ing la!s and regulations issued by the Basel 6ommittee on Ban"ing

%uervision. +he urose of Basel II# !hich !as initially ublished in (une *--8#

is to create an international standard that ban"ing regulators can use !hen creating

regulations about ho! much caital ban"s need to ut aside to guard against the

tyes of financial and oerational ris"s ban"s face. Advocates of Basel II believe

that such an international standard can hel rotect the international financial

system from the tyes of roblems that might arise should a ma4or ban" or a series

of ban"s collase. In theory# Basel II attemted to accomlish this by setting u

ris" and caital management re0uirements designed to ensure that a ban" holds

caital reserves aroriate to the ris" the ban" e9oses itself to through its

lending and investment ractices. Fenerally sea"ing# these rules mean that the

greater ris" to !hich the ban" is e9osed# the greater the amount of caital the

ban" needs to hold to safeguard its solvencyand overall economic stability.

4!+ O45ecti6e$

1. nsuring that caital allocationis more ris" sensitiveL

*. %earating oerational ris"from credit ris"# and 0uantifying bothL

2. Attemting to align economic and regulatory caital more closely to reduce

the scoe for regulatory arbitrage.

8
http://en.wikipedia.org/wiki/Basel_Accordshttp://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervisionhttp://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervisionhttp://en.wikipedia.org/wiki/Solvencyhttp://en.wikipedia.org/wiki/Capital_requirementhttp://en.wikipedia.org/wiki/Operational_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Regulatory_arbitragehttp://en.wikipedia.org/wiki/Basel_Accordshttp://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervisionhttp://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervisionhttp://en.wikipedia.org/wiki/Solvencyhttp://en.wikipedia.org/wiki/Capital_requirementhttp://en.wikipedia.org/wiki/Operational_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Regulatory_arbitrage


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5hile the final accord has largely addressed the regulatory arbitrage issue# there

are still areas !here regulatory caital re0uirements !ill diverge from the

economic.

Basel II has largely left unchanged the 0uestion of ho! to actually define ban"

caital# !hich diverges from accountinge0uity in imortant resects. +he Basel I

definition# as modified u to the resent# remains in lace.

4(, Concept:

Basel II uses a It!ree pi))arsI concet 7 &1) minimum caital re0uirements

&addressing ris")# &*) suervisory revie! and &2) mar"et disciline.

+he Basel Iaccord dealt !ith only arts of each of these illars.


48/152

As the Basel * recommendations are hased in by the ban"ing industry it !ill

move from standardi@ed re0uirements to more refined and secific re0uirements

that have been develoed for each ris" category by each individual ban". +he

uside for ban"s that do develo their o!n beso"e ris" measurement systems is

that they !ill be re!arded !ith otentially lo!er ris" caital re0uirements. In

future there !ill be closer lin"s bet!een the concets of economic rofit and

regulatory caital.

6redit 'is" can be calculated by using one of three aroaches$

1. %tandardi@ed Aroach

*.


49/152

"!e second pi))ar:

+he second illar deals !ith the regulatory resonse to the first illar# giving

regulatorsmuch imroved :tools: over those available to them under Basel I. It

also rovides a frame!or" for dealing !ith all the other ris"s a ban" may face#such as systemic ris"#ension ris"# concentration ris"# strategic ris"# reutational

ris"# li0uidity ris" and legal ris"# !hich the accord combines under the title of

residual ris". It gives ban"s a o!er to revie! their ris" management system.

"!e t!ird pi))ar:

+his illar aims to romote greater stability in the financial system

Mar"et disciline sulements regulation as sharing of information facilitates

assessment of the ban" by others including investors# analysts# customers# other

ban"s and rating agencies. It leads to good cororate governance. +he aim of illar

2 is to allo! mar"et disciline to oerate by re0uiring lenders to ublicly rovide

details of their ris" management activities# ris" rating rocesses and ris"

distributions. It sets out the ublic disclosures that ban"s must ma"e that lend

greater insight into the ade0uacy of their caitali@ation. 5hen mar"etlace

articiants have a sufficient understanding of a ban"s activities and the controls

it has in lace to manage its e9osures# they are better able to distinguish bet!een

ban"ing organi@ations so that they can re!ard those that manage their ris"s

rudently and enali@e those that do not.

In India# 'BIhas imlemented the Basel II standardi@ed norms on 21 March *--

and is moving to internal ratings in credit and AMA norms for oerational ris"s in

ban"s. 9isting 'BI norms for ban"s in India &as on %et *-1-)$ 6ommon e0uity

&incl of buffer)$ 2. Q& Buffer Basel * re0uirement re0uirements are @ero.)L +ier 1

re0uirement$ Q. +otal 6aital$ Q of ris" !eighted assets. Basel 2 as"s for those

8
http://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Systemic_riskhttp://en.wikipedia.org/w/index.php?title=Pension_risk&action=edit&redlink=1http://en.wikipedia.org/wiki/Concentration_riskhttp://en.wikipedia.org/w/index.php?title=Strategic_risk&action=edit&redlink=1http://en.wikipedia.org/wiki/Reputational_riskhttp://en.wikipedia.org/wiki/Reputational_riskhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Legal_riskhttp://en.wikipedia.org/wiki/Reserve_Bank_of_Indiahttp://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Systemic_riskhttp://en.wikipedia.org/w/index.php?title=Pension_risk&action=edit&redlink=1http://en.wikipedia.org/wiki/Concentration_riskhttp://en.wikipedia.org/w/index.php?title=Strategic_risk&action=edit&redlink=1http://en.wikipedia.org/wiki/Reputational_riskhttp://en.wikipedia.org/wiki/Reputational_riskhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Legal_riskhttp://en.wikipedia.org/wiki/Reserve_Bank_of_India


50/152

ratios as /G.;Q&8.;Q R*.;Q&conservation buffer) R -/*.;Q&seasonal buffer)) and

G.;/11Q for tier 1 ca and 1-.; to 12.; for total caital: 'Proosed Basel III

Fuidelines$ A 6redit Positive for Indian(Ban"s In resonse to a 0uestionnaire

released by the


51/152

ach country:s ban"ing regulator# ho!ever# has some discretion over ho!

differing financial instruments may count in a caital calculation. +his is

aroriate# as the legal frame!or" varies in different legal systems.

+he theoretical reason for holding caital is that it should rovide rotection

against une9ected losses. 3ote that this is not the same as e9ected losses# !hich

are covered byrovisions# reservesand current yearrofits. In Basel Iagreement#

+ier 1 caital is a minimum of 8Q o!nershi e0uity but investors generally

re0uire a ratio of 1-Q.

"ier + capita)is a measure of a ban":s financial strength !ith regard to the second

most reliable form of financial caitalfrom a regulatoryoint of vie!. +he forms

of ban"ing caital !ere largely standardi@ed in the Basel Iaccord# issued by the

Basel 6ommittee on Ban"ing %uervision and left untouched by the Basel II

accord. 3ational regulators of most countries around the !orld have imlemented

these standards in local legislation.

+ier 1 caitalis considered the more reliable form of caital# !hich comrises the

most 4unior &subordinated) securities issued by the firm. +hese include e0uity and

0ualifying eretual referred stoc".

+here are several classifications of tier * caital. In the Basel I Accord# tier *

caital is comosed of sulementary caital# !hich is categori@ed as undisclosed

reserves# revaluation reserves# general rovisions# hybrid instruments and

subordinated term debt. %ulementary caital can be considered tier * caitals uto an amount e0ual to that of the core caital.

;1
http://en.wikipedia.org/wiki/Regulator_(economics)http://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Provisionhttp://en.wikipedia.org/wiki/Bank_reserveshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Basel_Ihttp://en.wikipedia.org/wiki/Equity_(finance)http://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Basel_Ihttp://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervisionhttp://en.wikipedia.org/wiki/Basel_IIhttp://en.wikipedia.org/wiki/Tier_1_capitalhttp://en.wikipedia.org/wiki/Core_capitalhttp://en.wikipedia.org/wiki/Regulator_(economics)http://en.wikipedia.org/wiki/Financial_instrumenthttp://en.wikipedia.org/wiki/Provisionhttp://en.wikipedia.org/wiki/Bank_reserveshttp://en.wikipedia.org/wiki/Profit_(accounting)http://en.wikipedia.org/wiki/Basel_Ihttp://en.wikipedia.org/wiki/Equity_(finance)http://en.wikipedia.org/wiki/Financial_capitalhttp://en.wikipedia.org/wiki/Bank_regulationhttp://en.wikipedia.org/wiki/Basel_Ihttp://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervisionhttp://en.wikipedia.org/wiki/Basel_IIhttp://en.wikipedia.org/wiki/Tier_1_capitalhttp://en.wikipedia.org/wiki/Core_capital


52/152

C7a#ter 2

RSG M#'#3EME'"PR#C"CES ' C#'#R#

B#'G

;*


53/152

5( Risk Management practices in Canara Bank

5(/ Credit Risk:

+he Ban" has ut in lace a robust 'is" Management Architecture !ith due focus

not only on 6aital otimi@ation# but also on rofit ma9imi@ation# i.e. to do

ma9imum business out of the available caital !hich in turn ma9imi@e rofit or

return on e0uity. Ban" is benchmar"ing on globally acceted sound ris"

management system# conforming to Basel II frame!or"# enabling a more efficient

e0uitable and rudent allocation of resources.

In 6aital Planning rocess the Ban" revie!s$

6urrent caital re0uirement of the Ban"

+he targeted and sustainable caital in terms of business strategy and ris"

aetite.

6aital need and caital otimi@ation are monitored eriodically by the 6aital

Planning 6ommittee comrising +o 9ecutives. %ensitivity analysis is conducted

0uarterly on the movement of 6aital Ade0uacy 'atio# considering the ro4ected

gro!th in advances# investments in %ubsidiariesC (oint >entures and the imact of

Basel II frame!or" etc. +he 6ommittee ta"es into consideration various otions

available for caital augmentation in tune !ith business gro!th and realignment

of 6aital structure duly underta"ing the scenario analysis for caital

otimi@ation.

;2


54/152

6'A' of the Ban" is ro4ected to be !ell above the 1*Q in the medium term

hori@on of 2 years# as rescribed in the I6APP Policy.

0;#'""#"9E 1SC$%S;RES

Rs( in Crore

"EMS

#M%;'"

,/(7,(+7/7 ,/(7,(+778

&a) 6aital re0uirements for 6redit 'is"

Portfolios sub4ect to %tandardi@ed Aroach

%ecuriti@ation 9osures

/+/85(26

'$

/7778(48

'$

&b) 6aital re0uirements for Mar"et 'is"

/ %tandardi@ed Duration Aroach

Interest 'ate 'is"


55/152

+he Ban"s olicies maintain moderation in ris" aetite and a healthy balance

bet!een ris" and return in a rudent manner. +he rimary ris" management goals

are to ma9imi@e value for share holders !ithin accetable arameters and to the

re0uirements of regulatory authorities# deositors and other sta"eholders. +he

guiding rinciles in ris" management of the Ban" comrise of 6omliance !ith

regulatory and legal re0uirements# achieving a balance bet!een ris" and return#

ensuring indeendence of ris" functions# and aligning ris" management and

business ob4ectives. +he 6redit 'is" Management rocess of the Ban" is driven

by a strong organi@ational culture and sound oerating rocedures# involvingcororate values# attitudes# cometencies# emloyment of business intelligence

tools# internal control culture# effective internal reorting and contingency

lanning.

+he overall ob4ectives of the Ban"s 6redit 'is" Management are to$

nsure credit gro!th# both 0ualitatively and 0uantitatively that !ould be

sectorally balanced# diversified !ith otimum disersal of ris".

nsure adherence to the regulatory rudential norms on e9osures and

ortfolios.

Ade0uately enable to rice various ris"s in the credit e9osure.


56/152

techni0ues and management of roblem loans Ccredits. +he Ban" has also defined

target mar"ets# ris" accetance criteria# credit aroval authorities# and guidelines

on credit origination C maintenance rocedures.

+he strategies are framed "eeing in vie! various measures for 6redit 'is"

Mitigation# !hich includes identification of thrust areas and target mar"ets# fi9ing of

e9osure ceiling based on regulatory guidelines and ris" aetite of the Ban"#

6oncentration 'is"# and the accetable level of ricing based on rating.

+he Ban" from time to time !ould identify the otential and roductive sectors

for lending# based on the erformance of the segments and demands of the

economy. +he Ban" restricts its e9osures in sectors !hich do not have gro!th

otentials# based on the Ban"s evaluation of industries C sectors ta"ing into

account the revailing economic scenario rosects etc.

+he oerational rocesses and systems of the Ban" relating to credit are framed on

sound 6redit 'is" Management Princiles and are sub4ected to eriodical revie!.

+he Ban" has comrehensive credit ris" identification rocesses as art of due

diligence on credit roosals.

+o have focused attention to large 6ororates# seciali@ed branches vi@. Prime

6ororate Branches have been set u in ma4or centres.


57/152

functions are segregated bet!een the concerned branch and the 6ore 6redit

Frous at 6ircle =ffices. ?arge value cororate e9osures are largely monitored

through secified branches.

5(, "!e structure and organi=ation of t!e Credit Risk Management &unction:

6redit 'is" Management %tructure in the Ban" is as under/

Board of Directors

'is" Management 6ommittee of the Board &'M6)

6redit 'is" Management 6ommittee &6'M6)

Feneral Manager/'is" Management 5ing# H.= &6hief 'is" Management

=fficer)

6redit 'is" Management Deartment# 'is" Management 5ing

6redit %tatistics %ection# 'is" Management 5ing

9clusive 6redit Monitoring 5ing for focused attention on monitoring the

0uality of loan ortfolio# identifying the roblems and suggesting corrective

measures

'is" Management E 6redit 'evie! %ection at 6ircle =ffices

6redit Monitoring =fficers at Branches for monitoring the


58/152

'is" Management 6ommittee !as constituted on (anuary 1G# *--2. +he functions

of the 'is" Management 6ommittee include the follo!ing$

J +o devise the olicy and strategy for integrated ris" management

containing various ris" e9osures of the Ban" including the 6redit 'is".

J +o co/ordinate bet!een the 6redit 'is" Management 6ommittee

&6'M6)# the Asset ?iability Management 6ommittee &A?M6) and

=erational 'is" Management 6ommittee &='M6) and other ris"

committees of the Ban".

5(2 "!e responsi*i)ity of t!e Committee inc)udes: %etting olicies and guidelines for mar"et ris" measurement# management

and reorting

nsuring that mar"et ris" management rocesses &including eole#

systems# oerations# limits and controls) satisfy Ban"s olicy

'evie!ing and aroving mar"et ris" limits# including triggers or sto/

losses for traded and accrual ortfolios Aointment of 0ualified and cometent staffL ensuring osting of 0ualified

and cometent staff and of indeendent mar"et ris" managerCs etc.

+he Ban" has ut in lace the 6redit 'is" Management Policy and the same has

been circulated to all the branches. +he measurement of ris" is through a re

sanction e9ercise of credit ris" rating and scoring models ut in lace by the Ban".

+he Ban" has !ell laid do!n guidelines for identifying the arameters under each

of these ris"s as also assigning !eighted scores thereto and rating them on a scale

of G.

+he Ban" also has a Policy in lace on usageCmaing of ratings assigned by the

recogni@ed 6AIs &9ternal 6redit Assessment Institutions) for assigning ris"

;G


59/152

!eights for the eligible credit e9osures as er the guidelines of the 'BI on

%tandardi@ed Aroach for caital comutation.

+he Ban" has adoted %tandardi@ed Aroach for credit ortfolio for credit ris"

measurement.

+he Ban" has embar"ed uon a soft!are solution vi@. 6D6'M &6omrehensive

Data and %ystem Architecture on 6redit 'is" Management) for establishing a

robust credit data !arehouse for all MI% re0uirements# comutation of 'is"

5eighted Assets &'5A)# generate various credit related reorts for revie! of

e9osure and monitoring# and conducting analysis of credit ortfolio from various

angles.

+he main ob4ective of the olicy is to ensure that the oerations are in line !ith

the e9ectation of the management and the strategies of the to management are

translated into meaningful directions to the oerational level. +he Policy stiulates

rudential limits on large credit e9osures# standards for loan collateral# ortfolio

management# loan revie! mechanism# ris" concentrations# ris" monitoring and

evaluation# rovisioning and regulatory C legal comliance.

+he Ban" identifies the ris"s to !hich it is e9osed and alies suitable techni0ues

to measure# monitor and control these ris"s. 5hile the Board C 'is" Management

6ommittee of the Board devises the olicy and fi9es various credit ris" e9osures#

6redit 'is" Management 6ommittee imlements these olicies and strategies

aroved by the Board C 'M6# monitors credit ris"s

on a ban" !ide basis and ensures comliance of ris" limits.

+he Ban" studies the concentration ris" by

&a) fi9ing e9osure limits for single and grou borro!ers

&b) rating grade limits

&c) industry !ise e9osure limits

;


60/152

5(4 Po)icies for !edging and or mitigating risk and strategies and processes

for monitoring t!e continuing effectiveness of !edges mitigants:

+he Ban" rimarily relies on the borro!er:s financial strength and debt servicing

caacity !hile aroving credits. +he Ban" does not e9cessively rely on

collaterals or guarantees as a source of reayment or as a substitute for evaluating

borro!er:s credit!orthiness. +he Ban" does not deny credit facilities to those

assessed as credit !orthy for mere !ant of ade0uate collaterals.

In order to manage the Ban"s credit ris" e9osure# the Ban" has adoted credit

araisal and aroval olicies and rocedures that are revie!ed and udated by

the 'is" Management 5ing at Head office in consultation !ith other functional

5ings. +he credit araisal and aroval rocess is broadly divided into credit

origination# araisal# assessment and aroval# and disensation.

6ororate finance and ro4ect finance loans are tyically secured by a first lien on

fi9ed assets# normally consisting of roerty# lant and e0uiment. +he Ban" also

ta"es security of ledge of financial assets li"e mar"etable securities and obtains

cororate guarantees and ersonal guarantees !herever aroriate. 5or"ing

6aital loans are tyically secured by a first lien on current assets# !hich normally

consist of inventory and receivables.

+he Ban" has laid do!n detailed guidelines on documentation to ensure legal

certainty of Ban":s charge on collaterals.

+he Ban":s olicy is to ensure ortfolio diversification and evaluate overallfinancing e9osure in a articular industry C sector in the light of forecasts of

gro!th and rofitability for that industry# and the ris" aetite of the Ban". +he

Ban" monitors e9osures to ma4or sectors of the economy and secifically

e9osure to various industries and sensitive sectors. 9osure to industrial

-


61/152

activities is sub4ected to the credit e9osure ceilings fi9ed by the Ban" based on

the analysis on erformance of the industry. +he Ban"s e9osures to single and

grou borro!ers as also substantial e9osure is monitored and restricted !ithin

the rudential ceiling norms advised by 'eserve Ban" of India from time to time.

+he credit origination is through the grass root level ably assisted by the branch

net !or" and the 6ircle =ffices. +he rocess of identification# alication is

carried out before commencing an in deth araisal# due diligence and

assessment.

+he credit aroval rocess is a critical factor and commences !ith the mandatory

credit ris" rating of the borro!er as a re sanction e9ercise. +he measurement of

6redit 'is" associated !ith the borro!er evaluates indicative factors li"e#

borro!ers financial osition# cash flo!s# activity# current mar"et trends# ast

trends# management caabilities# e9erience !ith associated business entities#

nature of facilities etc. +he Ban" has no! in lace centrali@ed rocessing centres

for Housing and ersonal loans at select cities to ease credit disensation reduce

turnaround time and ensure seciali@ed attention.

+he Ban" has an e9clusive set u for credit monitoring functions no!# after hiving

off the same from 'is" Management 5ing. +his is to have greater thrust on ost

sanction monitoring of loans and strengthen administering the various tools

available under the Ban"s olicies on loan revie! mechanism.


62/152

'evie! of loan sanctioned by each sanctioning authority by the ne9t higher

authority.

Mid +erm 'evie! of borro!al accounts.

Monitoring tools li"e 6redit Monitoring


63/152

Interest charged during any 0uarter is not serviced fully !ithin - days from

the end of the 0uarter.

0;#'""#"9E 1SC$%S;RES

a "%"#$ 3R%SS CRE1" EJP%S;RES Rs in Crore

* 3E%3R#P?C 1S"RB;"%' %& EJP%S;RES Rs in Crore

EJP%S;RES&;'1 B#SE1 '%'F&;'1 B#SE1

,/(7,(+7/7 ,/(7,(+778 ,/(7,(+7/7 ,/(7,(+778

2

%9ER#$$ CRE1"

EJP%S;RE

&;'1 B#SE1

EJP%S;RES

'%'F&;'1 B#SE1

EJP%S;RES

,/(7,(+7/7 ,/(7,(+778 ,/(7,(+7/7 ,/(7,(+778

+otal Fross 6redit 9osures

&after accounting offsets in

accordance !ith the alicable

accounting regime and !ithout

ta"ing into account the effects

of credit ris" mitigation

techni0ues# e.g. collateral and

netting)

/48,,-(4, /,6+/8(-7 /+,45+(25 /2//2/(6-

"a*)e ,


64/152

Domestic oerations /4+,24(2, /,-5,+(/- /+7+-,(7/ /-5-+,(6+

=verseas oerations 4856(/7 ,-65(+4 ,-+8(22 ,5+6(7+

"a*)e -

c '1;S"R@ "@PE 1S"RB;"%' %& EJP%S;RES Rs in Crore

SR

'%('1;S"R@

&;'1 B#SE1

%;"S"#'1'3

'%' &;'1 B#SE1

%;"S"#'1'3

,/(7,(+7/7 ,/(7,(+778 ,/(7,(+7/7 ,/(7,(+778

*.1 Mining and 0uarrying /788 686 /4/ /,+

*.* &ood Processing ,756 /442 /65 +7

*.*.1 %ugar ;; ; 12; 2

*.*.* dible =ils and

>anasati1 G1 ** -

*.*.2 +ea 11G 2- - -

*.*.8 =thers 1G* G 2- 1

*.2 Beverage D "o*acco ,24 +6, ,5 --

*.8 "exti)es 62-4 45,5 /6- +-6

*.8.1 6otton +e9tiles 2-G ** G1 8;

*.8.* (ute +e9tiles 8- 1 -

*.8.2 =ther +e9tiles 8;81 2G 1-* *-2

*.;$eat!er D $eat!er

Products4-+ 2/, /6 5

*. >ood and >ood Products /85 +5+ +6 /7

*. Paper D Paper Products /+-2 6,4 +5 /7

*.GPetro)eum Coa) Products

and 'uc)ear &ue)s64+2 65+- 5++ --+

*. C!emica)s and C!emica) /8/8 /,46 /4+ /,/

8


65/152

Products

*..1


66/152

*.1G.8 =ther Infrastructure 2;21 1G2 *; ;

*.1 %t!er ndustries 444, /8-7 /788 /74+

'1;S"R@ "ota) of

Sma)) Medium and $argeSca)e

6527- 2,572 /5-42 /4555

"a*)e 2

d RES1;#$ M#";R"@ BRE#G1%>' %& #SSE"S

RS ' CR%RE

M#";R"@ P#""ER' #19#'CES '9ES"ME'"S

&%RE3'

C;RRE'C@

#SSE"S

7 to / day546-(,7

82,/(82

7(77

7(77

468(,7

///(,-

+ to 5 days424,(6-

+8,/(2+

/4+4(4,

867(55

/7-2(82

/66,(6+

6 to /- days6+84(-/

+/2-(52

288(78

//4-(4-

/,/-(78

27/+(56

/2 to +6 days-,+7(22

,/4-(4-

/,/8(/6

//27(,4

+58(/-

-4-(6+

+8 days to , mont!s+/,,5(44

/5+6/(88

,2//(5,

+,/6(-6

,4/+(24

/+42(4,

%ver , mont!s D upto 4

mont!s

/4++4(54

54,-(75

/227(7-

,,/5(6,

,68,(8/

/-5,(66

%ver 4 mont!s D upto / year+-427(84

+/465(2+

22+(86

+/2/(-6

,--8(-8

267(-4


67/152

%ver / year D upto , years,7-48(+-

+66-,(5/

272-(/8

56-,(25

5-7(26

+7-,(65

%ver , year D upto 2 years/55/,(7,

/-722(47

4727(,/

6,,8(,7

4-+(4/

2+2(-/

%ver 2 years,+75/(66

,78,,(42

-8-/+(67

,72/7(-5

88-(86

/74/(26

"ota)/48,,-(4,

/,6+/8(-7

48454(82

25554(87

/444+(4/

/--+,(28

"a*)e 4

&+he figures of the revious year disclosed in the brac"ets under each figure)

e '%'FPER&%RM'3 #SSE"S:

Rs in Crore

tems#mount

,/(7,(+7/7 ,/(7,(+778

Fross 3PAs

%ubstandard

Doubtful 1

Doubtful *

Doubtful 2

?oss

+287(,/

/82,(28

4+5(,8

FF

FF

8(,,

+/45(85

/2/-(28

4-4(85

FF

FF

4(-/

3et 3PAs /588(57 /275(+2

3PA 'atios

Fross 3PAs to Fross advances &Q) 3et 3PAs to 3et advances &Q)

/(2+/(74 /(24/(78

Movement of 3PAs &Fross)

=ening balance

Additions

'eductions

+/45(85

,+44(,,

+6-,(88

+287(,/

/+5+(4+

+,55(5-

/-6+(,8

+/45(85


68/152

6losing balance

Movement of rovisions for 3PAs

=ening balance

Provisions made during the year

5rite/off

5rite bac" of e9cess rovisions

6losing balance

425(58

/-+4(/5

/+85(/4FF

564(67

,5,(/7

877(77

4/2(,/FF

425(58

Amount of 3on/erforming investments /88(58 /62(5+

Amount of rovisions held for 3on/erforming

investments /88(-5 /62(5+

Movement of rovisions for dereciation on investments

=ening balance

Provisions made during the eriod

5rite/off

5rite bac" of e9cess rovisions

6losing balance

2-/(55

-8(,-

,48(+7

FF

++/(8/

/67(,/

-75(,2

-2(68

FF

2-/(55

"a*)e 5

5(6 M"3#"%' %& CRE1" RSG:

Mitigation of credit ris"s and enhancing a!areness on identification of aroriate

collateral ta"ing into account the sirit of Basel II C 'BI guidelines and

=timi@ing the benefit of credit ris" mitigation in comutation of caital charge as

er aroaches laid do!n in Basel II C 'BI guidelines.

+he Ban" generally relies on 'is" Mitigation techni0ues li"e ?oan articiation#

6eiling on 9osures# scro! mechanism# aluation methodologies are detailed

in the 6redit 'is" Management Policy.

G


69/152

Ban" accets guarantees from individuals !ith considerable net !orth and the

6ororate. =nly guarantees issued by entities !ith a lo!er ris" !eight than the

counterarty shall be acceted to get the rotection for the counterarty e9osure.

All tyes of securities eligible for mitigation are easily reali@able financial

securities. As such# resently no limit C ceiling has been rescribed to address the

concentration ris" in credit ris" mitigates recogni@ed by the Ban"

5(8 Po)icies and processes for co))atera) va)uation and management:

6ollaterals and guarantees roerly ta"en and managed !ould serve to$

mitigate the ris" by roviding secondary source of reayment in the

event of borro!er:s default on a credit facility due to inade0uacy in

e9ected cash flo! or not

gain control on the source of reayment in the event of defaultL

rovide early !arning of a borro!er:s deteriorating reayment

abilityL and

=timi@e ris" !eighted assets and to address 'esidual 'is"sade0uately.

6ollateral Management rocess and ractices of the Ban" cover the entire

activities comrising security and rotection of collateral value# validity of

collaterals and guarantees# and valuation C eriodical insection.

1. 9a)uation:Both the


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2. 1escription of t!e main types of co))atera) taken *y t!e Bank:+he main

tyes of collateral commonly used by the Ban" as ris" mitigants comrises

of Inventories# Boo" debts# Plant E Machineries# ?and E Building# Fold

(e!ellery#


71/152

and evaluation of effectiveness of collateral management including ris"

concentrations of collaterals.

QUANTITATIVE DISCLOSURES:

(Rs. in Crore)

SL NO PARTICULARS AMOUNT

31.03.2010 31.03.200

1 The total exposure (after, whereapplicable, on- or off balance sheetnetting) that is covered by eligiblefinancial collateral after the application ofhaircuts for each separately disclosedcredit risk portfolio.

1!12.! 12"#1.2

2 The total exposure (after, whereapplicable, on- or off-balance sheetnetting) that is covered byguaranteescredit derivatives (wheneverspecifically per!itted by "#$) %or eachseparately disclosed portfolio

1#!3#.2$ 11!21.0

T%&'e "

5(/7 Mitigation "ec!niAues:

+he Ban" is re0uired to have a system for monitoring the overall comosition and0uality of the various ortfolios since credit related roblems in ban"s is

concentration !ithin the credit ortfolio. It can ta"e many forms and can arise

!henever a significant number of credits have similar ris" characteristics. Also the

Ban" !ill not necessarily forego boo"ing sound credits solely on the basis of

concentration. Ban" may use alternatives to reduce or mitigate concentration.

%uch measures !ill include

a. ricing for additional ris"#

b. increased holdings of caital to comensate for the additional ris"#

c. ma"ing use of loan articiation in order to reduce deendency on a

articular sector of economy or grou of related borro!ers

1


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d.


73/152

+he rocess aims to

stablish a ro/active mar"et ris" management culture to cover mar"et

ris"s.

6omly !ith all relevant legislation and regulatory re0uirements relating to

Mar"et 'is"

Develo consistent 0ualities in evolving olicies E rocedures relating to

identification# measurement# management# monitoring# controlling and

revie!ing of Mar"et 'is".

stablish limit structure and triggers for various "inds of mar"et ris" factors

stablish efficient monitoring mechanism by setting u a strong reorting

system.

Adot indeendent and regular evaluation of the mar"et ris" measures.

5(/+ "!e structure and organi=ation of t!e re)evant risk management

function: Mar"et 'is" Management structure of the Ban" is as under/

1. Board of Directors

*. 'is" Management 6ommittee of the Board

2. Asset ?iability Management 6ommittee &A?6=)

8. Mar"et 'is" Management 6ommittee

;. Feneral Manager/' M 5ing &6hief 'is" Management officer)

. Mar"et 'is" Management Deartment# 'is" Management 5ing H=

2


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/ Integrated Mid =ffice

/ Asset ?iability Management %ection

5(/, "!e scope and nature of risk reporting andor measurement systems:

+he Ban" has ut in lace various e9osure limits for mar"et ris"

management such as =vernight limit# Intraday limit# Aggregate Fa limit#

%to ?oss limit# >a' limit# Bro"er +urnover limit# 6aital Mar"et 9osure

limit# Product/!ise 9osure limit# Issuer/!ise 9osure limit etc.

A ris" reorting system is in lace for monitoring the ris" limits across

different levels of the Ban".

+he rates used for mar"ing to mar"et for ris" management or accounting

uroses are indeendently verified.

+he reorts are used to monitor erformance and ris"# manage business

activities in accordance !ith the Ban"s strategy.

+he reorting system ensures timelines# reasonable accuracy !ith

automation# highlight ortfolio ris" concentrations# and include !ritten

commentary.

+he reorts are fle9ible and enhance decision/ma"ing rocess.

Dealing room activities are centrali@ed# and system is in lace to monitor

the intraday e9osure on real time basis.

+he reorting formats E the fre0uency are eriodically revie!ed to ensure

their ade0uacy for ris" monitoring# measuring and mitigation.

5(/- Po)icies for !edging andor mitigating risk and strategies and processes

for monitoring t!e continuing effectiveness of !edgesmitigants:

8


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>arious Board aroved olicies vi@.# Mar"et 'is" Management Policy# 6ountry

'is" Management Policy# 6ounterarty Ban" 'is" Management Policy#

Investment Policy# ?i0uidity 'is" Management Policy and A?M Policy are ut in

lace for mar"et ris" management. Mar"et 'is" Management Policy rovides the

frame!or" for ris" identification# assessment and measurement and mitigation#

ris" limits E triggers# ris" monitoring and reorting.

+he Ban" has develoed an internal model for country ris" rating based on various

arameters li"e FDP gro!th# inflation# trade balance etc for ris" categori@ation of

the countries to allocate limit for ta"ing e9osure to various countries.

+he Ban" has in lace a scoring model for categori@ation of foreign ban"s under

6ounterarty 'is" Management Policy. +he various e9osure limits are set based

on the oints secured by the counterarties as er the scoring matri9.

?i0uidity 'is" Management Policy lays do!n various guidelines to ensure that the

li0uidity osition is comfortable at times of stress by formulating contingency

funding lan. +olerance levels are incororated under each time frame and any

breach of it !ould signal a forthcoming li0uidity constraint.

QUANTITATIVE DISCLOSURES

(Rs. in Crore)

SL NO PARTICULARSAMOUNT O CAPITAL REQUIREMENT

31.03.2010 31.03.200

(%) Ineres R%e Ris* 23.2+ 30#.00

(&) E,-i Posiion Ris* 222.23 1++.+#

(/) orein E/%ne Ris* #.+! #.+!

T%&'e

;


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5(/2 %PER#"%'#$ RSG:

+he =erational 'is" Management rocess of the Ban" is driven by a strong

organi@ational culture and sound oerating rocedures# involving cororate values#

attitudes# cometencies# internal control culture# effective internal reorting and

contingency lanning. Policies are ut in lace for effective management of

=erational 'is" in the Ban".


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5(/4 "!e structure and organi=ation of t!e re)evant risk management

function: +he =erational 'is" Management %tructure in the Ban" is as under$

1. Board of Directors

*. 'is" Management 6ommittee of the Board

2. =erational 'is" Management 6ommittee &='M6)

8. FM of 'is" Management 5ing# H= &6hief 'is" Management =fficer)

;. ='M %ecialists in functional 5ings# H=

. =erational 'is" Management Deartment &='MD)# H=

. 'is" =fficers 7 +he nominated 9ecutive at 6irclesC+reasury 5ing

G. 'is" Management and 6redit 'evie! %ections at 6ircles

. 'is" Management =fficers &'.M.=) at BranchesC=ffices.

5(/5 "!e scope and nature of risk reporting andor measurement systems:

+he 'is" reorting consists of oerational ris" loss incidentsCevents occurred in

branchesCoffices relating to eole# rocess# technology and e9ternal events. +he

data collected from different sources are used for rearation of 'is" Matri9

consisting of loss event tyes and G business lines recogni@ed by the 'BI.

5(/6 Po)icies for !edging andor mitigating risk and strategies and processes

for monitoring t!e continuing effectiveness of !edgesmitigants:


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+he Ban" has ut in lace the follo!ing olices ertaining to =erational 'is"

Management.

%perationa) Risk Management Po)icy: +he Policy covers the terms of

=erational 'is"# ris" management structure# identification# assessment#measurement and monitoring of =erational 'is".

%utsourcing Po)icy: +he Policy covers all tyes of outsourcing

arrangements including financial services entered into by the Ban" !ith a

service rovider located in India or else!here. +he Policy also covers the

activities# !hich are art of core function of the management and are not

ermitted to be outsourced.

Po)icy on nsurance Cover for %perationa) Risks:+he Policy covers role

of insurance in oerational ris" management as a mitigation measure#ob4ectives and advantages of insurance olicy# evaluation !hile ta"ing

insurance olicies etc.

Business )ine Po)icy:Based on 'BI guidelines# Business line Policy is ut

in lace# !hich is being revie!ed annually.

$ega) Risk Management Po)icy: +he Ban" has ut in lace ?egal 'is"

Management Policy# !hich covers ob4ectives# assessment# nature#

mitigation of ?egal 'is" etc.

Po)icy on Business Continuity P)an for %verseas Branc!es:+he Ban" has

ut in lace olicies for Business 6ontinuity Plan !hich covers ?ondon#

Hong ong# %hanghai Branches.

Comp)iance Po)icy:+he Ban" has in lace a 6omrehensive 6omliance

Policy. As er the Policy adoted by the Ban"# suitable organi@ational

structure has been laid do!n defining the roles and resonsibilities for

6omliance =fficers of various 5ings# Deartments# %ubsidiaries# 6ircle=ffices# other oerating units# branches both in India and abroad as also

9change Houses abroad# so as to address grou !ide and multi

4urisdictional 6omliance 'is". %uitable reorting system is also ut in

lace to ensure effective imlementation of 6omliance Policy Ban" !ide.

G


79/152

5(/8 %perationa) Risk capita) assessment:

+he Ban" has adoted Basic Indicator Aroach for calculating caital charge for

=erational 'is"# as stiulated by the 'eserve Ban" of India.

Basic indicator aroach# %tandardised aroach and Advanced Measurement

Aroach are the three methodologies allo!ed under Basel II for arriving at the

caital charge for oerational ris". 'BI has advised the ban"s to aly the Basic

Indicator Aroach to migrate to Basel II in the beginning. Under Basic indicator

aroach# ban"s have to hold caital for oerational ris" e0ual to a fi9ed

ercentage of the average of ositive annual gross income over the revious 2

years. +hus# caital charge under Basic indicator aroach Bia T &FI C n) 9 A#

!here#

J Bia T 6aital charge under Basic Indicator Aroach

J FI T +otal gross income over the revious three years

J A T 1;Q

J n T 3o. of years i.e 2 years for !hich income is ositive.


80/152

C7a#ter /

CRE1" R#"'3 &R#ME

>%RG CR&

6( CRE1" R#"'3 &R#ME >%RG CR&

6(/ ntroduction:

6redit 'ating


81/152

to standardi@e and uniformly communicate the 4udgment in credit selection

rocedure and not as a substitute to the vast lending e9erience accumulated by

the Ban"s rofessional staff.

In line !ith the guidelines of 'BI# the Ban" has roosed to bring in all the

borro!ed accounts &%tandard accounts) !ith limits of 's.* la"h and above under

the urvie! of credit ris" rating. Ho!ever# the rating model that !ill be alied

varies according to the tye C e9tent of e9osure to suit the borro!ers activities.

+he Ban" is utili@ing their o!n internal 6redit 'ating Model for grading the

borro!ed accounts so far.

+he grades used in the internal credit ris" grading system should reresent !ithout

any ambiguity# the default ris"s associated !ith an e9osure. +his system shall

also enable the Ban" to underta"e comarison of ris" for the urose of analysis

and decision ta"ing. 3umber of grades used in 6'< deends on the anticiated

sread in credit 0uality of the e9osure of the Ban". +he more the number of

grades on the rating scale# the more the re0uirement of information. Hence# 'BI

suggests that the Ban" can initiate the ris" grading activity on a relatively smallerscale initially and introduce ne! categories as the ris" gradation imroves. As

suggested by 'BI the level in the grading scale and the cut off level for

,Accetable and unaccetable credit ris"K are$

+he calibration on the rating scale !ill allo! rescrition of limits on the

ma9imum 0uantum of e9osure ermissible for any credit roosal. +he 0uantum

!ould deend on the credit score on the 6'


82/152

1) Minimum 6urrent 'atio of 1.22 consistently for the last 2 years.

*) Minimum 6urrent 'atio of 1.1 and

2) 6urrent 'atio of at least 1.-- is stiulated for e9cetional cases.

As regards e9it# the Ban"s ?oan Policy ermits for e9it even !hen the account

remains under %tandard category if any !arning signals are seen. +he other mode

available# if comlete e9it is felt imossible# by containing the e9osure at the

same level# ris" articiation and ot for recovery !herever !arranted.

+he assignors of ris" ratings utili@e bench mar" or re secified standards for

assessing the ris" rofile of the borro!er# esecially# the financial ratios# are

directly comared !ith the secified bench mar"s.


83/152

roortion to the ris" of the loan in Ban":s Boo"s for measurement of !hich

roer 6redit 'is" 'ating system is necessary.

8. +he credit ris" rating can be a 'is" Management tool for rosecting fresh

borro!ers in addition to monitoring the !ea"er arameters and ta"ing remedial

action.

+he 6redit 'is" 'ating method is used by Ban":s 6redit officers#

+o gather "ey information about ris" areas of a borro!er and

+o arrive at a ris" score that !ould reflect the borro!er:s

credit!orthinessCdegree of ris".

6(, Credit Rating:

+he Bank considers rating of a *orro.a) account as an important too) to

manage t!e credit risk associated .it! any *orro.er and according)y a Kt.o

dimensiona) credit rating systemK!as introduced in the Ban". %oft!are driven

rating C scoring models for different segments have been customi@ed to suit theBan"s re0uirements.

6redit 'ating

1. =bligor 'ating


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*.


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e9osures.

&i.e. above 's. *-- lacs)

Model &'AM)

6MCDM A3D AFM +yically medium si@ed

9osures. &i.e. above 's.2-

lacs)

Manual 'ating Model.

B'A36H P=5'

A66=U3+

+yically small value

9osures.

Portfolio Model Aroach

"a*)e /7

+he ugraded 6'I%I?s 'AM model for DFM Po!er accounts and above hasbeen got aroved by the Board and is introduced in Bangalore 6ircle initially on

a ilot basis and shall be got e9tended to all circles in a hased manner.

6(2 1raft guid)ines on E)igi*i)ity Periodicity etc( app)ica*)e to manua) rating

mode) for CM1M D #3M po.er accounts:

+he Manual Model develoed by the Ban" is alicable in resect of all accounts

falling under the 6MCDM and AFM o!ers e9ceting the follo!ing categories$

1. ?oans under 'etail lending schemes# e9ceting loans under +raders %cheme#

but including educational loans.

*. Individual non riority loans for non roductive urose.

2. Agricultural loans including gold loans.

8. Any other schematic loans.

;. %taff loans.

G;


86/152

. >aluable %ecurity loans and other loans against the rime security of

aroved securities.

. Premises loans

+he models are designed for 2 categories vi@.# Industrial accounts# +rading

accounts and 3e! accounts. +his is based on the remise that any activity

underta"en for roductive urose can be classified under these broad categories.

Activities such as 6onstruction contractors# 'eal state# 6ommission Agents etc

may not strictly fall into either industrial or trading activity. Ho!ever# for the

limited urose of ris" rating a borro!er coming under the above categories# the

follo!ing may be ta"en note of$

1. 6onstruction contractors# 'eal state may be brought under industrial

accounts model.

*. 6ommission agents or any intermediary activity may be brought under

trading model.

If manufacturing activity is not there# ma4or ortion of the sales is by trading# then

it may be ta"en under trading model.

,3e! accountsK for the limited urose of ris" rating may include accounts !hich

have dealings !ith our ban" u to a eriod of * years.

In resect of +erm loans# !herever ro4ect araisal is re0uired to be underta"en#

rating e9ercise of such accounts may be underta"en after receit of P


87/152

In resect of arties en4oyingCsee"ing only non fund based limits also# the rating

e9ercise has to be underta"en e9ceting in instances !here 1--Q margin is

available.

In resect of 6onsortium accountsCMBA accounts# !here our Ban"s share falls

!ithin 6MCDM E AFM o!ers# rating shall be done using this model.

Periodicity:

'is" 'ating of a borro!al account shall be done before sanction of a fresh

loanClimits and rene!al of limits !ith a eriodicity not e9ceeding one year.

In resect of accounts# !here the tenability of limits have been e9tended# ris"

rating shall be carried out on the e9iry date of limits# even though rene!al of

limits have not ta"en lace.

In resect of single transaction +erm ?oans &!here the arty is not en4oying any

56 limits) rating shall be done annually. 'is" rating shall be done based on

audited balance sheet only. In case of non/availability of AB% as at the time of

rene!al# rating shall be done based on the revious years AB%# if not done

already. If it is done already# the same shall be continued. In such cases# rating

shall be done immediately on receit of AB% !ithout !aiting for rene!al.

#ut!ority for rating:

+he recommending Authority for the 6redit 'is" rating shall be the Manager

&6redit)# in resect of >?BC?Bs and the Manager in/charge# '= in resect of '=

o!er accounts.

%anctioning authority !ill be vested !ith the o!er for confirming the rating of an

account. In resect of ?BC>?Bs# the rating !ill be done at the branch level itself

and the rating !ill be confirmed by the resective AFMC6M of the branch. In

G


88/152

resect of '= o!er accounts# branches shall ensure to furnish all the re0uired

articulars to the concerned '= !hile submitting the credit reort at the time of

rene!al &as er the Anne9ure).

+here may be instances of borro!al accounts falling under higher authoritys

o!ers# than AFMCDM for reasons such as current ratio less than 1# grou

concet# ta"eover of borro!al accounts etc. In such cases# '=s after obtaining

relevant articulars from the branch ris" rate the account and the same shall form a

art of the roosal. In short# for the urose of ris" rating an account under

Manual model# the 0uantum of limit roosed shall be the guiding factor and not

the sanctioning authority !herever the sanctioning authority haens to be above

the ran" of AFM.

+here may also be cases# !here an account !hich is falling under normal branch

o!ers but comes under '= o!ers for any of the reason such as current ratio is

less than 1# grou concet etc. In such accounts# ris" rating as er manual model

need not be underta"en since for branch o!er accounts searate ortfolio model

aroach !ill be ut in lace in due course.

3ormally# ris" rating e9ercise is alicable only in case of %tandard assets.

Ho!ever# there may be accounts !hich may fall into substandard category# !here

the unit is running and the ban" may be contemlating revivalCrehabilitation.

Hence# ris" rating e9ercise may have to be carried out in such cases also !here

oerations are ermitted&either holding on oeration or regular rene!alCe9tension)

in the account till such time# a final decision is ta"en on the account to initiate

recovery stes or other!ise.

In resect of accounts !hich are classified DoubtfulC?oss assets and also accounts

!hich are mar"ed for recovery# all such accounts may be classified under Highest

GG


89/152

'is" category.&'is" rating of such accounts may not be ossible for !ant of

re0uired articulars) Ho!ever# if rehabilitation is ta"en u after the account is

transferred to DoubtfulC?oss or ?PD category# then the same shall be ris" rated

before any rehabilitation is ta"en u.

Due to enhancement in limits in bet!een t!o rene!als andCor due to single

transactionCadhoc limits# an account may come under the urvie! of 6MCDM or

AFM o!er.&reviously# the account !ould have been under branch o!ers and

might not have been ris" rated ) In such cases# the ris" rating e9ercise has to be

underta"en and the branch shall furnish necessary articulars along !ith the

roosal.

+hough +'AD'% %6HM is brought under the urvie! of 'etail lending

schemes# accounts under +raders scheme falling under 6MCDM EAFM o!ers

!ill have to be ris" rated.

+he grade allotted to an account during the ris" rating shall be mentioned in the

Mid +erm 'evie! of the account and the ma4or ris" factors# if any# may be

commented uon. &alicable only in resect of AFM o!er accounts)

&i.e. III# I># >) the

borro!er has to necessarily obtain a minimum score of * under


90/152

C7a#ter 0

RSG #SSESME'"M%1E$S

0! Risk Assessment Mode$s

8(/ ntroduction:

-


91/152

6redit ris" assessment and measurement is through the internal rating rocess.

Ban" !ould enlarge the system to cature various credit ris" comonents

&Probability of Default# ?oss Fiven Default) over a eriod and in tune !ith the

Ban"s rearedness for adation of advanced aroaches on caital ade0uacy

frame!or" of Basel II. +he ris" rating of eligible borro!ers is a re sanction

e9ercise as er Ban"s olicy. +he measurement of ris" is achieved through the

credit ris" rating and scoring models ut in lace by the Ban". +he credit ris"

assessment hels the Ban" to measure !hether the otential borro!ers !ill be able

to meet their loan obligation in accordance !ith the contractual agreements. All

borro!ers !ith limit of * la"hs and above are to be rated individually and underthe aroriate ris" rating models develoed for the urose. +he rating !ill be

based on financial reorts as !ell as recent information available !ith the Ban".

8(+ Rating Mode):

+he 6redit 'is" 'ating is conducted using any of the follo!ing 8 models as

alicable.

/( Risk #ssesment Mode) R#M:

+his model is alicable for the borro!al accounts !ith sanctioned limit of

over 's.* crore.

+( Manua) Mode):

+his is alicable for borro!al accounts !ith sanctioned limit of over

's.*- lacs and not more than 's.* crore.

,( Sma)) 9a)ue Mode):

1


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+his model is alicable for borro!al accounts !ith sanctioned limit of

's.*.-- la"hs and not more than 's.*-.-- la"hs.

-( Portfo)io Mode):

+he Borro!al accounts of aggregate limits belo! 's. * lacs and borro!al

accounts !here financial statements are ris" rated under ortfolio model#

duly grouing the accounts as near homogenous ool based on category of

borro!ers and loan schemes C segment. +he model covers rating of

borro!al accounts classified under Priority and non riority segments. +he

riority sector loans include both Direct and Indirect Agricultural loans#

and 3on riority sector loans include those under schematic lending under

'etail schemes.

+he Ban" has several models under 'AM develoed for sub4ecting the borro!ers

to 6redit 'is" 'ating and the models are secific for segments vi@. ?arge

cororate# ?arge traders# %mall traders# M%M# 3B


93/152

+he 'is" rating models are sub4ected to revie!. As and !hen the need is felt# the

models are revie!ed and refined based on the ris" ercetion# ast e9erience and

changes in the Ban"s lending olicy. Ban" shall revie! the aroriateness of the

rating system and validity of grading criteria on an ongoing basis.

=nce the ris" rating e9ercise at 6ircle under 'AM stabili@es and MI% related to

rating !ill be available# the follo!ing measures !ill be attemted$

%tiulating 0uantitative e9osure cealing based on rating categories.

9and the alicability of Pricing of credit lin"ed to credit ris" rating to

more e9osure.

Using credit ris" rating decision ma"ing tool in resect of all accounts.

6onducting migration analysis and estimation of robability of defaults of

different segments of business.

9it olicy 7 In order to define the 9it olicy formally# Ban" need to have

a default model to redict the Probability of Default &PD). At resent the

Ban"s e9it olicy stiulates that account rated as High ris" shall be

monitored closely and decision ta"en for e9it from the e9osure.

2


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Risk gradation sca)e for manua) rating mode) .ou)d *e as under:

%vera)) Risk

Score Range

%;" %& /27

Risk

3rade

L

1E&'"%' %&

RSG

3R#1E 1E&'"%'

V1-- ?o! 'is" / ?' 2 F==D

VG; but W1-- 9 3ormal 'is" Average !ith relatively higher

standing

V- but W G; 9 Moderate 'is" Average !ith relatively lo!er

standing

V;; but W - 9 High 'is" 7 H' 1 Belo! average !ith relatively

higher standing

V8- but W ;; 9 High 'is" 7 H' * Belo! average !ith relatively lo!er

standing

W than 8- 9 High 'is" / H' 2 Poor

"a*)e //

L "!ere .i)) *e no grade under D in Manua) Mode) Rating as t!e rating is capped at

3rade as suggested *y BM BCS(

8


95/152

8(,1raft va)ue statements for industria) accounts under manua) mode) for

CM1MD #3M po.er accounts

/ Management 0ua)ity :

(a) Management Experience :

i) +he romoters have been in the trade for more than a decade and are

!ell e9erienced.

5

ii) +hough the romoters are in the trade over ; years# they are !ell

suorted by e9erienced rofessional directorsCemloyees.

4

iii) +he romoters are in the trade for 8 to ; years but rofessional bac"

uCe9erience is lac"ing.

iv) Management is totally ne! in the venture !ithout ade0uaterofessional e9ertise.

!

(b) Succession p"anning :

i) +here is a !ell defined delegation of duties and resonsibilities and

the unit is run !ith a good strategy for succession

ii) Delegation and role lay is !ell defined but no lans for succession. !

iii) +he management deends on a fe! rofessionals !ithout any lan forsuccession

#

iv) +here is one man sho! in the conduct of affairs of the 6omany. $

(c) %inancia" contro" :

i) Management has got a rigid control over financial lanning and

deviations from the lan are negligible.

4

ii)


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e9enditure

(&) 'abour Re"ations :

i) Maintaining e9cellent industrial relations and no stri"eClabour unrest

over the ast 2 to ; years.

ii) ?abour relations are satisfactorily maintained !ith occasional

disrutions.

!

iii) 6hances of disrutions due to labour relations are envisaged due to

lac" of olicy guidelines.

#

iv) 6hances of disrutions due to labour relations are high. $

+ &inancia) Reporting MS Rene.a) of )imits :

(a) Submission of ASPS* Rene+a" papers :

i) %ubmission is !ithin one month from balance sheet dateCe9iry date 5

ii) %ubmission is !ithin 2 months from balance sheet dateCe9iry date 4

iii) Delay in submission is !ithin months from balance sheet

dateCe9iry date

iv) Inordinate delay &more than months) observed !

(b) Submission of %ee& ack ,ata :

i) %ubmissions is romt !ithin the stiulated date 5

ii) %ubmission is satisfactory# !ithin a normal delay of days from the

due date

4

iii) Delay of more than a !ee" but !ithin 1; days from the stiulated date

iv) 3ot being submitted regularly. #

, #ccount Be!aviour"rack Record :


97/152

(a)Repament of nsta"mentnterest,e/o"/ement of '001e2ue i""

Returns 3ransgressions :

i) 3o such irregularity during the revie! eriod

ii) 3o such irregularity during the revie! eriod e9ceting for occasionaltransgressions

iii) Delay in ayment of interestCfre0uent transgressions are observed

during the revie! eriod

4

iv) Delay in ayment of instalmentCinterest# occasional devolvement#

gre0uent transgressions# invocation of BF etc.

!

(b) 0omp"iance of Sanction 3erm

risk management in canara bank

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