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Risk Management of Sbi

Risk Management of Sbi

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Published by: Tanay Pandey on Nov 28, 2012
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RISK MANAGEMENT

Presented by: Arpit Gupta Anindya Majumdar Deepak Jaiswal Tanay Pandey

State Bank of India-Brief History •Largest and oldest bank of India •Key numbers for fiscal year ending March, 2011: •Sales: $32,570.0M •One year growth: 9.6% •Net income: $2,462.9M •Income growth: (7.7%) •Non-banking subsidiaries •Apart from its five associate banks, SBI also has the following nonbanking subsidiaries: •SBI Capital Markets Ltd •SBI Funds Management Pvt Ltd •SBI Factors & Commercial Services Pvt Ltd •SBI Cards & Payments Services Pvt. Ltd. (SBICPSL) •SBI DFHI Ltd •SBI Life Insurance Co. Ltd. •SBI General Insurance

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SBI term deposits SBI housing loan SBI car loan SBI recurring deposits SBI educational loan SBI personal loan SBI play important role in economic development of a country. 5. 2. 4. like:1.Promotes the habit of savings among the people offering attractive rates of interests on their deposits. 6. 2. Mobilise the small savings of the people and make them available for productive purposes.State bank Of India is expanding its Credit in the following focus areas1. . 3.

which results in acceptance. people and systems or from external events. It is the risk remaining after determining financing and systematic risk.OPERATIONAL RISK MANAGEMENT Operational risk is the risk of loss resulting from inadequate or failed internal processes. and implementation of risk controls. or avoidance of risk. • . • Operational Risk Management is a continual cyclic process which includes risk assessment. This includes legal risk but excludes strategic and reputational risk. risk decision making. mitigation.

 Accept no unnecessary risk.ORM Principles of ORM:  Accept risk when benefits outweigh the cost.  Anticipate and manage risk by planning. Levels of ORM:  In Depth Risk Management  Deliberate risk management  Time Critical risk management .  Make risk decisions at the right level.

Dependencies on third party key service providers such as the central and / or commercial banks. telecommunications. code of conduct. power. Human errors or failures through lack of resources.OPERATIONAL RISKS FACED    Infrastructure and technology failures covering computer systems. training. and poor management. . or resource failures from such incidents as a pandemic. data and physical records. delegations. and other outsourced operations. skills. telecom and internet providers. policies. procedures.

may have an adverse effect on a financial institution’s capital and earning . .WHAT IS RISK It is the potential that events expected or unexpected .

KEY BANKING RISK Credit Risk  Market Risk Liquidity Risk  Forex Risk Interest Risk  .

CREDIT RISK Credit risk is the potential loss due to the nonperformance of a financial contract. or financial aspects of nonperformance in any contract. since companies often go bankrupt . .  Counter party risk  Bonds issued by corporations are more likely to be defaulted on.

 Credit risk may be on account of :• Default Risk Obligor cannot service debt obligations.  . • Spread Risk Because of change in the credit quality of the obligor.CREDIT RISK BASICS A credit risk is the risk of loss that may occur from the failure of the counter party to make payments.  Reduction in the ability of counter-party to make payments.

Ensuring adequate controls over credit risk. .BROAD PRINCIPLES OF CREDIT RISK MANAGEMENT IN BANKS. Establishing an appropriate credit risk environment . Role of bank supervisors in ensuring that banks have a effective system in place to identify measure monitor and control credit risk. Operating under a sound credit granting process .      Basel committee on banking supervision has issued broad guidelines for best practices in credit management.

 Trading book and Banking book.CONTRIBUTORS TO CREDIT RISK Credit Corporate assets .  .  Inter bank transactions.  Retail assets. Settlements.

30 Lacs @ 10% p.a.15% p.LENDING POLICIES OF SBI Home Loan Interest Rates. 1.a. Loan above Rs. Base Rates :. 30 lacs @ 10. .75% Loan upto Rs.9.

25% P.00% ABOVE BASE RATE. CURRENTLY 11.50 LACS 3.A.EDUCATION LOAN INTEREST RATES FOR LOANS UPTO RS.75% P. ABOVE RS.A.7. CURRENTLY 13.50% ABOVE BASE RATE. ABOVE RS.2.4 LACS AND UPTO RS.25% ABOVE BASE RATE.00% P.A. CURRENTLY 13.50 LACS 2.7.4 LACS 3. .

50% above Base Rate.75% above Base Rate. 0.25% above Base Rate i.e.a. 10. .50% p.e. 10. Loan Against-Shares/ Debentures /Bonds Equity Plus Scheme 6.e. currently 16.25% p.a 8. 18.75% above Base Rate.a. SBI-CAR LOAN Tenure Rate of Interest For all tenure For all tenures (For NRI) Up to 3 years 0. i.50% p. i.3.a.00% p.

2012 7% 13% Educion Loans Auto Loans others home Loans 54% 26% .COMPOSITION OF RETAIL BANKING LOANS.

GROWTH IN LENDING FOR Q1-2012 Jun-12 20.37 21.93 3.57 .3 Educaion Loans Auto Loans Others Home Loans 39.

LIQUIDITY RISK Liquidity Risk arises from funding of long term assets by short term liabilities. There are three dimensions of liquidity risk *Funding Risk *Time Risk *Call Risk . It refers to the inability of the bank to obtain funds to meet cash flow obligation. thereby making the liabilities subject to rollover or refinancing risk.

Gradual but persistent fall in the share price of the bank. Excessive concentrations on certain assets and funding sources. Increasing trend of deposit withdrawals. Reduction in available credit lines from correspondent banks. Deteriorating asset quality. Large contingent liability. .INDICATORS Internal indicators       Market indicators   Higher rate of interest on deposits.   Credit rating downgrades. Net deposit drain Increased cost of borrowings.

It involves making a structure for managing liquidity risk. setting up tolerance limit and making proper plans for measuring and managing liquidity risk. .LIQUIDITY RISK MANAGEMENT The liquidity risk management is vital for smooth functioning of the bank. and have as its major components: * The measurement of liquidity positions * Monitoring liquidity * Contingency planning. It must reflect the daily strategy and long term liquidity plans. There are some ratios which helps in judging the liquidity positions of a bank.

45 2009 51.83 .46 2010 77.RATIOS  Loan to total deposit 2007 55.17 2010 9.52 2010 53.02 2009 9.35 2011 10.11 Time deposit to total deposit 2007 58.14 2008 68.55 2011 73.72 2008 52.04 2011 58.84 2009 77.36 Liquid assets to total assets 2007 8.55 2008 9.

94 2010 73.51 2009 6.87 2008 74.06 2010 7.97 Prime assets to total assets 2007 4.CONTD.66 2011 8.88 2011 75.53 .79 2008 4. Deposit to total assets 2007 76.48 2009 74.

60 2010 3.63 2009 3.60 2009 0.96 2010 3.29 2011 3. Non performance loans to loans 2007 6.87  Risk adjusted margin 2007 4.42 2010 0.46 .48 2011 0.22 Total loan loss provisions to loans 2007 0.32 2008 4.59 2008 0.08 2011 2.97 2009 2.15 2008 3.

SBI’S LIQUIDITY RISK MANAGEMENT Risk Management committee of the board (RMCB) oversees the policy and strategy for integrated risk management relating to various risk exposures including market liquidity risk.  .  The Bank monitors its liquidity position through a structural liquidity gap analysis carried out fortnightly in accordance with RBI guidelines on asset liability management.

 .CONTD.  Prepare the statement of structural liquidity on a daily basis . RBI has asked banks to manage their assetliability structure such that the negative liquidity gap in the periods of 1-14 and 15-28 days does not exceed 20% of cash outflow in these same periods. The statement of structural liquidity is reported to RBI once a month.

 CAR of SBI was less than 9% in 2011.infusion of Rs.  .  Last year . Capital adequacy ratio mandates setting aside a certain percentage of capital for every rupee lent.BASEL II NORMS The SBI and its associate will require around Rs.8000 crore was made.1 lakh crore of capital over the next five years to meet basel III norms.

“ Banking is an art of striking a balance between risk and revenue” [Swiss Banking Corporation’s Credit Manual] .

.Thank You.

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