Credit Risk Management in State Bank of India

Credit Risk Management in State Bank Of India
EXECUTIVE SUMMARY
KLEs Institute of Management Studies and Research, Hubli
TITLE OF THE PROJECT
BACK RO!"# OF PROJECT TOPIC$

Credit risk is defined as the potentia that a !ank !orro"er or #o$nterpart% "i fai to meet its o! igations in a##ordan#e "ith agreed terms& or in other "ords it is defined as the risk that a firm's #$stomer and the parties to "hi#h it has ent mone% "i fai to make promised pa%ments is kno"n as #redit risk The e(pos$re to the #redit risks arge in #ase of finan#ia instit$tions& s$#h #ommer#ia !anks "hen firms !orro" mone% the% in t$rn e(pose enders to #redit risk& the risk that the firm "i defa$ t on its promised pa%ments) As a #onse*$en#e& !orro"ing e(poses the firm o"ners to the risk that firm "i !e $na! e to pa% its de!t and th$s !e for#ed to !ankr$pt#%)
IMPORTA"CE OF THE PROJECT

The pro+e#t he ps in $nderstanding the # ear meaning of #redit Risk Management In State Bank Of India) It e(p ains a!o$t the #redit risk s#oring and Rating of the Bank) And a so St$d% of #omparati,e st$d% of Credit -o i#% "ith that of its #ompetitor he ps in $nderstanding the fair #redit po i#% of the Bank and Credit Re#o,er% management of the Banks and a so its ke% #ompetitors)
OBJECTI%ES OF PROJECT 1) To St$d% the #omp ete str$#t$re and histor% of State Bank Of India) .) To kno" the different methods a,ai a! e for #redit Rating and $nderstanding the #redit rating pro#ed$re $sed in State Bank Of India) /) To gain insights into the #redit risk management a#ti,ities of the State Bank Of India) 0) To kno" the RBI 1$ide ines regarding #redit rating and risk ana %sis) 2) St$d%ing the #redit po i#% adopted Comparati,e ana %ses of -$! i# se#tor and pri,ate se#tor) METHO#OLO &$
#ATA COLLECTIO" METHO#

To f$ fi the o!+e#ti,es of m% st$d%& I ha,e taken !oth into #onsiderations ,i3 primar% 4 se#ondar% data)
Primar' data$ -rimar% data has !een #o e#ted thro$gh persona inter,ie" !% dire#t
#onta#t method) The method "hi#h "as adopted to #o e#t the information is 5-ersona Inter,ie" method) -ersona inter,ie" and dis#$ssion "as made "ith manager and other personne in the organi3ation for this p$rpose)
Se()ndar' data$ The data is #o e#ted from the Maga3ines& Ann$a reports& Internet&
Te(t !ooks)
Credit Risk Management in State Bank Of India The ,ario$s so$r#es that "ere $sed for the #o e#tion of se#ondar% data are o Interna fi es 4 materia s o 6e!sites 7 Vario$s sites ike """) sharekhan)#om """)indiainfo ine)#om """)s!i)#o)in """)in,estopedia)#om """))"ikepedia)#om and other site
Findings$
-ro+e#t findings re,ea that SBI is san#tioning ess Credit to agri#$ t$re& as #ompared "ith its ke% #ompetitor's ,i3)& Canara Bank& Corporation Bank& S%ndi#ate Bank Re()*er' )f Credit$ SBI re#o,er% of Credit d$ring the %ear .889 is 9.)0: Compared to other Banks SBI 5s re#o,er% po i#% is ,er% good& hen#e this red$#es ;-A
T)ta+ Ad*an(es$ As #ompared tota ad,an#es of SBI is in#reased %ear !% %ear)
State Bank Of India is granting #redit in a
se#tors in an E*$ated Month %
Insta ments so that an% !od% #an !orro" mone% easi % -ro+e#t findings re,ea that State Bank Of India san#tioning more oans as #ompared to other Banks) State !ank Of India is e(panding its Credit in the fo o"ing fo#$s areas< 1) .) /) 0) 2) 9) SBI Term =eposits SBI Re#$rring =eposits SBI >o$sing ?oan SBI Car ?oan SBI Ed$#ationa ?oan SBI -ersona ?oan @et# is ending more #redit or
Credit Risk Management in State Bank Of India In #ase of indire#t agri#$ t$re ad,an#es& SBI is granting /)1: of ;et Banks Credit& "hi#h is ess as #ompared to Canara Bank& S%ndi#ate Bank and Corporation Bank) SBI has to entertain indire#t se#tors of agri#$ t$re so that it #an ha,e more n$m!er of !orro"ers for the Bank) SBI's dire#t agri#$ t$re ad,an#es as #ompared to other !anks is 18)2: of the ;et Bank's Credit& "hi#h sho"s that Bank has not ent eno$gh #redit to dire#t agri#$ t$re se#tor) Credit risk management pro#ess of SBI $sed is ,er% effe#ti,e as #ompared "ith other !anks)
RECOMME"#ATIO"S$
The Bank sho$ d keep on re,ising its Credit -o i#% "hi#h "i he p Bank's effort to #orre#t the #o$rse of the po i#ies The Chairman and Managing =ire#torAE(e#$ti,e =ire#tor sho$ d make modifi#ations to the pro#ed$ra g$ide ines re*$ired for imp ementation of the Credit -o i#% as the% ma% !e#ome ne#essar% from time to time on a##o$nt of organi3ationa needs) Banks has to grant the oans for the esta! ishment of !$siness at a moderate rate of interest) Be#a$se of this& the peop e #an repa% the oan amo$nt to !ank reg$ ar % and prompt %) Bank sho$ d not iss$e entire amo$nt of oan to agri#$ t$re se#tor at a time& it sho$ d re ease the oan in insta ments) If the # imati# #onditions are good then the% ha,e to re ease remaining amo$nt) SBI has to red$#e the Interest Rate) SBI has to entertain indire#t se#tors of agri#$ t$re so that it #an ha,e more n$m!er of !orro"ers for the Bank)
CO"CL!SIO"$
The pro+e#t $ndertaken has he ped a ot in gaining kno" edge of the BCredit -o i#% and Credit Risk ManagementC in ;ationa i3ed Bank "ith spe#ia referen#e to State Bank Of India) Credit -o i#% and Credit Risk -o i#% of the Bank has !e#ome ,er% ,ita in the smooth operation of the !anking a#ti,ities) Credit -o i#% of the Bank pro,ides the frame"ork to determine DaE "hether or not to e(tend #redit to a #$stomer and D!E ho" m$#h #redit to e(tend) The -ro+e#t "ork has #ertain % enri#hed the kno" edge a!o$t the effe#ti,e management of BCredit -o i#%C and BCredit Risk ManagementC in !anking se#tor) BCredit -o i#%C and BCredit Risk ManagementC is a ,ast s$!+e#t and it is ,er% diffi#$ t to #o,er a the aspe#ts "ithin a short period) >o"e,er& e,er% effort has !een made to #o,er most of the important aspe#ts& "hi#h ha,e a dire#t !earing on impro,ing the finan#ia performan#e of Banking Ind$str% To s$m $p& it "o$ d not !e o$t of "a% to mention here that the State Bank Of India has gi,en spe#ia inp$ts on BCredit -o i#%C and BCredit Risk ManagementC) In p$rs$an#e of the instr$#tions and g$ide ines iss$ed !% the Reser,e Bank of India& the State !ank Of India is granting and e(panding #redit to a se#tors) The #on#erted efforts p$t in !% the Management and Staff of State Bank Of India has he ped the Bank in a#hie,ing remarka! e progress in a most a the important parameters) The Bank is mar#hing ahead in the dire#tion of a#hie,ing the ;$m!erF1 position in the Banking Ind$s
BA;GI;1 I;=USTRY OVERVIE6
I"#!STR& O%ER%IE, Hist)r'$

Banking in India has its origin as #arr% as the Vedi# period) It is !e ie,ed that the transition from mone% ending to !anking m$st ha,e o##$rred e,en !efore Man$& the great >ind$ +$rist& "ho has de,oted a se#tion of his "ork to deposits and ad,an#es and aid do"n r$ es re ating to the interest) =$ring the moga period& the indigeno$s !ankers p a%ed a ,er% important ro e in ending mone% and finan#ing foreign trade and #ommer#e) =$ring the da%s of East India Compan%& it "as to t$rn of the agen#% ho$ses top #arr% on the !anking !$siness) The genera !ank of India "as the first +oint sto#k !ank to !e esta! ished in the %ear 1HI9)The others "hi#h fo o"ed "ere the Bank of >ind$stan and the Benga Bank) The Bank of >ind$stan is reported to ha,e #ontin$ed ti 1J89& "hi e the other t"o fai ed in the meantime) In the first ha f of the 1Jth Cent$r% the East India Compan% esta! ished three !anksK The Bank of Benga in 1I8J& The Bank of Bom!a% in 1I08 and The Bank of Madras in 1I0/)These three !anks a so kno"n as presiden#% !anks and "ere independent $nits and f$n#tioned "e ) These three !anks "ere ama gamated in 1J.8 and The Imperia Bank of India "as esta! ished on the .Hth Lan 1J.1& "ith the passing of the SBI A#t in 1J22& the $ndertaking of The Imperia Bank of India "as taken o,er !% the ne" % #onstit$ted SBI) The Reser,e Bank "hi#h is the Centra Bank "as #reated in 1J/2 !% passing of RBI A#t 1J/0& in the "ake of s"adeshi mo,ement& a n$m!er of !anks "ith Indian Management "ere esta! ished in the #o$ntr% name % -$n+a! ;ationa Bank ?td& Bank of India ?td& Canara Bank ?td& Indian Bank ?td& The Bank of Baroda ?td& The Centra Bank of India ?td )On L$ % 1Jth 1J9J& 10 Ma+or Banks of the #o$ntr% "ere nationa i3ed and in 12th Apri 1JI8 si( more #ommer#ia pri,ate se#tor !anks "ere a so taken o,er !% the go,ernment) The Indian Banking ind$str%& "hi#h is go,erned !% the Banking Reg$ ation A#t of India 1J0J& #an !e !road % # assified into t"o ma+or #ategories& nonFs#hed$ ed !anks and s#hed$ ed !anks) S#hed$ ed Banks #omprise #ommer#ia !anks and the #oFoperati,e !anks)
Credit Risk Management in State Bank Of India The first phase of finan#ia reforms res$ ted in the nationa i3ation of 10 ma+or !anks in 1J9J and res$ ted in a shift from # ass !anking to mass !anking) This in t$rn res$ ted in the signifi#ant gro"th in the geographi#a #o,erage of !anks) E,er% !ank had to earmark a min per#entage of their oan portfo io to se#tors identified as Bpriorit% se#torsC the man$fa#t$ring se#tor a so gre" d$ring the 1JH8's in prote#ted en,ironments and the !anking se#tor "as a #riti#a so$r#e) The ne(t "a,e of reforms sa" the nationa i3ation of 9 more #ommer#ia !anks in 1JI8 sin#e then the n$m!er of s#hed$ ed #ommer#ia !anks in#reased fo$rF fo d and the n$m!er of !ank !ran#hes in#reased to eight fo d) After the se#ond phase of finan#ia se#tor reforms and i!era i3ation of the se#tor in the ear % nineties) The -SB's fo$nd it e(treme % diffi#$ t to #omp ete "ith the ne" pri,ate se#tor !anks and the foreign !anks) The ne" pri,ate se#tor first made their appearan#e after the g$ide ines permitting them "ere iss$ed in Lan$ar% 1JJ/)
T-e Indian Banking S'stem$

Banking in o$r #o$ntr% is a read% "itnessing the sea #hanges as the !anking se#tor seeks ne" te#hno og% and its app i#ations) The !est port is that the !enefits are !eginning to rea#h the masses) Ear ier this domain "as the preser,e of ,er% fe" organi3ations) Moreign !anks "ith hea,% in,estments in te#hno og% started gi,ing some BO$t of the "or dC #$stomer ser,i#es) B$t& s$#h ser,i#es "ere a,ai a! e on % to se e#ted fe"F the ,er% arge a##o$nt ho ders) Then #ame the i!era i3ation and "ith it a m$ tit$de of pri,ate !anks& a arge segment of the $r!an pop$ ation no" re*$ires minima time and spa#e for its !anking needs)
Credit Risk Management in State Bank Of India A$tomated te er ma#hines or pop$ ar % kno"n as ATM are the three a pha!ets that ha,e #hanged the #on#ept of !anking ike nothing !efore) Instead of te ers hand ing %o$r o"n #ash& toda% there are effi#ient ma#hines that don't ta k !$t +$st dispense #ash) Under the Reser,e Bank of India A#t 1J/0& !anks are # assified as s#hed$ ed !anks and nonF s#hed$ ed !anks) The s#hed$ ed !anks are those& "hi#h are entered in the Se#ond S#hed$ e of RBI A#t& 1J/0) S$#h !anks are those& "hi#h ha,e paidF $p #apita and reser,es of an aggregate ,a $e of not ess then Rs)2 a#s and "hi#h satisf% RBI that their affairs are #arried o$t in the interest of their depositors) A #ommer#ia !anks Indian and Moreign& regiona r$ra !anks and state #oFoperati,e !anks are S#hed$ ed !anks) ;on S#hed$ ed !anks are those& "hi#h ha,e not !een in# $ded in the Se#ond S#hed$ e of the RBI A#t& 1J/0) The organi3ed !anking s%stem in India #an !e !road % # assified into three #ategories< DiE Commer#ia Banks DiiE Regiona R$ra Banks and DiiiE CoFoperati,e !anks) The Reser,e Bank of India is the s$preme monetar% and !anking a$thorit% in the #o$ntr% and has the responsi!i it% to #ontro the !anking s%stem in the #o$ntr%) It keeps the reser,es of a #ommer#ia !anks and hen#e is kno"n as the BReser*e BankC)
C.rrent s(enari)$/
C$rrent % D.88HE& the o,era !anking in India is #onsidered as fair % mat$re in terms of s$pp %& prod$#t range and rea#h F e,en tho$gh rea#h in r$ra India sti remains a #ha enge for the pri,ate se#tor and foreign !anks) E,en in terms of *$a it% of assets and Capita ade*$a#%& Indian !anks are #onsidered to ha,e # ean& strong and transparent !a an#e sheets F as #ompared to other !anks in #ompara! e e#onomies in its region) The Reser,e Bank of India is an a$tonomo$s !od%& "ith minima press$re from the 1o,ernment
18
Credit Risk Management in State Bank Of India 6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$ite some time espe#ia % in its ser,i#es se#tor& the demand for !anking ser,i#es espe#ia % retai !anking& mortgages and in,estment ser,i#es are e(pe#ted to !e strong) Mergers 4 A#*$isitions)& takeo,ers& are m$#h more in a#tion in India)
One of the # assi#a e#onomi# f$n#tions of the !anking ind$str% that has remained ,irt$a % $n#hanged o,er the #ent$ries is ending) On the one hand& #ompetition has had #onsidera! e ad,erse impa#t on the margins& "hi#h enders ha,e en+o%ed& !$t on the other hand te#hno og% has to some e(tent red$#ed the #ost of de i,er% of ,ario$s prod$#ts and ser,i#es) Bank is a finan#ia instit$tion that !orro"s mone% from the p$! i# and ends mone% to the p$! i# for prod$#ti,e p$rposes) The Indian Banking Reg$ ation A#t of 1J0J defines the term Banking Compan% as NAn% #ompan% "hi#h transa#ts !anking !$siness in IndiaN and the term !anking as NA((e0ting f)r t-e 0.r0)se )f +ending a++ in*estment )f de0)sits1 )f m)ne' fr)m t-e 0.2+i(1 re0a'a2+e )n demand )r )t-er3ise and 3it-dra3a+ 2' (-e4.e1 draft )r )t-er3ise56 Banks p a% important ro e in e#onomi# de,e opment of a #o$ntr%& ike< Banks mo!i ise the sma sa,ings of the peop e and make them a,ai a! e for prod$#ti,e p$rposes) -romotes the ha!it of sa,ings among the peop e there!% offering attra#ti,e rates of interests on their deposits) -ro,ides safet% and se#$rit% to the s$rp $s mone% of the depositors and as "e pro,ides a #on,enient and e#onomi#a method of pa%ment) another) Banks pro,ide #on,enient means of transfer of f$nd from one p a#e to
>e ps the mo,ement of #apita from regions "here it is not ,er% $sef$ to regions "here it #an !e more $sef$ )
11
Credit Risk Management in State Bank Of India Banks ad,an#es e(pos$re in trade and #ommer#e& ind$str% and agri#$ t$re !% kno"ing their finan#ia re*$irements and prospe#ts) Bank a#ts as an intermediar% !et"een the depositors and the in,estors) Bank a so a#ts as mediator !et"een e(porter and importer "ho does foreign trades)
Th$s Indian !anking has #ome from a ong "a% from !eing a s eep% !$siness instit$tion to a high % proFa#ti,e and d%nami# entit%) This transformation has !een arge % !ro$ght a!o$t !% the arge dose of i!era i3ation and e#onomi# reforms that a o"ed !anks to e(p ore ne" !$siness opport$nities rather than generating re,en$es from #on,entiona streams Di)e) !orro"ing and endingE) The !anking in India is high % fragmented "ith /8 !anking $nits #ontri!$ting to a most 28: of deposits and 98: of ad,an#es)
1.
T-e Str.(t.re )f Indian Banking$

The Indian !anking ind$str% has Reser,e Bank of India as its Reg$ ator% A$thorit%) This is a mi( of the -$! i# se#tor& -ri,ate se#tor& CoFoperati,e !anks and foreign !anks) The pri,ate se#tor !anks are again sp it into o d !anks and ne" !anks)
Reser*e Bank )f India 7Centra+ Bank8
S(-ed.+ed Banks
S#hed$ ed Commer#ia Banks
S#hed$ ed CoFoperati,e Banks
-$! i# Se#tor Banks
-ri,ate Se#tor Banks
Moreign Banks
Regiona R$ra Banks
;ationa i3ed Banks
SBI 4 its Asso#iates
S#hed$ ed Ur!an CoFOperati,e Banks
S#hed$ ed State CoFOperati,e Banks
O d -ri,ate Se#tor Banks
;e" -ri,ate Se#tor Banks
1/
Chart Sho"ing Three =ifferent Se#tors of Banks
iE iiE
-$! i# Se#tor Banks -ri,ate Se#tor Banks
-$! i# Se#tor Banks

SBI and SUBSI=IARIES ;ationa i3ed Banks Regiona R$ra Banks
SBI and s.2sidiaries

This gro$p #omprises of the State Bank of India and its se,en s$!sidiaries ,i3)& State Bank of -atia a& State Bank of >%dera!ad& State Bank of Tra,an#ore& State Bank of Bikaner and Laip$r& State Bank of M%sore& State Bank of Sa$rashtra& State Bank of India State Bank )f India DSBIE is the argest !ank in India) If one meas$res !% the n$m!er of !ran#h offi#es and emp o%ees& SBI is the argest !ank in the "or d) Esta! ished in 1I89as Bank of Benga it is the o dest #ommer#ia !ank in the Indian s$!#ontinent) SBI pro,ides ,ario$s domesti#& internationa and ;RI prod$#ts and ser,i#es& thro$gh its ,ast net"ork in India and o,erseas) 6ith an asset !ase of O1.9 !i ion and its rea#h& it is a regiona !anking !ehemoth) The go,ernment nationa i3ed the !ank in1J22& "ith the Reser,e !ank of India taking a 98: o"nership stake) In re#ent %ears the !ank has fo#$sed on t"o priorities& 1E& red$#ing its h$ge staff thro$gh 1o den handshakes#hemes kno"n as the Vo $ntar% Retirement S#heme& "hi#h sa" man% of its !est and !rightest defe#t to the pri,ate se#tor& and .E& #omp$teri3ing its operations)
10
The State Bank of India tra#es its roots to the first de#ade of1Jth #ent$r%& "hen the Bank of #$ #$tta& ater renamed theBank of !enga & "as esta! ished on . +$n 1I89) The go,ernment ama gamatted Bank of Benga and t"o other -residen#% !anks& name %& the Bank of Bom!a% and the !ank of Madras& and named the reorgani3ed !anking entit% the Imperia Bank of India) A these -residen#% !anks "ere in#orporated as#ompanies& and "ere the res$ t of thero%a #harters) The Imperia Bank of India #ontin$ed to remain a +oint sto#k #ompan%) Unti the esta! ishment of a #entra !ank in India the Imperia Bank and its ear % prede#essors ser,ed as the nationPs #entra !ank printing #$rren#%) The State Bank of India A#t 1J22& ena#ted !% the par iament of India& a$thori3ed the Reser,e Bank of India& "hi#h is the #entra Banking Organisationof India& to a#*$ire a #ontro ing interest in the Imperia Bank of India& "hi#h "as renamed the State Bank of India on/8th Apri 1J22) In re#ent %ears& the !ank has so$ght to e(pand its o,erseas operations !% !$%ing foreign !anks) It is the on % Indian !ank to feat$re in the top 188 "or d !anks in the Mort$ne 1 o!a 288 rating and ,ario$s other rankings) A##ording to the Mor!es .888 isting it tops a Indian #ompanies)
;ationa i3ed !anks

This gro$p #onsists of pri,ate se#tor !anks that "ere nationa i3ed) The 1o,ernment of India nationa i3ed 10 pri,ate !anks in 1J9J and another 9 in the %ear 1JI8) In ear % 1JJ/& there "ere .I nationa i3ed !anks i)e)& SBI and its H s$!sidiaries p $s .8 nationa i3ed !anks) In 1JJ/& the oss making ne" !ank of India "as merged "ith profit making -$n+a! ;ationa Bank) >en#e& no" on % .H nationa i3ed !anks e(ist in India)
12
Regiona R$ra !anks

These "ere esta! ished !% the RBI in the %ear 1JH2 of !anking #ommission) It "as esta! ished to operate e(# $si,e % in r$ra areas to pro,ide #redit and other fa#i ities to sma and margina farmers& agri#$ t$ra a!orers& artisans and sma entreprene$rs)
Pri*ate Se(t)r Banks

Pri*ate Se(t)r Banks
O d pri,ate Se#tor Banks ne" pri,ate Se#tor Banks
O d -ri,ate Se#tor Banks

This gro$p #onsists of the !anks that "ere esta! ishes !% the pri,% se#tors& #ommittee organi3ations or !% gro$p of professiona s for the #a$se of e#onomi# !etterment in their operations) Initia %& their operations "ere #on#entrated in a fe" regiona areas) >o"e,er& their !ran#hes s o" % spread thro$gho$t the nation as the% gro")
;e" pri,ate Se#tor Banks

These !anks "ere started as profit orient #ompanies after the RBI opened the !anking se#tor to the pri,ate se#tor) These !anks are most % te#hno og% dri,en and !etter managed than other !anks)
Moreign !anks
These are the !anks that "ere registered o$tside India and had originated in a foreign #o$ntr%) The ma+or parti#ipants of the Indian finan#ia s%stem are the #ommer#ia !anks& the finan#ia instit$tions DMIsE& en#ompassing termF ending instit$tions& in,estment
19
Credit Risk Management in State Bank Of India instit$tions& spe#ia i3ed finan#ia instit$tions and the stateF e,e de,e opment !anks& ;onF Bank Minan#ia Companies D;BMCsE and other market intermediaries s$#h as the sto#k !rokers and mone%F enders) The #ommer#ia !anks and #ertain ,ariants of ;BMCs are among the o dest of the market parti#ipants) The MIs& on the other hand& are re ati,e % ne" entities in the finan#ia market p a#e)
IMPORTA"CE OF BA"KI"
SECTOR I" A
RO,I"
ECO"OM&
In the re#ent times "hen the ser,i#e ind$str% is attaining greater importan#e #ompared to man$fa#t$ring ind$str%& !anking has e,o ,ed as a prime se#tor pro,iding finan#ia ser,i#es to gro"ing needs of the e#onom%) Banking ind$str% has $ndergone a paradigm shift from pro,iding ordinar% !anking ser,i#es in the past to pro,iding s$#h #omp i#ated and #r$#ia ser,i#es ike& mer#hant !anking& ho$sing finan#e& !i dis#o$nting et#) This se#tor has !e#ome more a#ti,e "ith the entr% of ne" p a%ers ike pri,ate and foreign !anks) It has a so e,o ,ed as a prime !$i der of the e#onom% !% $nderstanding the needs of the same and en#o$raging the de,e opment !% "a% of gi,ing oans& pro,iding infrastr$#t$re fa#i ities and finan#ing a#ti,ities for the promotion of entreprene$rs and other !$siness esta! ishments) Mor a fast de,e oping e#onom% ike o$rs& presen#e of a so$nd finan#ia s%stem to mo!i i3e and a o#ate sa,ings of the p$! i# to"ards prod$#ti,e a#ti,ities is ne#essar%) Commer#ia !anks p a% a #r$#ia ro e in this regard) The Banking se#tor in re#ent %ears has in#orporated ne" prod$#ts in their !$sinesses& "hi#h are he pf$ for gro"th) The !anks ha,e started to pro,ide feeF!ased ser,i#es ike& treas$r% operations& managing deri,ati,es& options and f$t$res& a#ting as !ankers to the ind$str% d$ring the p$! i# offering& pro,iding #ons$ tan#% ser,i#es& a#ting as an intermediar% !et"een t"oF!$siness entities et#)At the same time& the !anks are rea#hing
1H
Credit Risk Management in State Bank Of India o$t to other end of #$stomer re*$irements ike& ins$ran#e premi$m pa%ment& ta( pa%ment et#) It has #hanged itse f from transa#tion t%pe of !anking into re ationship !anking& "here %o$ find friend % and *$i#k ser,i#e s$ited to %o$r needs) This is possi! e "ith $nderstanding the #$stomer needs their ,a $e to the !ank& et#) This is possi! e "ith the he p of "e organi3ed staff& #omp$ter !ased net"ork for speed% transa#tions& prod$#ts ike #redit #ard& de!it #ard& hea th #ard& ATM et#) These are the present trend of ser,i#es) The #$stomers at present ask for #on,enien#e of !anking transa#tions& ike .0 ho$rs !anking& "here the% "ant to $ti i3e the ser,i#es "hene,er there is a need) The re ationship !anking p a%s a ma+or and important ro e in gro"th& !e#a$se the #$stomers no" ha,e eno$gh n$m!er of opport$nities& and the% #hoose a##ording to their satisfa#tion of responses and re#ognition the% get) So the !anks ha,e to p a% #a$tio$s %& e se the% ma% ose o$t the p a#e in the market d$e to #ompetition& "here s ightest of opport$nities are #apt$red fast) Another ma+or ro e p a%ed !% !anks is in transnationa !$siness& transa#tions and net"orking) Man% eading Indian !anks ha,e spread o$t their net"ork to other #o$ntries& "hi#h he p in #$rren#% transfer and earn e(#hange o,er it) These !anks p a% a ma+or ro e in #ommer#ia import and e(port !$siness& !et"een parties of t"o #o$ntries) This foreign presen#e a so he ps in !ringing in the internationa standards of operations and ideas) The i!era i3ation po i#% of 1JJ1 has a o"ed man% foreign !anks to enter the Indian market and esta! ish their !$siness) This has he ped arge amo$nt of foreign #apita inf o" 4 in#rease o$r Moreign e(#hange reser,e) Another emerging #hange happening a o,er the !anking ind$str% is #onso idation
thro$gh mergers and a#*$isitions) This he ps the !anks in strengthening their empire and e(panding their net"ork of !$siness in terms of ,o $me and effe#ti,eness)
1I
EMER I"
SCE"ARIO I" THE BA"KI"
SECTOR
The Indian !anking s%stem has passed thro$gh three distin#t phases from the time of in#eption) The first "as !eing the era of #hara#ter !anking& "here %o$ "ere re#ogni3ed as a #redi! e depositor or !orro"er of the s%stem) This era #ome to an end in the si(ties) The se#ond phase "as the so#ia !anking) ;o"here in the demo#rati# de,e oped "or d& "as !anking or the ser,i#e ind$str% nationa i3ed) B$t this "as pra#ti#ed in India) Those "ere the da%s "hen !ankers has no # $e "hatsoe,er as to ho" to determine the s#a e of finan#e to ind$str%) The third era of !anking "hi#h is in e(isten#e toda% is #a ed the era of -r$dentia Banking) The main fo#$s of this phase is on pr$dentia norms a##epted internationa %)
SBI
r).0/
The Bank of Benga & "hi#h ater !e#ame the State Bank of India) State Bank of India "ith its se,en asso#iate !anks #ommands the argest !anking reso$r#es in India)
"ati)na+isati)n/
The ne(t signifi#ant mi estone in Indian Banking happened in ate 1J98s "hen the then Indira 1andhi go,ernment nationa i3ed on 1Jth L$ % 1J0J& 10 ma+or #ommer#ia Indian !anks fo o"ed !% nationa isation of 9 more #ommer#ia Indian !anks in 1JI8) The stated reason for the nationa isation "as more #ontro of #redit de i,er%) After this& $nti 1JJ8s& the nationa ised !anks gre" at a eis$re % pa#e of aro$nd 0: a so #a ed as the >ind$ gro"th of the Indian e#onom%)After the ama gamation of ;e" Bank of India "ith -$n+a! ;ationa Bank& #$rrent % there are 1J nationa ised !anks in India)
1J
Li2era+i9ati)n/
In the ear % 1JJ8's the then ;arasimha rao go,ernment em!arked a po i#% of i!era i3ation and ga,e i#en#es to a sma n$m!er of pri,ate !anks& "hi#h #ame to !e kno"n as ;e" generation te#hFsa,,% !anks& "hi#h in# $ded !anks ike ICICI and >=MC) This mo,e a ong "ith the rapid gro"th of the e#onom% of India& ki#k started the !anking se#tor in India& "hi#h has seen rapid gro"th "ith strong #ontri!$tion from a the se#tors of !anks& name % 1o,ernment !anks& -ri,ate Banks and Moreign !anks) >o"e,er there had !een a fe" hi##$ps for these ne" !anks "ith man% either !eing taken o,er ike 1 o!a Tr$st Bank "hi e others ike Cent$rion Bank ha,e fo$nd the going to$gh) The ne(t stage for the Indian Banking has !een set $p "ith the proposed re a(ation in the norms for Moreign =ire#t In,estment& "here a Moreign In,estors in Banks ma% !e gi,en ,oting rights "hi#h #o$ d e(#eed the present #ap of 18:& at pesent it has gone $p to 0J: "ith some restri#tions) The ne" po i#% shook the Banking se#tor in India #omp ete %) Bankers& ti this time& "ere $sed to the 0F9F0 method DBorro" at 0:K?end at 9:K1o home at 0E of f$n#tioning) The ne" "a,e $shered in a modern o$t ook and te#hFsa,,% methods of "orking for traditiona !anks)A this ed to the retai !oom in India) -eop e not +$st demanded more from their !anks !$t a so re#ei,ed more)
.8
C!RRE"T SCE"ARIO/ C$rrent % D.88HE& o,era & !anking in India is #onsidered as fair % mat$re in terms of s$pp %& prod$#t range and rea#hFe,en tho$gh rea#h in r$ra India sti remains a #ha enge for the pri,ate se#tor and foreign !anks) E,en in terms of *$a it% of assets and #apita ade*$a#%& Indian !anks are #onsidered to ha,e # ean& strong and transparent !a an#e sheetsFas #ompared to other !anks in #ompara! e e#onomies in its region) The Reser,e Bank of India is an a$tonomo$s !od%& "ith minima press$re from the go,ernment) The stated po i#% of the Bank on the Indian R$pee is to manage ,o ati it%F"itho$t an% stated e(#hange rateFand this has most % !een tr$e) 6ith the gro"th in the Indian e#onom% e(pe#ted to !e strong for *$ite some timeF espe#ia % in its ser,i#es se#tor& the demand for !anking ser,i#esFespe#ia % retai !anking& mortgages and in,estment ser,i#es are e(pe#ted to !e strong) M4As& takeo,ers& asset sa es and m$#h more a#tion Das it is $nra,e ing in ChinaE "i happen on this front in India) In Mar#h .889& the Reser,e Bank of India a o"ed 6ar!$rg -in#$s to in#rease its stake in Gotak Mahindra Bank Da pri,ate se#tor !ankE to 18:) This is the first time an in,estor has !een a o"ed to ho d more than 2: in a pri,ate se#tor !ank sin#e the RBI anno$n#ed norms in .882 that an% stake e(#eeding 2: in the pri,ate se#tor !anks "o$ d need to !e ,etted !% them) C$rrent %& India has II s#hed$ ed #ommer#ia !anks DSCBsE F .I p$! i# se#tor !anks Dthat is "ith the 1o,ernment of India ho ding a stakeE& .J pri,ate !anks Dthese do not ha,e go,ernment stakeK the% ma% !e p$! i# % isted and traded on sto#k e(#hangesE and /1 foreign !anks) The% ha,e a #om!ined net"ork of o,er 2/&888 !ran#hes and 1H&888 ATMs) A##ording to a report !% ICRA ?imited& a rating agen#%& the p$! i# se#tor !anks ho d o,er H2 per#ent of tota assets of the !anking ind$str%& "ith the pri,ate and foreign !anks ho ding 1I).: and 9)2: respe#ti,e %)
.1
Banking in India
1 Centra Bank Reser,e Bank of India State Bank of India& A aha!ad Bank& Andhra Bank& Bank of Baroda& Bank of India& Bank of Maharastra&Canara Bank& Centra . ;ationa ised Banks Bank of India&
Corporation Bank& =ena Bank& Indian Bank& Indian o,erseas Bank&Orienta Bank of Commer#e& -$n+a! and Sind Bank& -$n+a! ;ationa Bank& S%ndi#ate Bank& Union Bank of India& United Bank of India& UCO Bank&and Vi+a%a Bank) Bank of Ra+astan& Bharath o,erseas Bank& Catho i# S%rian Bank& Cent$rion Bank of -$n+a!& Cit% Union Bank& =e,e opment Credit Bank& =hana a(mi Bank& Medera Bank& 1anesh Bank of G$r$nd"ad& >=MC Bank& ICICI Bank& I=BI& Ind$sInd Bank& I;1 V%s%a Bank& Lamm$ and Gashmir Bank& Garnataka Bank ?imited& Gar$r V%s%a Bank& Gotek Mahindra Bank& ?akshmi,i as Bank& ?ord Grishna Bank& ;ainitak Bank& Ratnakar Bank&Sang i Bank& SBI Commer#ia and Internationa Bank& So$th Indian Bank& Tami ;ad$ Mer#hanti e Bank ?td)& United 6estern Bank& UTI Bank& YES Bank)
-ri,ate Banks
..
COM-A;Y -ROMI?E
./
STATE BA"K OF I"#IA

;ot on % man% finan#ia instit$tion in the "or d toda% #an # aim the anti*$it% and ma+est% of the State Bank Of India fo$nded near % t"o #ent$ries ago "ith primari % intent of imparting sta!i it% to the mone% market& the !ank from its in#eption mo!i i3ed f$nds for s$pporting !oth the p$! i# #redit of the #ompanies go,ernments in the three presiden#ies of British India and the pri,ate #redit of the E$ropean and India mer#hants from a!o$t 1I98s "hen the Indian e#onom% !ook a signifi#ant eap for"ard $nder the imp$ se of *$i#kened "or d #omm$ni#ations and ingenio$s method of ind$stria and agri#$ t$ra prod$#tion the Bank !e#ame intimate % in ,a $ed in the finan#ing of pra#ti#a % and mining a#ti,it% of the S$!F Continent A tho$gh arge E$ropean and Indian mer#hants and man$fa#t$rers "ere $ndo$!ted % thee prin#ipa !enefi#iaries& the sma man ne,er ignored oans as o" as Rs)188 "ere dis!$rsed in agri#$ t$ra distri#ts against g ad ornaments) Added to these the !ank ti the #reation of the Reser,e Bank in 1J/2 #arried o$t n$mero$s Centra 7 Banking f$n#tions) Adaptation "or d and the needs of the ho$r has !een one of the strengths of the Bank& In the post depression e(e) Mor instan#e 7 "hen !$siness opport$nities !e#ome e(treme % restri#ted& r$ es aid do"n in the !ook of instr$#tions "ere re ined to ens$re that good !$siness did not go post) Yet se dom did the !ank #ontra,enes its ,a $e as depart from so$nd !anking prin#ip es to retain as e(pand its !$siness) An inno,ati,e arra% of offi#e& $nkno"n to the "or d then& "as de,ised in the form of !ran#hes& s$! !ran#hes& treas$r% pa% offi#e& pa% offi#e& s$! pa% offi#e and o$t st$dents to e(p oit the opport$nities of an e(panding e#onom%) ;e" !$siness strateg% "as a so e,aded "a% !a#k in 1J/H to render the !est !anking ser,i#e thro$gh prompt and #o$rteo$s attention to #$stomers)
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Credit Risk Management in State Bank Of India A high % effi#ient and e(perien#ed management f$n#tioning in a "e
defined
organi3ationa str$#t$re did not take ong to p a#e the !ank an e(e#$ted pedesta in the areas of !$siness& profita!i it%& interna dis#ip ine and a!o,e a #redi!i it% A impe##a! e finan#ia stat$s #onsistent maintenan#e of the oft% traditions if !anking an o!ser,ation of a high standard of integrit% in its operations he ped the !ank gain a preF eminent stat$s) ;o "onders the administration for the !ank "as $ni,ersa as ke% f$n#tionaries of India s$##essi,e finan#e minister of independent India Reso$r#e Bank of go,ernors and representati,es of #ham!er of #ommer#ia sho"ered e#onomi#s on it) Modern da% management te#hni*$es "ere a so ,er% m$#h e,ident in the good o d da%s %ears !efore #orporate go,ernan#e had !e#ome a p$33 ed the !anks !o$nd f$n#tioned "ith a high degree of responsi!i it% and #on#erns for the shareho ders) An $n!roken re#ords of profits and a fair % high rate of profit and fair % high rate of di,idend a thro$gh ens$red satisfa#tion& pr$dentia management and asset ia!i it% management not on % prote#ted the interests of the Bank !$t a so ens$red that the o! igations to #$stomers "ere not met) The traditions of the past #ontin$ed to !e $phe d e,en to this da% as the State Bank %ears itse f to meet the emerging #ha enges of the mi enni$m)
.2
ABO!T LO O
THE PLACE TO SHARE THE "E,S 666:: SHARE THE %IE,S :: Togetherness is the theme of this #orporate oge of SBI "here the "or d of !anking ser,i#es meet the e,er #hanging #$stomers needs and esta! ishes a ink that is ike a #ir# e& it indi#ates #omp ete ser,i#es to"ards #$stomers) The ogo a so denotes a !ank that it has prepared to do an%thing to go to an% engths& for #$stomers) The ! $e pointer represent the phi osoph% of the !ank that is a "a%s ooking for the gro"th and ne"er& more #ha enging& more promising dire#tion) The ke% ho e indi#ates safet% and se#$rit%)
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MISSIO"1 %ISIO" A"# %AL!ES

MISSIO" STATEME"T$ To retain the Bank's position as premiere Indian Minan#ia Ser,i#e 1ro$p& "ith "or d # ass standards and signifi#ant g o!a #ommitted to e(#e en#e in #$stomer& shareho der and emp o%ee satisfa#tion and to p a% a eading ro e in e(panding and di,ersif%ing finan#ia ser,i#e se#tors "hi e #ontaining emphasis on its de,e opment !anking r$ e) %ISIO" STATEME"T$ -remier Indian Minan#ia Ser,i#e 1ro$p "ith prospe#ti,e "or dF# ass Standards of effi#ien#% and professiona ism and instit$tiona ,a $es) Retain its position in the #o$ntr% as pioneers in =e,e opment !anking) Ma(imi3e the shareho ders ,a $e thro$gh highFs$stained earnings per Share) An instit$tion "ith #$ t$ra m$t$a #are and #ommitment& satisf%ing and 1ood "ork en,ironment and #ontin$es earning opport$nities)
%AL!ES$
E(#e en#e in #$stomer ser,i#e -rofit orientation Be onging #ommitment to Bank Mairness in a dea ings and re ations
.H
Credit Risk Management in State Bank Of India Risk taking and inno,ati,e Team p a%ing ?earning and rene"a Integrit% Transparen#% and =is#ip ine in po i#ies and s%stems)
.I
OR A"ISATIO" STR!CT!RE MA"A I" #IRECTOR
CHIEF
E"ERAL MA"A ER
6M ;O0erati)ns<
6M ;C=B<
6M ;F=S<
6M ;I< = C%O
6M ;P=#<
9)na+ )ffi(ers
Functional Heads
Regiona offi#ers
.J
-RO=UCTS A;= SERVICES
/8
PRO#!CTS$
State Bank Of India renders ,arieties of ser,i#es to #$stomers thro$gh the fo o"ing prod$#ts<
-ersona ?oan -rod$#t<

SBI Term =eposits SBI Re#$rring =eposits SBI >o$sing ?oan SBI Car ?oan SBI Ed$#ationa ?oan SBI -ersona ?oan SBI ?oan Mor -ensioners ?oan Against Mortgage Of -ropert% ?oan Against Shares 4 =e!ent$res Rent - $s S#heme MediF- $s S#heme Rates Of Interest
SBI H).sing +)an SBI >o$sing oan or Mortgage ?oan s#hemes are designed to make it simp e for %o$ to make a #hoi#e at east as far as finan#ing goesQ
/1
>SBI/H)me L)ans> feat.res$

;o #ap on ma(im$m oan amo$nt for p$r#haseA #onstr$#tion of ho$seA f at Option to # $! in#ome of %o$r spo$se and #hi dren to #omp$te e igi! e oan amo$nt -ro,ision to # $! e(pe#ted rent a##r$a s from propert% proposed to #omp$te e igi! e oan amo$nt -ro,ision to finan#e #ost of f$rnishing and #ons$mer d$ra! es as part of pro+e#t #ost
Repa%ment permitted $pto H8 %ears of age Mree persona a##ident ins$ran#e #o,er Optiona 1ro$p Ins$ran#e from SBI ?ife at #on#essiona premi$m DUpfront premi$m finan#ed as part of pro+e#t #ostE Interest app ied on dai % diminishing !a an#e !asis P- $sP s#hemes "hi#h offer attra#ti,e pa#kages "ith #on#essiona interest rates to 1o,t) Emp o%ees& Tea#hers& Emp o%ees in -$! i# Se#tor Oi Companies) Spe#ia s#heme to grant oans to finan#e Earnest Mone% =eposits to !e paid to Ur!an =e,e opment A$thorit%A >o$sing Board& et#) in respe#t of a otment of sitesA ho$seA f at
;o Administrati,e Charges or app i#ation fee -repa%ment pena t% is re#o,ered on % if the oan is preF# osed !efore ha f of the origina ten$re Dnot re#o,ered for !$ k pa%ments pro,ided the oan is not # osedE -ro,ision for do"n"ard refi(ation of EMI in respe#t of f oating rate !orro"ers "ho a,ai >o$sing ?oans of Rs)2 a#s and a!o,e& to a,ai the !enefit of do"n"ard re,ision of interest rate !% 1: or more
InFprin#ip e appro,a iss$ed to gi,e %o$ f e(i!i it% "hi e negotiating p$r#hase of a propert%
/.
Credit Risk Management in State Bank Of India ROption to a,ai oan at the p a#e of emp o%ment or at the p a#e of #onstr$#tion
Attra#ti,e pa#kages in respe#t of oans granted $nder tieF$p "ith Centra A State 1o,ernmentsA -SUsA rep$ted #orporates and tieF$p "ith rep$ted !$i ders D- ease #onta#t %o$r nearest !ran#h for detai sE
SER%ICES$ =OMESTIC TREASURY SBI VIS>6A YATRA MOREI1; TRAVE? CAR= 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 argest net"ork in the #o$ntr% and #ontin$ing to e(pand fastQ This means that %o$ #an transa#t free of #ost at the ATMs of State Bank 1ro$p DThis in# $des the ATMs of State Bank of India as "e as the Asso#iate Banks 7 name %& State Bank of Bikaner 4 Laip$r& State Bank of >%dera!ad& State Bank of Indore& State Bank of M%sore& State Bank of -atia a& State Bank of Sa$rashtra& and State Bank of Tra,an#oreE and "ho % o"ned s$!sidiar% ,i3) SBI Commer#ia and Internationa Bank ?td)& $sing the State Bank ATMF#$mF=e!it DCash - $sE #ard) KI"#S OF CAR#S ACCEPTE# AT STATE BA"K ATMs Besides State Bank ATMFC$mF=e!it Card and State Bank Internationa ATMFC$mF =e!it Cards fo o"ing #ards are a so a##epted at State Bank ATMs< F 1E State Bank Credit Card .E ATM Cards iss$ed !% Banks $nder !i atera sharing ,i3) Andhra Bank&A(is Bank& Bank of India& The Bank of Ra+asthan ?td)& Canara Bank& Corporation Bank& =ena Bank& >=MC Bank& Indian Bank& Ind$s Ind Bank& -$n+a! ;ationa Bank& UCO Bank and Union Bank of India) /E Cards iss$ed !% !anks Dother than !anks $nder !i atera sharingE disp a%ing Maestro& Master Card& Cirr$s& VISA and VISA E e#tron ogos
/0
0E A =e!itA Credit Cards iss$ed !% an% !ank o$tside India disp a%ing Maestro& Master Card& Cirr$s& VISA and VISA E e#tron ogos ;ote< If %o$ are a #ardho der of !ank other than State Bank 1ro$p& kind % #onta#t %o$r Bank for the #harges re#o,era! e for $sage of State Bank ATMs)
STATE BA"K I"TER"ATIO"AL ATM/C!M/#EBIT CAR#
E+igi2i+it'$ A Sa,ing Bank and C$rrent A##o$nt ho ders ha,ing a##o$nts "ith net"orked !ran#hes and are< 1I %ears of age 4 a!o,e A##o$nt t%pe< So e or Loint "ith BEither or S$r,i,orC A BAn%one or S$r,i,orC ;RE a##o$nt ho ders are a so e igi! e !$t ;RO a##o$nt ho ders are not)
Benefits$
TCon,enien#e to the #$stomers tra,e ing o,erseas TCan !e $sed as =omesti# ATMF#$mF=e!it Card A,ai a! e at a nomina +oining fee of Rs) .88AF /2
Credit Risk Management in State Bank Of India T=ai % imit of US O 1888 or e*$i,a ent at the ATM and US O 1888 or e*$i,a ent at -oint of Sa e D-OSE termina for de!it transa#tion -$r#hase -rote#tionU$p to Rs) 2888AF and -ersona A##ident #o,erU$p to Rs) .&88&888AF TCharges for $sage a!road< Rs) 128V Ser,i#e Ta( per #ash "ithdra"a Rs) 12 V Ser,i#e Ta( per en*$ir%)
State Bank ATM/(.m/#e2it ;State Bank Cas- 0+.s< Card< India's argest !ank is pro$d to offer %o$ $npara e ed #on,enien#e ,i3) State Bank ATMF #$mF=e!itDCash - $sE #ard) 6ith this #ard& there is no need to #arr% #ash in %o$r "a et) Yo$ #an no" "ithdra" #ash and make p$r#hases an%time %o$ "ish to "ith %o$r ATMF #$mF=e!it Card) 1et an ATMF#$mF=e!it #ard "ith "hi#h %o$ #an transa#t for MREE at an% of o,er I888 ATMs of State Bank 1ro$p "ithin o$r #o$ntr%)
SBI
OL# I"TER"ATIO"AL #EBIT CAR#S
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Credit Risk Management in State Bank Of India E/PA& Bi -a%ment at On ine SBI DeF-a%E "i et %o$ to pa% %o$r Te ephone& Mo!i e&
E e#tri#it%& Ins$ran#e and Credit Card !i s e e#troni#a % o,er o$r On ine SBI "e!site
E/RAIL
B))k ').r Rai+3a's Ti(ket On+ine6 The fa#i it% has !een a$n#hed "ef Ist Septem!er .88/ in asso#iation "ith IRCTC) The s#heme fa#i itates Booking of Rai "a%s Ti#ket On ine) T-e sa+ient feat.res )f t-e s(-eme are as .nder$ A Internet !anking #$stomers #an $se the fa#i it%) On gi,ing pa%ment option as SBI& the $ser "i !e redire#ted to on ines!i)#om) After ogging on to the site %o$ "i !e disp a%ed pa%ment amo$nt& TI= ;o) and Rai "a% referen#e no)
) The ti#ket #an !e de i,ered or #o e#ted !% the #$stomer) The $ser #an #o e#t the ti#ket persona % at ;e" =e hi reser,ation #o$nter ) The -a%ment amo$nt "i in# $de ti#ket fare in# $ding reser,ation #harges& #o$rier #harges and Bank Ser,i#e fee of Rs 18A) The Bank ser,i#e fee has !een "ai,ed $nto /1st L$ % .889)
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Credit Risk Management in State Bank Of India SAFE #EPOSIT LOCKER Mor the safet% of %o$r ,a $a! es "e offer o$r #$stomers safe deposit ,a$ t or o#ker fa#i ities at a arge n$m!er of o$r !ran#hes) There is a nomina ann$a #harge& "hi#h depends on the si3e of the o#ker and the #entre in "hi#h the !ran#h is o#ated)
"RI HOME LOA"
SALIE"T FEAT!RES P.r0)se )f L)an ?oans to ;RIs 4 -IOs #an !e e(tended for the fo o"ing p$rposes)

To p$r#haseA#onstr$#t a ne" ho$se A f at To repair& reno,ate or e(tend an e(isting ho$seAf at To p$r#hase an e(isting ho$seAf at To p$r#hase a p ot for #onstr$#tion of a d"e ing $nit) To p$r#hase f$rnishings and #ons$mer d$ra! es& as a part of the pro+e#t #ost
A RIC!LT!RE ? R!RAL
State Bank )f India Caters to the needs of agri#$ t$rists and and ess agri#$ t$ra a!o$rers thro$gh a net"ork of 9988 r$ra and semiF$r!an !ran#hes) here are JH. spe#ia i3ed !ran#hes "hi#h ha,e !een set $p in different parts of the #o$ntr% e(# $si,e % for the de,e opment of agri#$ t$re thro$gh #redit dep o%ment) These !ran#hes in# $de 0.H Agri#$ t$ra =e,e opment Bran#hes DA=BsE and 20H !ran#hes "ith =e,e opment Banking =epartment D=B=sE "hi#h #ater to agri#$ t$rists and . Agri#$ t$ra B$siness Bran#hes at Chennai and >%dera!ad #atering to the needs of hite#h #ommer#ia agri#$ t$ra pro+e#ts)
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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$st') 6hen se ers transfer his "ea th to a !$%er "ho has agreed to pa% ater& there is a # ear imp i#ation of tr$st that the pa%ment "i !e made at the agreed date) The #redit period and the amo$nt of #redit depend $pon the degree of tr$st) Credit is an essentia marketing too ) It !ears a #ost& the #ost of the se er ha,ing to !orro" $nti the #$stomers pa%ment arri,es) Idea %& that #ost is the pri#e !$t& as most #$stomers pa% ater than agreed& the e(tra $np anned #ost erodes the p anned net profit) RISK $ Risk is defined as $n#ertain res$ ting in ad,erse o$t #ome& ad,erse in re ation to p anned o!+e#ti,e or e(pe#tation) It is ,er% diffi#$ t o find a risk free in,estment) An important inp$t to risk management is risk assessment) Man% p$! i# !odies s$#h as ad,isor% #ommittees #on#erned "ith risk management) There are main % three t%pes of risk the% are fo o"s Market risk Credit Risk Operationa risk
Risk ana %sis and a o#ation is #entra to the design of an% pro+e#t finan#e& risk management is of paramo$nt #on#ern) Th$s *$antif%ing risk a ong "ith profit pro+e#tions is $s$a % the first step in ga$ging the feasi!i it% of the pro+e#t) on#e risk ha,e !een identified the% #an !e a o#ated to parti#ipants and appropriate me#hanisms p$t in p a#e)
/J
T%pes of Minan#ia Risks
Market Risk Financial Risks !redit Risk O erational Risk
Market risk is the risk of ad,erse de,iation of the mark to market ,a $e of the trading portfo io& d$e to market mo,ement& d$ring the period re*$ired to i*$idate the transa#tions)
MARKET RISK$
OPERTIO"AL RISK$
Operationa risk is one area of risk that is fa#ed !% a organi3ation s) More #omp e( the organi3ation more e(posed it "o$ d !e operationa risk) This risk arises d$e to de,iation from norma and p anned f$n#tioning of the s%stem pro#ed$res& te#hno og% and h$man fai $re of omission and #ommission) Res$ t of de,iation from norma f$n#tioning is ref e#ted in the re,en$e of the organi3ation& either !% the "a% of additiona e(penses or !% "a% of oss of opport$nit%)
CRE#IT RISK$
Credit risk is defined as the potentia that a !ank !orro"er or #o$nterpart% "i fai to meet its o! igations in a##ordan#e "ith agreed terms& or in other "ords it is defined as the risk that a firm's #$stomer and the parties to "hi#h it has ent mone% "i fai to make promised pa%ments is kno"n as #redit risk
08
The e(pos$re to the #redit risks arge in #ase of finan#ia instit$tions& s$#h #ommer#ia !anks "hen firms !orro" mone% the% in t$rn e(pose enders to #redit risk& the risk that the firm "i defa$ t on its promised pa%ments) As a #onse*$en#e& !orro"ing e(poses the firm o"ners to the risk that firm "i !e $na! e to pa% its de!t and th$s !e for#ed to !ankr$pt#%) CO;TRIBUTORS OM CRE=IT RISG< Corporate assets Retai assets ;onFS?R portfo io Ma% res$ t from trading and !anking !ook Inter !ank transa#tions =eri,ati,es Sett ement& et#
GEY E?EME;TS OM CRE=IT RISG MA;A1EME;T< Esta! ishing appropriate #redit risk en,ironment Operating $nder so$nd #redit granting pro#ess Maintaining an appropriate #redit administration& meas$rement 4 Monitoring Ens$ring ade*$ate #ontro o,er #redit risk Banks sho$ d ha,e a #redit risk strateg% "hi#h in o$r #ase is #omm$ni#ated thro$gho$t the organi3ation thro$gh #redit po i#%)
01
T"o f$ndamenta approa#hes to #redit risk management<F

F F The interna % oriented approa#h #enters on estimating !oth the e(pe#ted #ost and ,o ati it% of f$t$re #redit osses !ased on the firm's !est assessment) M$t$re #redit osses on a gi,en oan are the prod$#t of the pro!a!i it% that the !orro"er "i defa$ t and the portion of the amo$nt ent "hi#h "i !e ost in the e,ent of defa$ t) The portion "hi#h "i !e ost in the e,ent of defa$ t is dependent not +$st on the !orro"er !$t on the t%pe of oan Deg)& some !onds ha,e greater rights of seniorit% than others in the e,ent of defa$ t and "i re#ei,e pa%ment !efore the more +$nior !ondsE) F To the e(tent that osses are predi#ta! e& e(pe#ted osses sho$ d !e fa#tored into prod$#t pri#es and #o,ered as a norma and re#$rring #ost of doing !$siness) i)e)& the% sho$ d !e dire#t #harges to the oan ,a $ation) Vo ati it% of oss rates aro$nd e(pe#ted e,e s m$st !e #o,ered thro$gh riskFad+$sted ret$rns) F So tota #harge for #redit osses on a sing e oan #an !e represented !% DWe(pe#ted pro!a!i it% of defa$ tX U We(pe#ted per#entage oss in e,ent of defa$ tXE V risk ad+$stment U the ,o ati it% of DWpro!a!i it% of defa$ t U per#entage oss in the e,ent of defa$ tXE) Minan#ia instit$tions are +$st !eginning to rea i3e the !enefits of #redit risk management mode s) These mode s are designed to he p the risk manager to pro+e#t risk& ens$re profita!i it%& and re,ea ne" !$siness opport$nities) The mode s$r,e%s the #$rrent state of the art in #redit risk management) It pro,ides the too s to $nderstand and e,a $ate a ternati,e approa#hes to mode ing) This a so des#ri!es "hat a #redit risk management mode sho$ d do& and it ana %ses some of the pop$ ar mode s)
0.
Credit Risk Management in State Bank Of India The s$##ess of #redit risk management mode s depends on so$nd design& inte igent imp ementation& and responsi! e app i#ation of the mode ) 6hi e there has !een signifi#ant progress in #redit risk management mode s& the ind$str% m$st #ontin$e to ad,an#e the state of the art) So far the most s$##essf$ mode s ha,e !een #$stom designed to so ,e the spe#ifi# pro! ems of parti#$ ar instit$tions) A #redit risk management mode te s the #redit risk manager ho" to a o#ate s#ar#e #redit risk #apita to ,ario$s !$sinesses so as to optimi3e the risk and ret$rn #hara#teristi#s of the firm) It is important or $nderstand that optimi3e does not mean minimi3e risk other"ise e,er% firm "o$ d simp % in,est its #apita in risk ess assets) A #redit risk management mode "orks !% #omparing the risk and ret$rn #hara#teristi#s !et"een indi,id$a assets or !$sinesses) One f$n#tion is to *$antif% the di,ersifi#ation of risks) Being "e Fdi,ersified means that the firms has no #on#entrations of risk to sa%& one geographi#a o#ation or one #o$nterpart%)
Ste0s t) f)++)3 t) minimi9e different t'0e )f risks$/

Standardi"ed Internal Ratings !redit Risk !redit Risk Models !redit Mitigation #rading $ook Risks Market Risk $anking $ook O erational Other Risks Other
0/
CRE#IT RATI" #efiniti)n$/

Credit rating is the pro#ess of assigning a etter rating to !orro"er indi#ating that #redit"orthiness of the !orro"er) Rating is assigned !ased on the a!i it% of the !orro"er D#ompan%E) To repa% the de!t and his "i ingness to do so) The higher rating of #ompan% the o"er the pro!a!i it% of its defa$ t)
!se in de(isi)n making$/

Credit rating he ps the !ank in making se,era ke% de#isions regarding #redit in# $ding 1) "hether to end to a parti#$ ar !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 e,e sho$ d san#tioning !e done& it sho$ d 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*$a#% of !orro"ers& #ash f o"& #o atera pro,ided& and re ationship "ith the !orro"erE -ro!a!i it% of the !orro"ers defa$ t !ased on past data)
Main feat$res of the rating too <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# $des trend ana %sis 1/ parameters are !en#hmarked against other p a%ers in the segment #aptions of ind$str% o$t ook I grade ratings !road % mapped "ith e(terna rating agen#ies pre,ai ing data)
00
Rating t))+ f)r SME$/

Interna #redit ratings are the s$mmar% indi#ators of risk for the !ank's indi,id$a #redit e(pos$res) It p a%s a #r$#ia ro e in #redit risk management ar#hite#t$re of an% !ank and forms the #ornerstone of appro,a pro#ess) Based on the g$ide ines pro,ided !% Boston Cons$ tan#% 1ro$p DBC1E& SBI adopted #redit rating too ) The rating too for SME !orro"er assigns the fo o"ing 6eight ages to ea#h one of the fo$r main #ategories i)e)& DiE s#enario DIE "itho$t monitoring too S ;o 1 . / 0 -arameters finan#ia performan#e operating performan#e *$a it% of management ind$str% o$t ook 6eightages D:E XXXX XXXX XXXX XXXX
DiiE) S#enario DIIE "ith monitoring too W#ond$#t of a##o$ntX<F the "eight age "o$ d !e #on,e%ed separate % on ro o$t of the too )In the a!o,e parameters first three parameters $sed to kno" the !orro"er #hara#teristi#s) In fo$rth en#aps$ ates 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$re o$t ook and ma#ro e#onomi# fa#tors)
02
Finan(ia+ 0erf)rman(e$/
S ;o 1 .) /) 0) 2) 9) H) I) J) 18) 11) 1.) S$! parameters ;et sa es gro"th rateD:E -B=IT 1ro"th rate D:E -B=IT ASa es D:E TO?AT;6 C$rrent ratio Operating #ash f o" =SCR Moreign e(#hange ratio E(pe#ted ,a $es of =AE of 28: of ;MB #redit de,o ,es Rea isa!i it% of =e!tors State of e(port #o$ntr% e#onom% M$nd dep$tation risk Tota 6eightages Din :E X((( X((( X((( X((( X((( X((( X((( X((( X((( X((( X((( X((( X(((((
O0erating 0erf)rman(e
S ;o 1) .) /) 0) 2) 9) H) I) J) S$! parameters #redit period a o"ed #redit period a,ai ed "orking #apita #%# e Ta( in#enti,es prod$#tion re ated risk prod$#t re ated risk pri#e re ated risk # ient risk fi(ed asset t$rno,er Tota 6eightage D:E X((( X((( X((( X((( X((( X((( X((( X((( X((( X(((((
09
@.a+it' )f management
S ;o 1) . / 0 2 9 s$! parameters >R -o i#% A Tra#k re#ord of ind$stria $nrest market report of management rep$tation histor% of MERA ,io ation A E= en*$ir% Too optimisti# pro+e#tions of sa es and other finan#ia s te#hni#a and manageria e(pertise #apa!i it% to raise mone% Tota 6eightages D:E X((( X((( X((( X((( X((( X((( X(((((
I; STATE BA;G OM I;=IA =MMERE;T -ARAMETERS USE=TO 1IVE RATI;1S ARE AS MO?O6S<F
MI;A;CIA? -ARAMETERS S);O M1DaE M.D!E Indi#atorAratio A$dited net sa es in ast %ear A$dited net sa es in %ear !efore ast S#ore X((( X(((
0H
M1D#E M1DdE M1DeE M. M/ M0 M2 M9 MH MI MJ M18 M11 M1. M1/
A$dited net sa es in . %ear !efore ast A$dited net sa es in / %ear !efore ast Estimated or pro+e#ted net sa es in ne(t %ear ;ET SA?ES 1RO6T> RATED:E -B=IT gro"th rateD:E ;et sa esD:E ROCED:E TO?AT;6 C$rrent ratio =SCR Interest #o,erage ratio Moreign e(#hange risk Re ia!i it% of de!tors Operating #ash f o" Trend in #ash a##r$a s
X((( X((( X((( X((( X( X( X( X(( X(( X(( X( X( X( X( (
BUSI;ESS -ARAMETERS S);O Indi#atorAratio

B1 B. B/ B0 B2 B9 BH BI BJ Credit period a o"edDda%sE Credit period a,ai edDda%sE 6orking #apita #%# eDtimesE -rod$#tion re ated risks -rod$#t re ated risks -ri#e re ated risks Mi(ed assets t$rno,er ;o) of %eas in !$siness ;at$re of # iente e !ase
S#ore
X( X( X( X( X X X X X
MA;A1EME;T -ARAMETERS
SR) ;O M1 I;=ICATORARATIO >R po i#% SCORE X 0I
Credit Risk Management in State Bank Of India M. Tra#k re#ord in pa%ment of stat$tor% and other d$es M/ Market report of management rep$tation M0 Too optimisti# pro+e#tions of sa es and other finan#ia s M2 Capa!i it% to raise reso$r#es M9 Te#hni#a and manageria e(pertise MH Repa%ment tra#k re#ord
X X X X X X
CO;=UCT -ARAMETERS
A1 A. A/ A0 A2 A9 AH B1 B. B/ B0 B2 B9 BH Creation of #harges on primar% se#$rit% Creation of #harges on #o atera and e(e#$tion of persona or #orporate g$arantee -roper e(e#$tion of do#$ments A,ai a!i it% of sear#h report Other terms and #onditions not #omp ied "ith Re#eipt of periodi#a data Re#eipt of !a an#e sheet ;egati,e de,iation in ha f %ear % net sa es ,isFZF,is proportionate estimates ;egati,e de,iation in ann$a net sa es ,isFZF,is estimates ;egati,e de,iation in ha f %ear % net profit ,isFZF,is proportionate estimates Ad,erse de,iation in in,entor% e,e in months ,isFZF,is estimate e,e Ad,erse de,iation in re#ei,a! es e,e in months ,isFZF,is estimated e,e S$a it% of re#ei,a! e assess from profi e of de!tors Ad,erse de,iation in #reditors e,e in months ,isFZF,is X X X X X X X X X X X X X X
0J
Credit Risk Management in State Bank Of India estimated e,e BI Comp ian#e of finan#ia #o,nants BJ ;egati,e de,iation in ann$a net profit ,isFZF,is estimates
X X
C. C/
Unit inspe#tion report o!ser,ations X A$dit report interna Astat$tor%A#on#$rrentARBI X Cond$#t of a##o$nt "ith other !anksA enders and information X on #onsorti$m
=1 =. =/ =0 =2 =9 =H =I =J =18 =11
Ro$ting of proportionate t$rno,erA!$siness Uti i3ation of fa#i itiesDnot app i#a! e for term oanE O,er d$e dis#o$nted !i s d$ring the period $nder re,ie" "ithin the san#tioned terms then not app i#a! e =e,o ,ed !i $nder ?A# o$tstanding d$ring the period $nder re,ie" In,oked B1s iss$ed o$tstanding d$ring the period $nder re,ie" Intergro$p transfers not !a#ked !% trade transa#tions d$ring the period $nder re,ie" Mre*$en#% of ret$rn of #he*$es per *$arter deposited !% !orro"er Mre*$en#% of iss$ing #he*$es per *$arter "itho$t s$ffi#ient !a an#e and ret$rned -a%ment of interest or insta ments Mre*$en#% of re*$est for A= >OC I;CREASE OM ?IMIS d$ring the ast one %ear Mre*$en#% of o,er dra"ings CC a##o$nt
X X X X X X X X X X X
28
E1 E. E/ E0
Stat$s of deterioration
in ,a $e of primar% se#$rit% or sto#k X X X X
dep etion Stat$s of deterioration in ,a $e of #o atera se#$rit% Stat$s of deterioration in persona net "orth and T;6 Ade*$a#% of ins$ran#e for the primar% A#o atera se#$rit%
M1 M. M/ M0 M2
?a!or sit$ationAind$stria re ations =e a% or defa$ t in pa%ments of sa aries and stat$tor% d$es ;on #oFoperation !% the !orro"er Intended endF$se of finan#ing An% other ad,erse feat$reAsnon finan#ia in# $ding #orporate go,ernan#e iss$es s$#hasad,erse p$! i#it%& stri#t$res from reg$ ators& piti#a risk and ad,erse trade en,ironment not #o,ered
X X X X X
#iffi(.+t' )f meas.ring (redit risk$/

Meas$ring #redit risk on a portfo io !asis is diffi#$ t) Banks and finan#ia instit$tions traditiona % meas$re #redit e(pos$res !% o! igor and ind$str%) The% ha,e on % re#ent % attempted to define risk *$antitati,e % in a portfo io #onte(t e)g)& a ,a $eFatFrisk DVaRE frame"ork) A tho$gh !anks and finan#ia instit$tions ha,e !eg$n to de,e op interna %& or p$r#hase& s%stems that meas$re VaR for #redit& !ank managements do not %et ha,e #onfiden#e in the risk meas$res the s%stems prod$#e) In parti#$ ar& meas$red risk e,e s depend hea,i % on $nder %ing ass$mptions and risk managers often do not ha,e great #onfiden#e in those parameters) Sin#e #redit deri,ati,es e(ist prin#ipa % to a o" for the effe#ti,e transfer of #redit risk& the diffi#$ t% in meas$ring #redit risk and the a!sen#e of #onfiden#e in the res$ t of risk meas$rement ha,e appropriate % made !anks #a$tio$s
21
Credit Risk Management in State Bank Of India a!o$t the $se of !anks and finan#ia instit$tions interna #redit risk mode s for reg$ ator% #apita p$rposes) Meas$rement diffi#$ ties e(p ain "h% !anks and finan#ia instit$tions ha,e not& $nti ,er% re#ent %& tried to imp ement meas$res to #a #$ ate Va $eFatFRisk DVaRE for #redit) The VaR #on#ept& $sed e(tensi,e % for market risk& has !e#ome so "e a##epted that !anks and finan#ia instit$tions s$per,isors a o" s$#h meas$res to determine #apita re*$irements for trading portfo ios) The mode s #reated to meas$re #redit risk are ne"& and ha,e %et to fa#e the test of an e#onomi# do"nt$rn) Res$ ts of different #redit risk mode s& $sing the same data& #an "ide %) Unti !anks ha,e greater #onfiden#e in parameter inp$ts $sed to meas$re the #redit risk in their portfo ios) The% "i & and sho$ d& e(er#ise #a$tion in $sing #redit deri,ati,es to manage risk on a portfo io !asis) S$#h mode s #an on % #omp ement& !$t not rep a#e& the so$nd +$dgment of seasoned #redit risk managers)
Credit Risk$/
The most o!,io$s risk deri,ati,es parti#ipants' fa#e is #redit risk) Credit risk is the risk to earnings or #apita of an o! igor's fai $re to meet the terms of an% #ontra#t the !ank or other"ise to perform as agreed) Mor !oth p$r#hasers and se ers of prote#tion& #redit deri,ati,es sho$ d !e f$ % in#orporated "ithin #redit risk management pro#ess) Bank management sho$ d integrate #redit deri,ati,es a#ti,it% in their #redit $nder"riting and administration po i#ies& and their e(pos$re meas$rement& imit setting& and risk ratingA# assifi#ation pro#esses) The% sho$ d a so #onsider #redit deri,ati,es a#ti,it% in their assessment of the ade*$a#% of the a o"an#e for oan and ease osses DA???E and their e,a $ation of #on#entrations of #redit)
2.
Credit Risk Management in State Bank Of India There a n$m!er of #redit risks for !oth se ers and !$%ers of #redit prote#tion& ea#h of "hi#h raises separate risk management iss$es) Mor !anks and finan#ia instit$tions se ing #redit prote#tion the primar% so$r#e of #redit is the referen#e asset or entit%)
Managing (redit risk$/

Mor !anks and finan#ia instit$tions se ing #redit prote#tion thro$gh a #redit deri,ati,e& management sho$ d #omp ete a finan#ia ana %sis of !oth referen#e o! igorDsE and the #o$nterpart% Din !oth defa$ t s"aps and TRSsE& esta! ish separate #redit imits for ea#h& and assign appropriate risk rating) The ana %sis of the referen#e o! igor sho$ d in# $de the same e,e of s#r$tin% that a traditiona #ommer#ia !orro"er "o$ d re#ei,e) =o#$mentation in the #redit fi e sho$ d s$pport the p$rpose of the transa#tion and #redit "orthiness of the referen#e o! igor) =o#$mentation sho$ d !e s$ffi#ient to s$pport the referen#e o! igor) =o#$mentation sho$ d !e s$ffi#ient to s$pport the referen#e o! igor's risk rating) It is espe#ia % important for !anks and finan#ia instit$tions to $se rigoro$s d$e di igen#e pro#ed$re in originating #redit e(pos$re ,ia #redit deri,ati,e) Banks and finan#ia instit$tions sho$ d not a o" the ease "ith "hi#h the% #an originate #redit E(pos$re in the #apita markets ,ia deri,ati,es to ead to a( $nder"riting standards& or to ass$me e(pos$res indire#t % that the% "o$ d not originate dire#t %) Mor !anks and finan#ia instit$tions p$r#hasing #redit prote#tion thro$gh a #redit deri,ati,e& management sho$ d re,ie" the #redit"orthiness of the #o$nterpart%& esta! ish a #redit imit& and assign a risk rating) The #redit ana %sis of the #o$nterpart% sho$ d !e #onsistent "ith that #ond$#ted for other !orro"ers or trading #o$nterparties) Management sho$ d #ontin$e to monitor the #redit *$a it% of the $nder %ing #redits hedged) A tho$gh the #redit deri,ati,es ma% pro,ide defa$ t prote#tion& in man% instan#es the !ank "i retain the $nder %ing #redits after sett ement or mat$rit% of the #redit deri,ati,es) In the e,ent the #redit *$a it% deteriorates& as ega o"ner of the asset& management m$st take a#tions ne#essar% to impro,e the #redit)
2/
Credit Risk Management in State Bank Of India Banks and finan#ia instit$tions sho$ d meas$re #redit e(pos$res arising from #redit deri,ati,es transa#tions and aggregate "ith other #redit e(pos$res to referen#e entities and #o$nterparties) These transa#tions #an #reate high % #$stomi3ed e(pos$res and the e,e of riskAprote#tion #an ,ar% signifi#ant % !et"een transa#tions) Meas$rement sho$ d do#$ment and s$pport their e(pos$res meas$rement methodo og% and $nder %ing ass$mptions) The #ost of prote#tion& ho"e,er& sho$ d ref e#t the pro!a!i it% of !enefiting from this !asis risk) More genera %& $n ess a the terms of the #redit deri,ati,es mat#h those of the $nder %ing e(pos$re& some !asis risk "i e(ist& #reating an e(pos$re for the terms and #onditions of prote#tion agreements to ens$re that the #ontra#t pro,ides the prote#tion desired& and that the hedger has identified so$r#es of !asis risk)
A 0)rtf)+i) a00r)a(- t) (redit risk management$/

Sin#e the 1JI8s& Banks and finan#ia instit$tions ha,e s$##essf$ % app ied modern portfo io theor% DM-TE to market risk) Man% !anks and finan#ia instit$tions are no" $sing earnings at risk DEaRE and Va $e at Risk DVaRE mode s to manage their interest rate and market RISG EX-OSURES) Unfort$nate %& ho"e,er& e,en thro$gh #redit risk remains the argest risk fa#ing most !anks and finan#ia instit$tions& the app i#ation of M-T to #redit risk has agged) The s o" de,e opment to"ard a portfo io approa#h for #redit risk res$ ts for the fo o"ing fa#tors< F F F F The traditiona ,ie" of oans as ho dFtoFmat$rit% assets) The a!sen#e of too s ena! ing the effi#ient transfer of #redit risk to in,estors "hi e #ontin$ing to maintain !ank #$stomer re ationships) The a#k of effe#ti,e methodo ogies to meas$re portfo io #redit risk) =ata pro! ems
20
Credit Risk Management in State Bank Of India Banks and finan#ia instit$tions re#ogni3e ho" #redit #on#entrations #an ad,erse % impa#t finan#ia performan#e) As a res$ t& a n$m!er of sophisti#ated instit$tions are a#ti,e % p$rs$ing *$antitati,e approa#hes to #redit risk meas$rement) 6hi e date pro! ems remain an o!sta# e& these ind$str% pra#titioners are making signifi#ant progress to"ard de,e oping too s that meas$re #redit risk in a portfo io #onte(t) The% are a so $sing #redit deri,ati,es to transfer risk effi#ient % "hi e preser,ing #$stomer re ationships) The #om!ination of these t"o de,e opments has pre#ipitated ,ast % a##e erated progress in managing #redit risk in a portfo io #onte(t o,er the past se,era %ears)
Asset A 2' A asset a00r)a(-$/

Traditiona %& !anks ha,e taken an asset 7 !% 7 asset approa#h to #redit risk management) 6hi e ea#h !ank's method ,aries& in genera this approa#h in,o ,es periodi#a % e,a $ating the #redit *$a it% of oans and other #redit e(pos$res) App %ing a a##redit risk rating and aggregating the res$ ts of this ana %sis to identif% a portfo io's e(pe#ted osses) The fo$ndation of thee assetF!%Fasst approa#h is a so$nd oan re,ie" and interna #redit risk rating s%stem) A oan re,ie" and #redit risk rating s%stem ena! es management to identif% #hanges in indi,id$a #redits& or portfo io trends& in a time % manner) Based on the res$ ts of its pro! em oan identifi#ation& oan re,ie" and #redit risk rating s%stem management #an make ne#essar% modifi#ations to portfo io strategies or in#rease the s$per,ision of #redits in a time % manner) Banks and finan#ia instit$tions m$st determine the appropriate e,e of the a o"an#es for oan and osses DA???E on a *$arter % !asis) On arge pro! em #redits& the% assess ranges of e(pe#ted osses !ased on their e,a $ation of a n$m!er of fa#tors& s$#h as e#onomi# #onditions and #o atera ) On sma er pro! em #redits and on 5pass' #redits& !anks #ommon % assess the defa$ t pro!a!i it% from histori#a migration ana %sis) Com!ining the res$ ts of the e,a $ation of indi,id$a arge pro! em #redits and histori#a
22
Credit Risk Management in State Bank Of India migration ana %sis& !anks estimate e(pe#ted osses for the portfo io and determine pro,isions re*$irements for the A???) =efa$ t pro!a!i ities do not& ho"e,er indi#ate oss se,erit%< i)e)& ho" m$#h the !ank "i ose if a #redit defa$ ts) A #redit ma% defa$ t& %et e(pose a !ank to a minima oss risk if the oan is "e se#$red) On the other hand& a defa$ t might res$ t in a #omp ete oss) Therefore& !anks and finan#ia instit$tions #$rrent % $se histori#a migration matri#es "ith information on re#o,er% rates in defa$ t sit$ations to assess the e(pe#ted potentia in their portfo ios)
P)rtf)+i) a00r)a(-$/
6hi e the assetF!%Fasset approa#h is a #riti#a #omponent to managing #redit risk& it does not pro,ide a #omp ete ,ie" of portfo io #redit risk "here the term 5risk' refers to the possi!i it% that osses e(#eed e(pe#ted osses) Therefore& to again greater insights into #redit risk& !anks in#reasing % ook to #omp ement the assetF!%Fasset approa#h "ith the *$antitati,e portfo io re,ie" $sing a #redit mode ) 6hi e !anks e(tending #redit fa#e a high pro!a!i it% of a sma gain Dpa%ment of interest and ret$rn of prin#ipa E& the% fa#e a ,er% o" pro!a!i it% of arge osses) =epending& $pon risk to eran#e& in,estor ma% #onsider a #redit portfo io "ith a arger ,arian#e ess risk% than one "ith a sma er ,arian#e if the sma ,arian#e portfo io has some pro!a!i it% of an $na##epta! % arge oss) One "eakness "ith the assetF!%Fasset approa#h is that it has diffi#$ t% and meas$ring #on#entration risk) Con#entration risk refers to additiona portfo io risk res$ ting from in#reased e(pos$re to a !orro"er or to a gro$p of #orre ated !orro"ers) for e(amp e the high #orre ation !et"een energ% and rea estate pri#es pre#ipitated a arge n$m!er of fai $res of !anks that had #redit #on#entrations in those se#tors in the mid 1JI8s)
29
Credit Risk Management in State Bank Of India T"o important ass$mptions of portfo io #redit risk mode s are< 1) the ho ding period of p anning hori3on o,er "hi#h osses are predi#ted .) >o" #redit osses "i !e reported !% the mode ) Mode s genera % report either a defa$ t or market ,a $e distri!$tion) The o!+e#ti,e of #redit risk mode ing is to identif% e(pos$res that #reate an $na##epta! e riskAre"ard profi e) S$#h as might arise from #redit #on#entration) Credit risk management seeks to red$#e the $ns%stemati# risk of a portfo io !% di,ersif%ing risks) As !anks and finan#ia instit$tions gain greater #onfiden#e in their portfo io mode ing #apa!i ities) It is ike % that #redit deri,ati,es "i !e#ome a more signifi#ant ,ehi# e in to manage portfo io #redit risk) 6hi e some !anks #$rrent % $se #redit deri,ati,es to hedge $ndesired e(pos$res m$#h of that a#ti,e % in,o ,es a desire to red$#e #apita re*$irements) APPRAISAL OF THE FIRMS POSITIO" O" BASIS OF FOLLO,I" PARAMETERS 1) Manageria Competen#e .) Te#hni#a Measi!i it% /) Commer#ia ,ia!i it% 0) Minan#ia Via!i it% OTHER
Manageria+ C)m0eten(e $
Ba#k gro$nd of promoters E(perien#e Te#hni#a ski s& Integrit% 4 >onest% ?e,e of interest A #ommitment in pro+e#t Asso#iate #on#erns
2H
Credit Risk Management in State Bank Of India Te(-ni(a+ Feasi2i+it' < ?o#ation Si3e of the -ro+e#t Ma#tor% !$i ding - ant 4 Ma#hiner% -ro#ess 4 Te#hno og% Inp$ts A $ti ities ) C)mmer(ia+ %ia2i+it' < =emand fore#asting A Ana %sis Market s$r,e% -ri#ing po i#ies Competition E(port po i#ies
Finan(ia+ %ia2i+it'$
6hether ade*$ate f$nds are a,ai a! e at afforda! e #ost to imp ement the pro+e#t 6hether s$ffi#ient profits "i !e a,ai a! e 6hether BE- or margin of safet% are satisfa#tor% 6hat "i !e the o,era finan#ia position of the !orro"er in #oming %ears)
Credit in*estigati)n re0)rt

Bran#h prepares Credit in,estigation report in order to a,oid #onse*$en#e in ater stage Credit in,estigation report sho$ d !e a part of #redit proposa ) Bank has to s$!mit the d$ % #omp eted #redit in,estigation reports after #ond$#ting a detai ed #redit in,estigation as per g$ide ines)
2I
S)me )f t-e g.ide+ines in t-is regards as f)++)3$

6here,er a proposa is to !e #onsidered !ased on % on merits of f agships #on#erns of the gro$p& then s$#h s$pport sho$ d a so !e #ompi ed in respe#t of s$!+e#t f agship in #on#ern !esides the app i#ant #ompan%) In regard of proposa s fa ing !e%ond the po"er of rating offi#er& the !ran#h sho$ d ens$re parti#ipation of rating offi#er in #ompi ation of this report) The #redit in,estigation report sho$ d a##ompan% a the proposa s "ith the f$nd !ased imit of a!o,e .2 ?akhs and or non f$nd !ased of a!o,e Rs) 28 ?akhs) The part% ma% !e s$ita! % kept informed that the #ompi ation of this report is one of the re*$irements in the #onne#tion "ith the pro#essing for #onsideration of the proposa ) The !ran#h sho$ d o!tain a #op% of atest san#tion etter !% e(isting !anker or the finan#ia instit$tion to the part% and terms and #onditions of the san#tion sho$ d st$died in detai ) Comments sho$ d !e made "here,er ne#essar%& after making the o!ser,ationsA apses in the fo o"ing terms of san#tion) Some of the important fa#tors ike f$nding of interest& re s#hed$ e of oans et# terms and #onditions sho$ d !e high ighted) Cop% of statement of a##o$nts for the atest 9 months period sho$ d !e o!tained !% the !ank) To get the present #ondition of the part%) Remarks sho$ d !e made !% the !ank on ad,erse feat$res o!ser,ed) De)g)& e(#ess dra"ings& ret$rn of #he*$es et#E) -ersona en*$ir% sho$ d !e made !% the !ank offi#ia "ith responsi! e offi#ia of part%'s present A other !ankers and en*$iries sho$ d !e made "ith a e i#it information on #ond$#t of a##o$nt et#)
2J
Credit Risk Management in State Bank Of India Care sho$ d !e taken in se e#tion of #$stomers or #reditors "ho a#ts as the representati,e) The% sho$ d !e inter,ie"ed and #ompi ation of opinion sho$ d !e done) En*$iries sho$ d !e made regarding the *$a it% of prod$#t& pa%ment terms& and period of o,erd$e "hi#h sho$ d !e mentioned # ear % in the report) En*$ir% sho$ d !e aimed to as#ertain the stat$s of trading of the app i#ant and to kno" their #apa!i it% to meet their #ommitments in time) To kno" the market trend !ran#h sho$ d en*$ire the person or ind$str% that is in the same ine of !$siness a#ti,it%) In depth o!ser,ation ma% !e made of the app i#ant as to < i) ii) iii) i,) ,) ,i) ,ii) "hether the $nit is "orking in f$ s"ing n$m!er of shifts and n$m!er of emp o%ees an% o!so ete sto#ks "ith the $nit #apa#it% of the $nit nat$re and #onditions of the ma#hiner% insta ed Information on po"er& "ater and po $tion #ontro et#) information on ind$stria re ation and marketing strateg%
CRE#IT FILES$/
It's the fi e& "hi#h pro,ides important so$r#e materia for oan s$per,ision in regard to information for interna re,ie" and e(terna a$dit) Bran#h has to maintain separate #redit fi e #omp$ sori % in #ase of ?oans e(#eeding Rs 28 ?akhs "hi#h sho$ d !e maintained for *$i#k a##ess of the re ated information)
C)ntents )f t-e (redit fi+e<F

!asi# information report on the !orro"er mi estones of the !orro"ing $nit
98
Credit Risk Management in State Bank Of India #ompetiti,e ana %sis of the !orro"er #redit appro,a memorand$m finan#ia statement #op% of san#tion #omm$ni#ation se#$rit% do#$mentation ist =ossier of the se*$en#e of e,ents in the a##o$nts Co atera ,a $ation report ?atest edger page s$per,ision report >a f %ear % #redit reporting of the !orro"er S$arter % risk # assifi#ation -ress # ippings and ind$stria ana %sis appearing in ne"spaper Min$tes of atest #onsorti$m meeting C$stomer profita!i it% S$mmar% of inspe#tion of a$dit o!ser,ation Credit fi es pro,ide a information regarding present stat$s of the oan a##o$nt on !asis of #redit de#ision in the past) This fi e he ps the #redit offi#er to monitor the a##o$nts and pro,ides #on#ise information regarding !a#kgro$nd and the #$rrent stat$s of the a##o$nt
91
STU=Y O; CRE=IT RISG MA;A1EME;T I; STATE BA;G OM I;=IA
9.
THE TERMS [ [ Credit is Mone% ent for a period of Time at a Cost DinterestE Credit Risk is ina!i it% or $n"i ingness of #$stomer or #o$nter part% to meet #ommitments =efa$ tA 6i f$ defa$ t [ ?osses d$e to fa in #redit *$a it% rea A per#ei,ed
Treatment )f ad*an(es MaB)r Categ)ries$ [ [ [ [ [ [ [ 1o,ernments -SEs Dp$! i# Se#tor EnterprisesE Banks Corporate Retai C aims against residentia propert% C aims against #ommer#ia rea estate
T"o Approa#hes
7 7 Standardised Approa#h and Interna Ratings Based Approa#h Din f$t$re 7 to !e notified !% RBI aterE 7not to !e #o,ered no"
9/
Standardised A00r)a(The standardi3ed approa#h is #on#ept$a % the same as the present a##ord& !$t is more risk sensiti,e) The !ank a o#ates risk to ea#h of its assets and off !a an#e sheet positions and prod$#es a s$m of risk "eighted asset ,a $es) Arisk "eight of 188: means that an e(pos$re is in# $ded in the #a #$ ation of risk "eighted assets ,a $e& "hi#h trans ates into a #apita #harge e*$a to J: of that ,a $e) Indi,id$a risk "eight #$rrent % depends on the !road #ategor% of !orro"er Di)e so,ereign& !anks or #orporateE) Under the ne" a##ord the risk "eights are to !e refined !% referen#e rating pro,ided !% an e(terna #redit assessment instit$tionD s$#h as rating agen#%E that meets stri#t demands)
Credit Risk
Standardi3ed Approa#h
Interna Rating Based Approa#h
Se#$riti3ation Mrame"ork
Mo$ndation IRB
Ad,an#ed IRB
90
Credit Risk Management in State Bank Of India PROPOSE# RISK ,EI HT TABLE Credit AAA t) AC t) A/ .8: BBBC t) BBB/ 28: BBC T) B/ 188: Be+)3 B/ 128: !nrated 188:
Assessment AA/ So,ereignD1o,t)4 8: Centra BankE C aims on Banks Option 1 Option .a Option .! Corporate
.8: .8: .8: .8:
28: 28: .8:
188: 28: .8:
188: 188: 28:
128: 128: 128:
188: 28: .8:
Option 1 \ Risk 6eight !ased on risk "eight of the #o$ntr% Option .a \ Risk "eight !ased on assessment of indi,id$a !ank Option .! \ Risk 6eight !ased on assessment of indi,id$a !anks "ith # aims of origina mat$rit% of ess than 9 months) Retai -ortfo ioD s$!+e#t to *$a if%ing #riteriaE H2: C aims Se#$red !% residentia propert% ;on -erforming Assets< If spe#ifi# pro,ision is ess than .8: If spe#ifi# pro,ision is more than .8: 128: 188: /2:
[ [
Simp e approa#h simi ar to Base I Ro o$t from Mar#h .88I 92
Credit Risk Management in State Bank Of India [ Risk "eight for ea#h !a an#e sheet 4 off !a an#e sheet item) That is& MB 4 ;MB& !oth) [ [ [ [ Risk "eight for Retai red$#ed Risk "eight for Corporate F a##ording to e(terna rating !% agen#ies appro,ed !% RBI and registered "ith SEBI ?o"er risk "eight for sma er home oans D] .8 a#sE Risk "eight for $n$ti i3ed imits \ D?imitF o$tstandingE ^8 Importan#e of reporting imit data #orre#t % DIf a imit of Rs)18 a#s is reported in ?imit fie d as Rs)188 a#s& e,en "ith f$ $ti isation of a#t$a imit& Rs) J8 a#s "i !e sho"n as $n$ti ised imit& and #apita a o#ated against s$#h fi#titio$s data at pres#ri!ed ratesE) Risk 3eig-ts [ [ [ [ [ Centra 1o,ernment g$aranteed 7 8: State 1o,t) 1$aranteed 7 .8: S#hed$ ed !anks Dha,ing min) CRARE 7 .8: ;onFs#hed$ ed !ank Dha,ing min) CRARE F188: >ome ?oans D?TV ] H2:E [ [ [ [ [ ?ess than Rs .8 akhs 7 28: Rs .8 akhs and a!o,e 7 H2:
>ome ?oans D?TV ^ H2:E 7 188: Commer#ia Rea estate oans 7 128: -ersona ?oans and #redit #ard re#ei,a! esF 1.2:
[ [
Staff >ome ?oansA-M ?ien noted oans 7 .8: Cons$mer #redit D-ersona ?oansA Credit Card Re#ei,a! esE 7 1.2:
99
Credit Risk Management in State Bank Of India [ 1o d oans $p to Rs 1 akh 7 28: [ ;-As "ith pro,isions ].8: 128: .8 to ] 28: 188: 28: and a!o,e 28:
FdoF FdoF [ [ [
Restr$#t$redA res#hed$ ed ad,an#es 7 1.2: Credit Con,ersion Ma#tors DCCMsE to !e app ied on off !a an#e sheet items W;MBX 4 $n$ti ised imits !efore app %ing risk "eights) Some important CCMs 7 =o#$mentar% ?Cs 7 .8: D;onF do#$mentar% F 188:EK -erf) 1$arantees 7 28:& Min) 1teesF 188:& Un$ti ised imits 7 .8: D$p to 1 %earE& 28: D!e%ond 1 %earE
Standardised Approa#h 7 ?ong term
Rating
AAA
AA
9H
Credit Risk Management in State Bank Of India Mrom 1)0).88J& $nrated e(pos$re more than Rs 18 #rores "i attra#t a Risk 6eight of 128: Mor .88IF.88J D"ef 1)0).88IE& $nrated e(pos$re more than Rs 28 #rores "i attra#t a Risk 6eight of 128:
Standardi3ed Approa#h 7 Short Term
CARE
-R1V
-R1
-R.
Co atera s re#ognised !% Base II $nder Standardised Approach
9I
-R/
Cash 1o d Se#$rities iss$ed !% Centra and State 1o,t GV-s and ;SCs Dnot o#ked inE ?ife -o i#ies Spe#ified i*$id =e!t Se#$rities E*$ities forming part of inde( MMs 7 S$oted and in,esting in Base II #o atera Components of Credit Risk
Si3e of E(pe#ted ?oss
BE(pe#ted BE(pe#ted ?ossB ?ossB
E? \
1)
6hat is the pro!a!i it% of a defa$ t D;-AEY
-ro!a!i -ro!a!i it% it% of of =efa$ =efa$ tt DMre*$en#%E DMre*$en#%E
-= X Ea=
.)
>o" m$#h "i !e the ike % e(pos$re in the #ase the ad,an#e !e#omes ;-AY >o" m$#h of that e(pos$re is the !ank going to oseY
E(pos$re E(pos$re at at =efa$ =efa$ tt \ \ ?oss 1i,en =efa$ t BSe,erit%C
X ?1=
/)
9J
S-)rt/term and L)ng/Term Ratings$

Mor E(pos$res "ith a #ontra#t$a mat$rit% of ess than or e*$a to one %ear ;eD(e0t Cas- Credit1 O*erdraft and )t-er Re*)+*ing Credits< ShortFterm Ratings gi,en !% ECAIs "i !e app i#a! e) Mor =omesti# Cash Credit& O,erdraft and other Re,o ,ing Credits irrespe#ti,e of the period and Term ?oan e(pos$res of o,er 1 %ear& ?ong Term Ratings gi,en !% ECAIs "i !e app i#a! e) Mor O,erseas e(pos$res& irrespe#ti,e of the #ontra#t$a mat$rit%& ?ong Term Ratings gi,en !% IRAs "i !e app i#a! e) Rating assigned to one parti#$ ar entit% "ithin a #orporate gro$p #annot !e $sed to risk "eight other entities "ithin the same gro$p)
H8
COMPETITORS #ETAILS
In =har"ad Main #ompetitors of State Bank of India are ICICI Bank in pri,ate se#tor !anks and S%ndi#ate Bank and Corporation Bank In p$! i# se#tor) In SBI& it #an !e !etter $nderstood "ith gi,en -ie diagram as fo o"s) < POSITIO" OF STATE BA"K OF I"#IA I" LE"#I" ;PRI%ATE SECTOR BA"K<$ BA"K State Bank Of India ICICI !ank >=MC UTI LE"#I" .J 12 2 .2 I" Cr
Lending in cr
BANK State Bank Of India ICICI bank HDFC UTI
H1
Credit Risk Management in State Bank Of India POSITIO" OF STATE BA"K OF I"#IA I" LE"#I" ;P!BLIC SECTOR BA"KS <$ BA"K State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank LE"#I" .J .9 ./ .2 I" Cr
Lending in cr
BANK State Bank Of India Syndicate Bank Canara Bank Corporation Bank
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
H.
Credit Risk Management in State Bank Of India 6here g$arantees are dire#t& e(p i#it& irre,o#a! e and $n#onditiona !anks ma% take a##o$nt of s$#h #redit prote#tion in #a #$ ating #apita re*$irements) A range of g$arantors are re#ognised) As $nder the 1JII A##ord& a s$!stit$tion approa#h "i !e app ied) Th$s on % g$arantees iss$ed !% entities "ith a o"er risk "eight than the #o$nterpart% "i ead to red$#ed #apita #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 $nder %ing #o$nterpart%) =etai ed operationa re*$irements for g$arantees e igi! e 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 # aim on the prote#tion pro,ider and m$st !e e(p i#it % referen#ed to spe#ifi# e(pos$res or a poo of e(pos$res& so that the e(tent of the #o,er is # ear % defined and in#ontro,erti! e) The g$arantee m$st !e irre,o#a! eK there m$st !e no # a$se in the #ontra#t that "o$ d a o" the prote#tion pro,ider $ni atera % to #an#e the #o,er or that "o$ d in#rease the effe#ti,e #ost of #o,er as a res$ t of deteriorating #redit *$a it% in the g$aranteed e(pos$re) The g$arantee m$st a so !e $n#onditiona K there sho$ d !e no # a$se in the g$arantee o$tside the dire#t #ontro of the !ank that #o$ d pre,ent the prote#tion pro,ider from !eing o! iged to pa% o$t in a time % manner in the e,ent that the origina #o$nterpart% fai s to make the pa%mentDsEd$e) DiiE A e(pos$res "i !e risk "eighted after taking into a##o$nt risk mitigation a,ai a! e in the form of g$arantees) 6hen a g$aranteed e(pos$re is # assified as nonFperforming& the g$arantee "i #ease to !e a #redit risk mitigant and no ad+$stment "o$ d !e
H/
Credit Risk Management in State Bank Of India permissi! e 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 rea isa! e ,a $e of e igi! e #o atera s A #redit risk mitigants& "i attra#t the appropriate risk "eight
Additi)na+ )0erati)na+ re4.irements f)r g.arantees

In addition to the ega #ertaint% re*$irements in paragraphs H). a!o,e& in order for a g$arantee to !e re#ognised& the fo o"ing #onditions m$st !es satisfied< DiE On the *$a if%ing defa$ tAnonFpa%ment of the #o$nterpart%& the !ank is a! e in a time % manner to p$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 $mp s$m pa%ment of a monies $nder s$#h do#$mentation to the !ank& or the g$arantor ma% ass$me the f$t$re pa%ment o! igations of the #o$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$t first ha,ing to take ega a#tions in order to p$rs$e the #o$nterpart% for pa%ment) DiiEThe g$arantee is an e(p i#it % do#$mented o! igation ass$med !% the g$arantor) DiiiEE(#ept as noted in the fo o"ing senten#e& the g$arantee #o,ers a t%pes of pa%ments the $nder %ing o! igor is e(pe#ted to make $nder the do#$mentation go,erning the transa#tion& for e(amp e notiona amo$nt& margin pa%ments et#) 6here a g$arantee #o,ers pa%ment of prin#ipa on %& interests and other $n#o,ered pa%ments)
@.a+itati*e #is(+)s.res
H0
Credit Risk Management in State Bank Of India DaE The genera *$a itati,e dis# os$re re*$irement Dparagraph 18)1/ E "ith respe#t to #redit risk& in# $ding< =efinitions of past d$e and impaired Dfor a##o$nting p$rposesEK =is#$ssion of the !ank's #redit risk management po i#%K
@.antitati*e #is(+)s.res D!E Tota gross #redit risk e(pos$res.0& M$nd !ased and ;onFf$nd !ased separate %) D#E 1eographi# distri!$tion of e(pos$res.2& M$nd !ased and ;onFf$nd !ased separate % O,erseas =omesti#
DdE Ind$str%.9 t%pe distri!$tion of e(pos$res& f$nd !ased and nonFf$nd !ased separate % DeE Resid$a #ontra#t$a mat$rit% !reakdo"n of assets&.H DgE Amo$nt of ;-As D1rossE S$!standard =o$!tf$ 1 =o$!tf$ . =o$!tf$ / ?oss
DhE ;et ;-As DiE ;-A Ratios 1ross ;-As to gross ad,an#es ;et ;-As to net ad,an#es
H2
Credit Risk Management in State Bank Of India D+E Mo,ement of ;-As D1rossE Opening !a an#e Additions Red$#tions C osing !a an#e
DkE Mo,ement of pro,isions for ;-As Opening !a an#e -ro,isions made d$ring the period 6riteFoff 6riteF!a#k of e(#ess pro,isions C osing !a an#e
D E Amo$nt of ;onF-erforming In,estments DmE Amo$nt of pro,isions he d for nonFperforming in,estments DnE Mo,ement of pro,isions for depre#iation on in,estments Opening !a an#e -ro,isions made d$ring the period 6riteFoff 6riteF!a#k of e(#ess pro,isions C osing !a an#e
H9
STU=Y O; CRE=IT -O?ICY
HH
Intr)d.(ti)n t) Credit P)+i('6

Bank's in,estments in a##o$nts re#ei,a! e depends on< DaE the ,o $me of #redit sa es& and D!E the #o e#tion period) There is one "a% in "hi#h the finan#ia manager #an affe#t the ,o $me of #redit sa es and #o e#tion period and #onse*$ent %& in,estment in a##o$nts re#ei,a! es) That is thro$gh the #hanges in #redit po i#%) The term #redit po i#% is $sed to refer to the #om!ination of three de#ision ,aria! es< D1E #redit standards& D.E #redit terms& and D/E #o e#tion efforts& on "hi#h the finan#ia manager has inf $en#e)
;E< Credit Standards<

Credit Standards are #riteria to de#ide the t%pes of #$stomers to "hom goods #o$ d !e so d on #redit) If a firm has more s o"Fpa%ing #$stomers& its in,estment in a##o$nts re#ei,a! e "i in#rease) The firm "i a so !e e(posed to higher risk of defa$ t)
;F< Credit Terms$

Credit Terms spe#if% d$ration of #redit and terms of pa%ment !% #$stomers) In,estment in a##o$nts re#ei,a! es "i !e high if #$stomers are a o"ed e(tended time period for making pa%ments)
;G< C)++e(ti)n Eff)rts$

Co e#tion efforts determine the a#t$a #o e#tion period) The o"er the #o e#tion period& the o"er the in,estment in a##o$nts re#ei,a! e and higher the #o e#tion period& the higher the in,estment in a##o$nts re#ei,a! e)
HI
OALS OF CRE#IT POLIC&

A firm ma% fo o" a enient or a stringent #redit po i#%) The firm fo o"ing a enient #redit po i#% tends to se on #redit to #$stomers on ,er% i!era terms and standardsK #redits are granted for onger periods e,en to those #$stomers "hose #redit"orthiness is not f$ % kno"n or "hose finan#ia position is do$!tf$ ) In #ontrast& a firm fo o"ing a stringent #redit po i#% se s on #redit on a high % se e#ti,e !asis on % to those #$stomers "ho ha,e pro,en #redit"orthiness and "ho are finan#ia % strong) In pra#ti#e& fo o" #redit po i#ies are ranging !et"een stringent to enient) Mirms $se #redit po i#% as a marketing too for e(panding sa es) In de# ining market& it ma% !e $sed to maintain the market share) Credit -o i#% he ps to retain o d #$stomers and #reate ne" #$stomers !% "eaning them a"a% from #ompetitors) In a gro"ing market& it is $sed to in#rease the firm's market share) Under a high % #ompetiti,e sit$ation or re#essionar% e#onomi# #onditions& a firm ma% oose its #redit po i#% to maintain sa es or to minimi3e erosion of sa es)
HJ
OBJECTI%ES
T-e main )2Be(ti*es )f BankHs Credit P)+i(' are$ #ompromise safet%) Adoption of a for"ardF ooking and market responsi,e approa#h for mo,ing into profita! e ne" areas of ending "hish emerge& "ithin the pre determined e(pos$re #ei ings) rating and ten$re management at a Ens$re d$e #omp ian#e of ,ario$s reg$ ator% norms& in# $ding A##omp ish !a an#ed dep o%ment of #redit a#ross ,ario$s A#hie,e gro"th of #redit to priorit% se#tors A s$! se#tors and Use pri#ing as a too of #ompetiti,e ad,antage ens$ring =e,e op and maintain enhan#ed #ompeten#ies in #redit e,e s thro$gh a #om!ination of training initiati,es and CAR& In#ome Re#ognition and Asset C assifi#ation) se#tors and geographi#a regions) #ontin$e to s$rpass the targets stip$ ated !% Reser,e Bank of India) ho"e,er that earnings are prote#ted) So$nd risk management pra#ti#es to identif%& meas$re& monitor Ma(imi3e interest %ie ds from the #redit portfo io thro$gh a and #ontro #redit risks) +$di#io$s management of ,ar%ing spreads for oan assets !ased $pon their si3e& #redit A !a an#ed gro"th of the #redit portfo io "hi#h does not
dissemination of !est pra#ti#es)
I8
Credit Risk Management in State Bank Of India s
COMPARISO" OF LOA"S = A#%A"CES OF STATE BA"K OF I"#IA ,ITH OTHER P!BLIC A"# PRI%ATE SECTOR BA"KS F)r t-e 'ear FIIG$ "ame Of t-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank Amt )f ad*an(es 1/HH2I)09 19/82)/2 080H1)98 1.8.J)1H 11H20)I9 2.0H0)0I H1HJ)J.
loans %nd %d&ances for the 'ear ())*

"40000 "20000 "00000 %mount !0000 0000 40000 20000 0 " 2 # 4 $ % ! Serie&" Serie&2
$anks
I1
Credit Risk Management in State Bank Of India F)r t-e 'ear FIIJ$ "ame Of t-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank Amt )f ad*an(es 12HJ//)20 .8909)J/ 0H9/I)9. 1/IIJ)H. 1HH00)21 98H2H)/9 J/9.)J2
loans and %d&ances for the 'ear ()),

" 0000 "40000 "20000 "00000 %mount !0000 0000 40000 20000 0 " 2 # 4 $ % ! Serie&" Serie&2
+ames of banks
F)r t-e 'ear FIIK$ I.
Credit Risk Management in State Bank Of India "ame Of t-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank Amt )f ad*an(es .8./H0)09 .9H.J).1 980.1)08 1I209)/H .2299)/8 IIJJ1)H2 1298.)J.
loans and %d&ances for the 'ear ())2$0000 200000 "$0000 %mount "00000 $0000 0 " 2 # 4 $ % ! Serie&" Serie&2
+umbers of $anks
I/
F)r t-e 'ear FIIL$ "ame Of t-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank Amt )f ad*an(es .91901)20 /9099).0 HJ0.2)9J ./J9.)0/ /2891).9 10/8.J)IJ ../10)./
loans and %d&ance for the 'ear ()).

#00000 2$0000 200000 %mount "$0000 "00000 $0000 0 " 2 # 4 $ % ! Serie&" Serie&2
+umber of banks
I0
F)r t-e 'ear FIIM$ "ame Of t-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank Amt )f ad*an(es //H//9)0J 219H8)00 JI282)9J .JJ0J)92 09J00)HI 1900I0)/I /9IH9)0I
Loans / %d&ances for the 'ear ())0

#$0000 #00000 2$0000 %mount 200000 "$0000 "00000 $0000 0 " 2 # 4 $ % ! Bank& A't
+ame of $anks
I2
Inter0retati)n$
Considering the a!o,e data "e #an sa% that %ear on %ear the amo$nt of ad,an#es ent !% State Bank of India has in#reased "hi#h indi#ates that the !ank's !$siness is rea % #ommenda! e and the Credit -o i#% it has maintained is a!so $te % good) 6hereas other !anks do not ha,e s$#h good !$siness SBI is ahead in terms of its !$siness "hen #ompared to !oth -$! i# Se#tor and -ri,ate Se#tor !anks& this imp ies that SBI has in#orporated so$nd !$siness po i#ies in its !ank)
I9
COMPARISO" ST!#& O" CRE#IT RECO%ER& MA"A EME"T F)r t-e 'ear FIIJ$ L)ans Iss.ed "ame Of T-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank 12HJ//)20 .8909)9. 0H9/I)9. 10IIJ)H. 1HH00)21 98H2H&/9 J/9.)J. Re()*ered J1981)0 1129.)11 .H82I)H0 H288 J9H8)H2 /09/1)H8 0912)22 O.tstanding 99//.)8J J8I0)2 .82HJ)II 9/IJ)H. I8H/)H9 .91.2)99 000H)08
#otal loans for the 'ear ()),
" 0000 "40000 "20000 "00000 %mount !0000 0000 40000 20000 0 $anks
Na'e Of T(e Bank& State Bank Of India Syndicate Bank Canara Bank Corporation Bank HDFC Bank ICICI Bank UTI Bank
IH
Credit Risk Management in State Bank Of India F)r t-e 'ear FIIK$
"ame Of T-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank
L)ans Iss.ed .8./H0)09 .9H.J).1 980.1)08 1I209)/9 .2299)/8 IIJJ1)H2 1298.)J.
Re()*ered 1.8.18)0/ 120..)H2 /2800)0. 180HI)H8 10.J1)29 2./.H)12 I228)08
O.tstanding I.190)8/ 11/89)09 .2/H9)J9 I89H)9H 11.H0)H0 /9990)98 H82.)2.
#otal loans for the 'ear ())-
2$0000 200000 "$0000 %mount "00000 $0000 0 $anks
II
Credit Risk Management in State Bank Of India F)r t-e 'ear FIIL$ "ame Of T-e Banks State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank L)ans Iss.ed .91901)20 /9099).0 HJ0.2)9J ./J9.)0/ /2891).9 10/8.J)IJ ../10).0 Re()*ered 19/.90)/. .1IHJ)H0 0I009)9H 1/IJI).1 .81.2)91 II/J.)0H 1.0.J)8/ O.tstanding JI/HH).. 10/I9)28 /8JH9)8. 18890).. 10J/9)18 209/H)09 JII2).8
total loans for the 'ear ()).

Na'e Of T(e Bank& #00000 2$0000 200000 amount "$0000 "00000 $0000 0 $anks State Bank Of India Syndicate Bank Canara Bank Corporation Bank HDFC Bank ICICI Bank UTI Bank
F)r t-e 'ear FIIM$
IJ
Credit Risk Management in State Bank Of India "ame Of T-e Banks L)ans Iss.ed State Bank Of India S%ndi#ate Bank Canara Bank Corporation Bank >=MC Bank ICICI Bank UTI Bank //H//9)0J 219H8)00 JI282)9J .JJ0J)92 09J00)HI 1900I0)/I /9IH9)0I
Re()*ered .9/.90)/. /1IHJ)H0 9I00J)9H 12IJI).1 /81.2)19 JI/J.)0H ..0.J)8/
O.tstanding H08H.)1H 1JHJ8)H /8829)8. 10821)00 19I1J)9. 998J1)J1 1000H)02
#otal loans for the 'ear ())0
#$0000 #00000 2$0000 %mount 200000 "$0000 "00000 $0000 0 $anks
PRIORIT& SECTOR A#%A"CES OF BA"KS

J8
COMPARISO" ,ITH OTHER P!BLIC SETOR BA"KS

#ire(t Agri(.+t.re Ad*an(es Am).nt ./0I0 0089)// I/0I J9/)2I Indire(t Agri(.+t.re Ad*an(es Am).nt H8/. 1090)90 /9I0 JH1).. T)ta+ Agri(.+t.re Ad*an(es Am).nt /8219 2IH8)J0 1.8/. 1J/0)I8 ,eaker Se(ti)n Ad*an(es Am).nt 1JII/ /.9H)H1 00./ 992)/. T)ta+ Pri)rit' Se(t)r Ad*an(es Am).nt I.IJ2 109.9)9. /8J/H J80/)H0
S6")
"ame )f t-e Bank
1 . / 0
STATE BA;G OM I;=IA SY;=ICATE BA;G CA;ARA BA;G COR-ORATIO; BA;G
1riorit' sector %d&ance

)0000 !0000 %0000 0000 $0000 40000 #0000 20000 "0000 0 " 2 # $anks 4 $ Tota* /riority &ector Ad-ance &*+no Na'e of t(e Bank Direct A,ri ad-ance Indirect A,ri Ad-ance Tota* A,ri Ad-ance .eakar &ection Ad-ance
%mount
J1
PRIORIT& SECTOR A#%A"CES OF P!BLIC SECTOR BA"KS I" PERCE"TA ES ARE AS FOLLO,S$
#ire(t Agri(.+t.re Ad*an(es N "et Banks Credit 1 . / 0 STATE BA;G OM I;=IA SY;=ICATE BA;G CA;ARA BA;G COR-ORATIO; BA;G 18)2 1/)2 11). 0)2 Indire(t T)ta+ ,eaker Agri(.+t.re Agri(.+t.re Se(ti)n Ad*an(es Ad*an(es Ad*an(es N "et Banks Credit /)1 0)2 0)J 0)2 N "et Banks Credit 1/)9 1I)8 12)H J)8 N "et Banks Credit I)J 18)8 2)J /)1 T)ta+ Pri)rit' Se(t)r Ad*an(es N "et Banks Credit /H)8 00)J 01)0 01)J
S6")
"ame )f t-e Bank
1riorit' sector of $ank

$0 4$ 40 #$ #0 2$ 20 "$ "0 $ 0 " 2 # $anks 4 $ Na'e of t(e Bank Direct A,ri ad-ance Indirect A,ri Ad-ance Tota* A,ri Ad-ance .eakar &ection Ad-ance Tota* /riority &ector Ad-ance
Inter0retati)ns$
%mount
J.
Credit Risk Management in State Bank Of India SBI's dire#t agri#$ t$re ad,an#es as #ompared to other !anks is 18)2: of the ;et Bank's Credit& "hi#h sho"s that Bank has not ent eno$gh #redit to dire#t agri#$ t$re se#tor) In #ase of indire#t agri#$ t$re ad,an#es& SBI is granting /)1: of ;et Banks Credit& "hi#h is ess as #ompared to Canara Bank& S%ndi#ate Bank and Corporation Bank) SBI has to entertain indire#t se#tors of agri#$ t$re so that it #an ha,e more n$m!er of !orro"ers for the Bank) SBI has ad,an#ed 1/)9: of ;et Banks Credit to tota agri#$ t$re and I)J: to "eaker se#tion and /H: to priorit% se#tor& "hi#h is ess as #ompared "ith other Bank)
J/
MI;=I;1S
Findings $
J0
Credit Risk Management in State Bank Of India -ro+e#t findings re,ea that SBI is san#tioning ess Credit to agri#$ t$re& as #ompared "ith its ke% #ompetitor's ,i3)& Canara Bank& Corporation Bank& S%ndi#ate Bank Re()*er' )f Credit$ SBI re#o,er% of Credit d$ring the %ear .889 is 9.)0: Compared to other Banks SBI 5s re#o,er% po i#% is ,er% good& hen#e this red$#es ;-A
T)ta+ Ad*an(es$ As #ompared tota ad,an#es of SBI is in#reased %ear !% %ear)
State Bank Of India is granting #redit in a
se#tors in an E*$ated Month %
Insta ments so that an% !od% #an !orro" mone% easi % -ro+e#t findings re,ea that State Bank Of India san#tioning more oans as #ompared to other Banks) State !ank Of India is e(panding its Credit in the fo o"ing fo#$s areas< 1 SBI Term =eposits . SBI Re#$rring =eposits / SBI >o$sing ?oan 0 SBI Car ?oan 2 SBI Ed$#ationa ?oan 9 SBI -ersona ?oan @et# In #ase of indire#t agri#$ t$re ad,an#es& SBI is granting /)1: of ;et Banks Credit& "hi#h is ess as #ompared to Canara Bank& S%ndi#ate Bank and Corporation Bank) SBI has to entertain indire#t se#tors of agri#$ t$re so that it #an ha,e more n$m!er of !orro"ers for the Bank) is ending more #redit or
J2
Credit Risk Management in State Bank Of India SBI's dire#t agri#$ t$re ad,an#es as #ompared to other !anks is 18)2: of the ;et Bank's Credit& "hi#h sho"s that Bank has not ent eno$gh #redit to dire#t agri#$ t$re se#tor) Credit risk management pro#ess of SBI $sed is ,er% effe#ti,e as #ompared "ith other !anks)
LIMITATIO"S$ 1) The time #onstraint "as a imiting fa#tor& as more in depth ana %sis #o$ d not !e #arried) .) Some of the information is of #onfidentia in nat$re that #o$ d not !e di,$ ged for the st$d%) /) Emp o%ees "ere not #o operati,e)
J9
RECOMME;=ATIO;S
JH
RECOMMENDATIONS
The Bank sho$ d keep on re,ising its Credit -o i#% "hi#h "i he p Bank's effort to #orre#t the #o$rse of the po i#ies The Chairman and Managing =ire#torAE(e#$ti,e =ire#tor sho$ d make modifi#ations to the pro#ed$ra g$ide ines re*$ired for imp ementation of the Credit -o i#% as the% ma% !e#ome ne#essar% from time to time on a##o$nt of organi3ationa needs) Banks has to grant the oans for the esta! ishment of !$siness at a moderate rate of interest) Be#a$se of this& the peop e #an repa% the oan amo$nt to !ank reg$ ar % and prompt %) Bank sho$ d not iss$e entire amo$nt of oan to agri#$ t$re se#tor at a time& it sho$ d re ease the oan in insta ments) If the # imati# #onditions are good then the% ha,e to re ease remaining amo$nt) SBI has to red$#e the Interest Rate) SBI has to entertain indire#t se#tors of agri#$ t$re so that it #an ha,e more n$m!er of !orro"ers for the Bank)
JI
CO;C?USIO;
JJ
CONCLUSION
The pro+e#t $ndertaken has he ped a ot in gaining kno" edge of the BCredit -o i#% and Credit Risk ManagementC in ;ationa i3ed Bank "ith spe#ia referen#e to State Bank Of India) Credit -o i#% and Credit Risk -o i#% of the Bank has !e#ome ,er% ,ita in the smooth operation of the !anking a#ti,ities) Credit -o i#% of the Bank pro,ides the frame"ork to determine DaE "hether or not to e(tend #redit to a #$stomer and D!E ho" m$#h #redit to e(tend) The -ro+e#t "ork has #ertain % enri#hed the kno" edge a!o$t the effe#ti,e management of BCredit -o i#%C and BCredit Risk ManagementC in !anking se#tor) BCredit -o i#%C and BCredit Risk ManagementC is a ,ast s$!+e#t and it is ,er% diffi#$ t to #o,er a the aspe#ts "ithin a short period) >o"e,er& e,er% effort has !een made to #o,er most of the important aspe#ts& "hi#h ha,e a dire#t !earing on impro,ing the finan#ia performan#e of Banking Ind$str% To s$m $p& it "o$ d not !e o$t of "a% to mention here that the State Bank Of India has gi,en spe#ia inp$ts on BCredit -o i#%C and BCredit Risk ManagementC) In p$rs$an#e of the instr$#tions and g$ide ines iss$ed !% the Reser,e Bank of India& the State !ank Of India is granting and e(panding #redit to a se#tors) The #on#erted efforts p$t in !% the Management and Staff of State Bank Of India has he ped the Bank in a#hie,ing remarka! e progress in a most a the important parameters) The Bank is mar#hing ahead in the dire#tion of a#hie,ing the ;$m!erF1 position in the Banking Ind$str%)
188
181
BIB?IO1RA->
18.
BOOKS REFERRE#$
1) M)Y)Ghan and -)G)Lain& Management A##o$nting DThird EditionE& Tata M#1ra" >i ) .) M)Y)Ghan and -)G)Lain& Minan#ia Management DMo$rth EditionE& Tata M#1ra" >i ) /) =)M)Mitta & Mone%& Banking& Internationa Trade and -$! i# Minan#e DE e,enth EditionE& >ima a%a -$! ishing >o$se)
,EB SITES
1) .) /) 0) 2) """)s!i)#o)in """)i#i#idire#t)#om """)r!i)org """)indiainfo ine)#om """)goog e)#om
BA"KS I"TER"AL RECORE#S$

1) Ann$a Reports of State !ank Of India D.88/F.88HE .) State !ank Of India Man$a s /) Cir#$ ars sent to a Bran#hes& Regiona Offi#es and a Corporate Offi#es)
the =epartments of
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Credit Risk Management in State Bank of India

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Credit Risk Management in State Bank of India

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Credit Risk Management in State Bank Of India

KLEs Institute of Management Studies and Research, Hubli