A

Specialization Project Report

On
TITTLE

CREDIT RISK MANAGEMENT IN BANK OF INDIA

In the partial fulfillment of the Degree of
MASTER IN FINANCIAL MANAGEMENT

under the University of Mumbai

Submitted by

SUDHAKAR JAISWAR
CLASS: MFM , ROLL NO:- 06
Specialization: Finance
Batch: 2019-20 (Year)
Under the Guidance of

PROF. KARISHMA MEGHANI

ATHARVA INSTITUTE OF MANAGEMENT STUDIES

Malad-Marve Road, Charkop Naka,
Malad (West), Mumbai 400 095.
 DECLARATION

I hereby declare that the project entitled “CREDIT RISK MANAGEMENT IN

BANK OF INDIA” submitted as a part of the study of M.F.M Degree is my original
work and the Project has not formed the basis for the award of any other degree,
associateship, fellowship or any other similar titles.

Place :

Date :

Signature of the Student

(SUDHAKAR JAISWAR)
 CERTIFICATE

This is to certify that the project entitled “CREDIT RISK MANAGEMENT

IN BANK OF INDIA”is the bonafied work carried out by SUDHAKAR

JAISWAR student of Master in Financial Management., Atharva Institute of

Management Studies, during the year 2019-2020 in the partial fulfillment of the

requirements for the Degree of Master in Financial Management and that the

project has not formed the basis for the award of any other degree, associateship,

fellowship or any other similar titles.

Place :

Date :

Signature of the Guide Signature of Director

4 CREDIT RISK MANAGEMENT IN BANK OF INDIA

ACKNOWLEDGEMENT

I take this opportunity to thank all the people who have helped me through the course of my
journey towards completing this project report. To begin with i would like to sincerely thank
my mentor, Prof. KARISHMA MEGHANI for her guidance, help and motivation. I would also
like to thank Mr.Dr. R. M. Kumar, Director AIMS, MUMBAI. Special thanks to my
parents, for their love,support, trust and blessings which enabled me to complete this Project
work.

I perceive this opportunity as a big milestone in my career development. I will strive to use
gained skills and knowledge in the best possible way, and will continue to work on its
improvement, in order to attain desired career objectives. At last I bow my heads before
Almighty for his blessings.
 INDEX
S.NO CONTENTS Pg. No

Chapter-1: INTRODUCTION 4

1.1 Introduction of Industry Profile 5

1.2 Introduction of Company Profile 13
Achievements 18
Central Board of Directors 19
Vision, Mission, Values 20
Products and Services 22
1.3 Objectives of the Study 26
1.4 Limitations of the Study 26

Chapter-2: RESEARCH METHODOLOGY 27

2.1 Research Methodology 28

2.2 Research Design 29
2.3 Purpose of the Research 29
2.4 Data Collection Method 30

Chapter-3: REVIEW OF LITERATURE 31

3.1 Meaning of Credit Risk Management 32

Risk Governance Structure In Bank of India 33
Organisational Structure of Bank of India 34
Types of Risks 36
Credit Rating 40
3.2 Credit Risk Assessment Process in Bank of India 41
Credit Risk Assessment Parameters 44
RBI’s Guidelines on the Credit Framework in Banks 46
 3.3 Ratings to BOI 55

3.4 Credit policy 56

3.5 Credit Rating in BOI (Borivali west Branch) 58
3.6 Loan Details of BOI (Borivali west Branch) 67
3.7 Stages of Loan Processing of BOI (Borivali West Branch) 77
3.8 Loan Recovery Policy of BOI (Borivali West Branch) 77

Chapter-4: DATA ANALYSIS AND INTERPRETATION 81

4.1 Comparison of BOI (Borivali West Branch) Last 3 Years Loan 82

Amounts
4.2 Example of EMI Calculation of loan 87
4.3 Calculation of Non-Performing Assets in BOI (Borivali West 89
Branch)
4.4 Major Competitors of Bank of India 92
4.5 Interpretation 94

CHAPTER-5: CONCLUSION 95
5.1 Findings 96
5.2 Recommendations 97
5.3 Conclusion 98
5.4 Bibliography 99
APPENDIX
 CHAPTER – 1
INTRODUCTION
1.1 INDUSTRY OVERVIEW

Banking is the life blood of trade, commerce and industry. Nowadays, banking sector acts as the
backbone of modern business. Development of any country mainly depends upon the banking
system. A bank is a financial institution which deals with deposits and advances and other related
services. It receives money from those who want to save in the form of deposits and it lends money
to those who need it. The banking is one of the most essential and important parts of the human
life.

In current faster lifestyle peoples may not do proper transitions without developing the proper bank
network. The banking System in India is dominated by nationalized banks. The performance of the
banking sector is more closely linked to the economy than perhaps that of any other sector.

The growth of the Indian economy is estimated to have slowed down significantly. The economic
slowdown and global developments have affected the banking sectors' performance in India in
FY16 resulting in moderate business growth. It has forced banks to consolidate their operations,
re-adjust their focus and strive to strengthen their balance sheets.

The banking sector in India is on a growing trend. It has vastly benefitted from the surge in
disposable income of individuals in the country. There has also been a noticeable upsurge in
transactions through ATMs, and also internet and mobile banking. Consequently, the different
banks, viz public, private and foreign banks have invested considerably to increase their banking
network and thus, their customer reach.

The banking industry in India has the potential to become the fifth largest banking industry in the
world by 2020 and third largest by 2025 according to a KPMG-CII report. Over the next decade,
the banking sector is projected to create up to two million new jobs, driven by the efforts of the
RBI and the Government of India to integrate financial services into rural areas. Also, the
traditional way of operations will slowly give way to modern technology.
MARKET SIZE

The Indian banking sector is fragmented, with 46 commercial banks jostling for business with
dozens of foreign banks as well as rural and co-operative lenders. BANK OF INDIA control 11
percent of the market, leaving relatively small shares for private rivals.

Banks have opened 10 crore accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY) till
November 19, according to Ms Snehlata Shrivastava, Additional Secretary, Department of
Financial Services, Ministry of Finance, and Government of India. Of the 77.3 million accounts,
public sector banks have opened 62.1 million accounts with a total balance of Rs 4,946.03 core
(US$ 802.64 million), and have distributed RuPay debit cards to around 43 million accounts.

Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent to reach US$ 2.4
trillion by 2017. The total banking assets in India touched US$ 1.8 trillion in FY13 and is
anticipated to cross US$ 28.5 trillion in FY25.

INVESTMENTS

There have been many investments and developments in the Indian banking sector in the past few
months. Some of the recent major are:

 Kotak Mahindra Bank plans to acquire ING Vysya Bank in an all-stock deal. The deal will
make Kotak the fourth-largest private bank in the country in terms of total business. ING
shareholders will now get 725 Kotak Bank shares for every 1,000 shares they hold.
 Bharatiya Mahila Bank Ltd (BMB) has launched its internet banking facility by the name
BMB Smart Banking, along with its newly designed website. Currently, this women
focused bank has branch network of 33 branches and all of them on core banking solutions
with onsite ATMs.
 The United Economic Forum (UEF) has signed a MoU with the Indian Overseas Bank
(IOB) for financing entrepreneurs from backward communities to set up businesses in
 Tamil Nadu. As part of the agreement, entrepreneurs who have been chosen by the UEF,
will get term loan / working capital requirements from the bank.

 State Bank of India getting merge with their associate banks (i.e) State bank of Travancore,
State bank of Hyderabad, State bank of Bikaner & jaipur, State bank of Patiala, State bank
of Mysore on March 2017 & came in Top 50 banks in world.

Growth in Credit off – take in India

In March FY16, total credit extended surged to US$ 1,016 billion.

 Growth in Deposits in India

During FY06–16, deposits grew at a CAGR of 11.47 per cent and reached 1.46 trillion in FY16.

Growth in ATMs in India

Total NPAs in Banks in India

NPAs in India is expected to be more than 12 lakh crores in 2016 as per RBI
INDIAN BANKING SYSTEM

RESERVE BANK OF INDIA (RBI)

 Reserve Bank of India is the Central Bank of our country.

 It holds the apex position in the banking structure.
 RBI performs various developmental and promotional functions.
 It has given wide powers to supervise and control the banking structure.
 It occupies the pivotal position in the monetary and banking structure of the country.
  In many countries central bank is known by different names.
 They have the authority to formulate and implement monetary and credit policies.
 It is owned by the government of a country and has the monopoly power of issuing notes.

MAJOR FUNCTIONS OF RBI

Issue of Bank Notes:

The Reserve Bank of India has the sole right to issue currency notes except one rupee notes which
are issued by the Ministry of Finance. Currency notes issued by the Reserve Bank are declared
unlimited legal tender throughout the country.

Banker to Government:

As banker to the government the Reserve Bank manages the banking needs of the government. It
has to-maintain and operate the government’s deposit accounts. It collects receipts of funds and
makes payments on behalf of the government. It represents the Government of India as the
member of the IMF and the World Bank.

Custodian of Cash Reserves of Commercial Banks:

The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the cash
reserves of the commercial banks.
Custodian of Country’s Foreign Currency Reserves:

The Reserve Bank has the custody of the country’s reserves of international currency, and this
enables the Reserve Bank to deal with crisis connected with adverse balance of payments position.

Lender of Last Resort:

The commercial banks approach the Reserve Bank in times of emergency to tide over financial
difficulties, and the Reserve bank comes to their rescue though it might charge a higher rate of
interest.

Central Clearance and Accounts Settlement:

Since commercial banks have their surplus cash reserves deposited in the Reserve Bank, it is easier
to deal with each other and settle the claim of each on the other through book keeping entries in the
books of the Reserve Bank.

Controller of Credit:

Since credit money forms the most important part of supply of money, and since the supply of
money has important implications for economic stability, the importance of control of credit
becomes obvious. Credit is controlled by the Reserve Bank in accordance with the economic
priorities of the government.

1.2 INTRODUCTION OF BANK OF INDIA

  Bank of India was founded on 7th September 1906 by a group of eminent businessmen of
Mumbai like Sir Sassoon David, Sir Cowasjee Jehangir, first Baronet, and Mr. Ramnarain
Hurnandrai

 Beginning with one office in Mumbai with paid up capital of Rs. 50 lakhs and employing
50 staff, the bank made rapid progress and on the eve of nationalization in 1969 had 207
branches in India, 12 branches abroad, a networth of Rs. 11 crores, Deposits of Rs. 436
crores and Advances of Rs. 296 crores.

 Bank of India has many firsts to its credit.

It was the first indian bank to establish a branch outside India when it opened its London
st
branch on 1 July 1946.
o It was also the first Indian Bank to open branch in Continental Europe in Paris in
1974.
o BOI is the first Indian bank to offer ATM services of fully computerized branch
Mahalaxmi, Mumbai on 8th August 1988.

 The bank made its maiden public issue in February 1997.

BANK OF INDIA – TODAY

 Bank of India is a premiere Bank today with a rich history of success of more than 100
years.

 Beginning with one office in Mumbai, with a paid-up capital of ₹5 million (US$78,000)
and 50 employees, the Bank has made a rapid growth over the years and blossomed into a
mighty institution with a strong national presence and sizable international operations. In
business volume, the Bank occupies a premier position among the nationalised banks.

 The bank has 4,963 branches in India spread over all states/ union territories including
specialised branches. These branches are controlled through 54 Zonal Offices. There are 60
branches/ offices and 5 Subsidiaries and 1 joint venture abroad.

 The Bank has more than 68 Million strong customer base.

 Government shareholding in the bank is at 67.11%.

  Bank also has strategic investments in Central Depository Services ltd. The Bank has
equity Participation in ASREC, The Asset Reconstruction Company floated by UTI, Multi
Commodity Exchange (MCX), CIBIL, SME Rating Agency of India ltd., National
Collateral Management Services ltd. And National Commodity & Derivatives Exchange
ltd. (NCDEX).

 The Bank has arrange of well – structured products, services and skilled staff.

 The bank has more than 70000 employees on its roll across the Globe as on June 2016.

 The Bank has 8 Depository Participant Offices in major cities of the country.

 Organization Structure has been revamped to increase customer focus – SBU structures
evolved for key business segments.

ABOUT LOGO
symbol is Goddess Lakshmi, inside the star. It means your money will increase by the blessings of
Maa (mother) Lakshmi and safe inside the star. Stars represent branches spread all over the world,
like stars everywhere im the sky and that all customers are like family members.

Slogan : Relationship beyond banking

Bank’s Subsidaries / Alliances / Joint Ventures:

Associates :

 Regional Rural Banks (RRB’s) : 4 Regional Rural Banks sponsored by our bank in 54
Districts in the states of M.P., U.P., Jharkhand & Maharashtra.

 Securities Trading Corporation of India Ltd. : Bank is the single largest stakeholder eith
29.95% stake in its equity.

 ASREC (India) Ltd : Promoted by specified Undertaking of UTI to undertake

securitization and Asset reconstruction activities. Bank holds 26.02% stake.

 Indo Zambia Bank Ltd. : A joint venture of 3 Indian Banks namely Bank of India, Bank
of Baroda, Central Bank of India and Govt. of Zambia with equity ratio of 20:20:20 & 40
per cent respectively.

Subsidiaries :

 BOI Shareholding Ltd. : A Joint Venture with Bombay Stock Exchange to manage the
BSE Clearing House activities.

 Bank of India (Indonesia Ltd) : Wholly owned subsidiary.

 Bank of India (Tanzania) Ltd., Dar-es-Salaam : The wholly ownedsubsidiary was

incorporated on 16.07.07. First branch of the subsidiary is opened in Dar-es-salaam on
22.07.08.

 Bank of India (New Zealand) Ltd: Wholly ownedsubsidiary of the Bank Operations
started functioning From October’ 2011.

• BhartiAXA : Memorandum of Understanding signed with AXA for acquiring equity stake
for re-entry into Mutual Fund business.

Joint Ventures :
  Star Dai – Ichi Life Insurance Co. Ltd.: A joint venture agreement between BOI, UBI
and UBI and the Dai – Ichi Mutual Life Insurance Co., Japan with capital stake of 48% by
BOI, 26% by UBI and 26% by Dai – Ichi

Others :
 CDSL : Promoted in 1997 by BSE. Bank holds 5.57% stake.

 CIBIL : Formed in august 2000 for priority Credit Information and Risk Analysis Services
to banking & Finance sectors. Bank holds 5% stake in Equity capital.

 SME Rating Agency (India) Ltd (SMERA) : Promoted by SIDBI in association with
Dun & Brad Street in 2005-06. Bank holds 4% stake.
BOI’S JOURNEY THROUGH NUMBERS

5thLargest Bank in India (Deposits, Advances,

No.4 Profits, Branches, Employees)

25 crores+ Active customer base

26 lakhs crores Business size

1 lakh+ Touch points

43,515 Pan-India ATMs (18% of market share

in ATM population in India)
45,487 Business correspondent and Customer Service
Points
5.63 crores+ Core Banking Business Transactions (daily
average transactions)
ATM transactions per day (38% of the country’s
70 lakhs+ total ATM transactions)

17 crores+ Bank Group debit card holders (43%+ market

share)

1.77 crore+ Internet banking users

95 lakhs Mobile Banking users

1,35,853 POS machines

48 lakhs+ Green Remit Cards

52,260 Pan-India village coverage

 61.60 lakhs Kisan Credit Cards

CENTRAL BOARD OF DIRECTORS

Shri G. Padmanabhan( Non-Executive Chairman )

Shri Dinabandhu Mohapatra(Managing Director & CEO)

Shri R A Sankara Narayanan(Executive Director)

Shri Neelam Damodharan(Executive Director)

Shri Atanu Kumar Das(Executive Director)

Shri Girish Chandra Murmu(Govt. Nominee Director )

Smt.R.Sebastian(RBI Nominee Director)

Ms. Veni Thapar(Part-time Non-official Director)

Shri Neeraj Bhatia (Shareholder Director) (From 25.10.2014)

Shri Sanjiv Kumar Arora(Shareholder Director) (From 25.10.2014)

VISION, MISSION& VALUES

VISION :

 My BOI

 My Customer first.

 My BOI: First in customer satisfaction

MISSION :

 We will be prompt, polite and proactive with our customers.

 We will speak the language of young India.

 We will create products and services that help our customers achieve their goals.

 We will go beyond the call of duty to make our customers feel valued.

 We will be of service even in the remotest part of our country.

 We will offer excellence in services to those abroad as much as we do to those in India.

 We will imbibe state-of-the-art technology to drive excellence.

QUALITY POLICY :
Bank of India are committed to become the Bank of choice by providing

 Superior

 Pro – active

 Innovative

 State of the art

Banking services with an attitude of Care and Concern for the Customers and Patrons.

VALUES :

Bank of India believes in :-

 Nation Building

 Ethics & Integrity

 Value for our customers

 Pride for our employees

 Profitable Growth

 Contributing to society

 One Bank of India

BOI MAJOR PRODUCTS & SERVICES

PRODUCTS:

Bank of India renders varieties of services to customers through the following products:

 BOI Term Deposits

 BOI Recurring Deposits

 BOI Housing Loan

 BOI Educational Loan

 BOI Loan For Pensioners

 Loan Against Mortgage Of Property

 Loan Against Shares & Debentures

 Rent Plus Scheme

 Medi-Plus Scheme

 Rates Of Interest

SERVICES
  DOMESTIC TREASURY

 BOI VISHWA YATRA FOREIGN TRAVEL CARD

 BROKING SERVICES

 REVISED SERVICE CHARGES

 ATM SERVICES

 INTERNET BANKING

 E-PAY

 E-RAIL

 RBIEFT

 SAFE DEPOSIT LOCKER

 GIFT CHEQUES

 MICR CODES FOREIGN INWARD REMITTANCES

Other Products and Services are:-

Working Capital Finance

BOI offers working capital finance to meet the entire range of short-term fund requirements that
arise within a corporate's day-to-day operational cycle.

Project Finance

The BOI has formed a dedicated Project Finance Strategic Business Unit to assess credit proposals
from and extend term loans for large industrial and infrastructure projects.

Deferred Payment Guarantees

BOI can extend deferred payment guarantees to industrial projects for obtaining imported
equipment.

Corporate Term Loan

The BOI corporate term loans can support your company in funding on-going business expansion,
repaying high cost debt, technology up gradation, R&D expenditure, leveraging specific cash
streams that accrue into your company, implementing early retirement schemes and supplementing
working capital

Structured Finance

BOI structured finance involves assembling unique credit configurations to meet the complex fund
requirements of large industrial and infrastructure projects.

Dealer Financing

BOI extends financial support to the corporate distribution networks, by providing both working
capital finance and term loans to select dealers of identified companies.

Loan Syndication

The BOI leverages its vast network of relationships to arrange syndicated credit products for
corporate clients and industrial projects.

Equipment Leasing

The BOI's has deployed a dedicated Strategic Business Unit for lease financing that is richly
experienced in arranging lease contracts for procuring expensive equipment for your project or
plant.
1.3 OBJECTIVES OF STUDY

1. To Study the complete structure and history of Bank of India.

2. To know the different methods available for credit appraisal.

 3. To understanding the credit appraisal procedure used inBank of India.

4. To identify the risks faced by the banking industry.

5. To trace out the process and system of risk management.

6. To gain insights into the credit risk management activities of theBank of India.

7. To know the RBI Guidelines regarding credit rating and risk analysis.

8. To examine the techniques adopted by banking industry for risk management

1.4 LIMITATIONS:

1. This study is only restricted toBank of India only.

2. The result of the study may not be applicable to any other banks.

3. Since the part of the study is based on their perceptions, the findings may change over the
years in keeping with changes in environmental factor.

4. The present study does not ascertain the views from the borrowers who are not directly
concerned with management of non-performing asset.
5. The time constraint was a limiting factor, as more in depth analysis could not be carried.

6. Some of the information is of confidential in nature that could not be divulged for the
study.

7. Employees were not co operative

 CHAPTER 2
RESEARCH METHODOLOGY

2.1 RESEARCH METHODOLOGY

A research method is simply a technique for collecting data and involves a specific instrument
such as a self-completion questionnaire or structured interview schedule, or participant observation
whereby the researcher listens to and watches others” .There are two main research methods;
qualitative and quantitative. Qualitative is geared primarily to the construction of qualitative data
which consist mainly of Depth interviewing or focus groups. Quantitative on the other hand is
geared primarily to the construction of quantitative data and consist of the usage of formal
questionnaires techniques at some stage, whether for face to face interviews, telephone research,
postal or postal research, or it may involve various forms of experimental or quasi experimental
research.

This paper is theoretical modal based on the extensive research for which the secondary source of
information has gathered. The sources include online publications, Books and journals.

The present paper is a case study which is restricted to branch of BOI in Borivali West Branch.
The objective of research paper is to study the Credit Risk Assessment Model of BOI Bank and to
check the commercial, financial & technical viability of the project proposed & its funding pattern.
To observe the movements to reduce various risk parameters which are broadly categorized into
financial risk, business risk, industrial risk & management risk. For the purpose, the secondary
data is collected through the Books & magazines, Database at BOI, Websites, E-circulars of BOI.

2.2 RESEARCH DESISGN

Research design provides the framework for the collection and analysis of data or it is the plan and
structure of investigation so conceived as to obtain answers to research questions. This means it
gives the procedure necessary for obtaining the information needed to solve the research problems.
I have used a qualitative approach to interview bank managers because I believed that since they
are experienced professionals in their field, they must probably have a deep and broader
knowledge on the topic.

2.3 PURPOSE OF THE RESEARCH

 Risk Analysis and Risk Management has got much importance in the Indian Economy
during this liberalization period. The foremost among the challenges faced by the banking
sector today is the challenge of understanding and managing the risk.

 The very nature of the banking business is having the threat of risk imbibed in it. Banks'
main role is intermediation between those having resources and those requiring resources.
For management of risk at corporate level, various risks like credit risk, market risk or
operational risk have to be converted into one composite measure.

 Therefore, it is necessary that measurement of operational risk should be in tandem with

other measurements of credit and market risk so that the requisite composite estimate can
be worked out. So, regarding to international banking rule (Basel Committee Accords) and
RBI guidelines the investigation of risk analysis and risk management in banking sector is
being most important.

2.4 DATA COLLECTION METHOD

To fulfill the objectives of my study, I have taken both into considerations viz primary &
Secondary data

Primary data: Primary data has been collected through personal interview by direct contact
method. The method which was adopted to collect the information is „Personal Interview’ method.
Personal interview and discussion was made with manager and other personnel in the organization
for this purpose.

Secondary data: The data is collected from the Magazines, Annual reports, Internet, Text books.
The various sources that were used for the collection of secondary data are Internal files &
materials.

Websites

www.indiainfoline.com

www.BOI.co.in

Www.Wikepedia.com and other site

 CHAPTER 3
REVIEW OF LITERATURE

3.1 CREDIT RISK MANAGEMENT

Preamble

This policy seeks to lay down the Bank’s approach to the management of Credit Risk and put in
place a comprehensive framework for identification, assessment, monitoring, management and
reporting of Credit Risk in a timely and efficient manner. Credit Risk Management operate within
the framework of the Bank’s Corporate Vision and Mission, Risk appetite, concomitant with
prudential controls and should be in line with the regulatory compliance needs. The Policy also
seeks to create systems and procedures to actively mitigate Credit Risks, optimize resources
primarily to protect the Bank against the downside and at the same time provide an appropriate and
reasonable return commensurate with the risk profile adopted.

Definition

Credit risk estimates from a bank’s dealings with an Individual, Corporate, Bank, Financial
Institution or a Sovereign.

Scope of the Policy

The Credit Risk Management Policy as enunciated herein covers the Bank’s Domestic as well as
Foreign Operations. In addition to these guidelines, International Banking Group shall formulate a
similar framework for Bank’s Foreign Offices keeping in view the Regulations / Parameters laid
down by the host Country Central Banks / Regulators, the directions of the Reserve Bank of India
and also that of the Bank’s Board in this regard from time to time.

CRM policy provides a broad framework for management of Credit Risk, within which the
Business Groups / Business Units / Departments Corporate Centre are expected to formulate
procedures for management of Credit Risk inherent to their respective products and services.

RISK GOVERNANCE STRUCTURE INBANK OF INDIA

An independent Risk Governance structure in line with the international best practices has to be
put in place by Banks. A ‘Chief Risk Officer’ position at the Board level to be created in the Bank
for integrated Risk Management with separate Departments under him/her for Credit, Market and
Operational risks. Since the Risk Governance Framework brings together all Risk Management
Departments under one umbrella, it provides an integrated view of risk as a whole and facilities
adoption of a holistic approach.

The following table will give an outline of architecture for management of risks Banks.

Risk Type Architecture

Credit Risk (Domestic Loans) Credit Policy & Procedures Committee (CPPC) and
Credit Risk Management Committee (CRMC)
Market Risk (Investments Asset and Liability Management Committee
including liquidity risk) (ALCO)
Credit Risk (International Credit Policy & Procedures Committee (CPPC) and
Exposures) Credit Risk Management Committee (CRMC)
Operational Risk Operational Risk Management Committee
(ORMC)
Overall Risk Management Risk Management Committee of the Board
(RMCB)

ORGANISATIONAL STRUCTURE OFBANK OF INDIA

In accordance with the need for a separate and independent Risk Management Governance
Structure, the following Integrated Risk Management Structure has been approved by the
Appropriate Authority.

Risk Management
Inspection and BOARD OF DIRECTORS Committees
Management Audit

RISK MANAGEMENT
Credit Risk Management
COMMITTEE OF THE BOARD
Committee
 MD & CCRO Operational Risk
ALCO Management Committee
CGM (RM)

Market Risk Management

Committee

Group Risk Management

Committee

GM (Credit Risk) DGM DGM (Operational DGM (Group

(MarketRisk) Risk) Risk)

Credit Risk
Operational risk Group Risk
Management
Market Risk Management Team Management
Team
Management Team
Team

CREDIT RISK MANAGEMENT

DEPARTMEMENT

Credit Risk Risk Analytics

Credit Risk
Assessment & & Validation
Modeling
Risk Reporting
 Industry Risk Policy Related Base I II
Matters
Implementation

MIS Section

Credit Risk Management Committee (CRMC)

The Credit Risk Management Committee (CRMC) shall comprise of the following:

 MD & CCRO – Chairman

 CGM (Risk Management)
 CGM (Financial Control)
 CGM (Internal Audit)
 CGM (Corporate Accounts Group)
 CGM (Mid-Corporate)
 CGM (Foreign Offices)
 CGM (Global Markets)
 GM (Credit Risk Management)

TYPES OF RISKS TO WHICH THE BANKS ARE EXPOSED

Banks in the process of financial intermediation are confronted with various types of financial as
well as non-financial risks, Viz., credit, interest rate, foreign exchange rate, liquidity, and equity
price, commodity price, legal, regulatory, reputational and operational risks. These are highly
interdependent and events that affect the area of risks can have ramification for a range of other
risk categories.
Credit Risk

It is defined as the possibility of loss associated with diminution in the credit quality of borrowers
or counter parties. In a bank’s portfolio, losses stem from outsight default due to inability or
unwillingness of a customer or counterparty to meet commitments relating to lending, trading,
settlement and other financial transactions

Market Risk

It is defined as the possibility of losses caused by changes in the market variables. Market risk is
the to the bank’s earnings and capital due to changes in the market level of interest rates or prices
of securities, foreign exchange and equities, as well as the volatilities therein.

Operational Risk

It is defined by the Basel Committee as ‘the risk of direct or indirect loss resulting from inadequate
or failed internal process, people and systems or from external events’. RBI defines

operation risk as any risk which is not categorized as market or credit risk, or the risk of loss
arising from human or technical errors, or from external events.

The exposure to the credit risks large in case of financial institutions, such commercial banks when
firms borrow money they in turn expose lenders to credit risk, the risk that the firm will default on
its promised payments. As a consequence, borrowing exposes the firm owners to the risk that firm
will be unable to pay its debt and thus be forced to bankruptcy.

CONTRIBUTORS OF CREDIT RISK:

  Corporate assets

 Retail assets

 Non-SLR portfolio

 May result from trading and banking book

 Interbank transactions

 Derivatives

 Settlement, etc

Steps involved in Risk Management

The steps involved in managing risks are:

 Identification
 Measurement
 Monitoring
 Controlling

Identification and measurement of risks will help in categorization of risks into High, Medium and
Low to enable the bank to initiate steps for monitoring and controlling. These steps are a
continuing process.

KEY ELEMENTS OF CREDIT RISK MANAGEMENT:

 Establishing appropriate credit risk environment

 Operating under sound credit granting process

  Maintaining an appropriate credit administration, measurement & Monitoring

 Ensuring adequate control over credit risk

 Banks should have a credit risk strategy which in our case is communicated throughout the
organization through credit policy.

Steps to follow to minimize different type of risks:-

Standardized

Credit Risks • Internal Ratings

• Credit Risk Models

• Credit Mitigation

• Trading Book
Market Risks
RISKS
• Banking Book
 • Operational
Operational Risks

• Others

CREDIT RATING

Definition:-

Credit rating is the process of assigning a letter rating to borrower indicating that creditworthiness
of the borrower.

Rating is assigned based on the ability of the borrower (company). To repay the debt and his
willingness to do so. The higher rating of company the lower the probability of its default.
Use in decision making:-

Credit rating helps the bank in making several key decisions regarding credit including

1. Whether to lend to a particular borrower or not; what price to charge?

2. What are the products to be offered to the borrower and for what tenure?

3. At what level should sanctioning be done, it should however be noted that credit rating is one of
inputs used in credit decisions.

4. There are various factors (adequacy of borrowers, cash flow, collateral provided, and
relationship with the borrower)

5 .Probability of the borrowers default based on past data.

3.2 CREDIT RISK ASSESSMENT PROCESS INBANK OF INDIA

 Before a credit facility is sanctioned to any Client / Obligor, the risk level should be
measured, as per the relevant Credit Risk Assessment (CRA) Model developed by CRMD.
 The appraisal process should involve an in-depth study of the financial, commercial,
technical and managerial aspects of the Borrower and of the risk arising from the Industry
or Industries to which the Borrower belongs.
 For each credit proposal, a credit rating would be assigned using the internal credit rating
system.
  The Bank has developed Credit Risk Assessment (CRA) Models, which are used for
assessing the Credit Risk of Working Capital, Term Loan and Non-fund based exposures to
Commercial and Institutional borrowers, SSI, Trade & Services and Agriculture segments
for exposures of RS 25 lacks and above, but upto RS. 5 Crores (Simplified Model) and for
exposures in excess of RS. 5 Crores (Regular Model). Under each category, there are
separate models for the Trading and Non-Trading Sectors.
 The rating process would entail a comprehensive evaluation of the Borrower, the Industry,
the Borrower’s business position in the Industry and the techno-economic aspects of the
Project (if any), the financial position of the Borrower and the quality of the management.
 Thus, the rating would reflect the risk involved in the facility / borrower and would be an
evaluation of the borrower’s intrinsic strength.
 The rating should be reviewed periodically and update at yearly intervals. The risk rating of
facilities assigned the lowest pass grades should invariably be reviewed at half-yearly
intervals.
 Entry barriers have been prescribed in the CRA Models. A proposal obtaining Zero score in
the entry barrier would not be subject to further process and stand declined. No deviation is
envisaged to be permitted in this regard.

 The CRA models adopted by the Bank prescribe hurdle rates / minimum scorers for new
connections / enhancements. Proposals below hurdle rates may be considered with a
approval of the appropriate authority as provided in the loan policy.

In simple terms, Credit Appraisal Process is

Receipt of application from applicant

Receipt of documents (Balance sheet, KYC papers, Different govt.registration no., MOA,
AOA, and Properties documents)
 |

Pre-sanction visit by bank officers

Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC caution list, etc.

Title clearance reports of the properties to be obtained from empanelled advocates

Valuation reports of the properties to be obtained from empanelled valuer /engineers

Preparation of financial data

Proposal preparation

Assessment of proposal

Sanction/approval of proposal by appropriate sanctioning authority

Documentations, agreements, mortgages

|
 Disbursement of loan

Post sanction activities such as receiving stock statements, review of accounts, renew of
accounts, etc. (On regular basis)

Credit Risk Assessment Some Major Parameters Are

 Financial Parameters
 Business and Industry risk Parameters
 Management Parameters

Financial Parameters

The assessment of financial risk involves appraisal of the financial strength of the Borrower based
on performance and financial indicators. The overall financial risk is assessed in terms of static
ratios, year on year movements, future prospects and risk mitigation (Collateral security / financial
standing)
Business and Industry risk Parameters

The following characteristics of an industry risk & business risk which pose varying degrees of
risk are built into the Bank’s CRA model:

 Competition & Market Risk

 Industry outlook
 Regulatory risk
 Industry Cyclicality
 Input and output profile
 Capacity utilization
 Technology and Contemporary issues like R&D, Distribution network etc.

Management Parameters

The management of an Enterprise / Group is rated on the following parameters:

 Integrity (Corporate Governance)

 Track record/ payment record/ conduct of account
 Managerial competence/ commitment
 Expertise
 Structure & systems
 Experience in the industry
 Credibility: ability to meet sales projections
 Credibility: ability to meet profit projections
 Succession plan/ Key Person
  Length of relationship with the Bank
The risk parameters as mentioned above are individually scored to arrive at an aggregate score of
100 (subject to qualitative factors – negative parameters). The overall score thus obtained (out of a
maximum of 100) is rated on a 16 point scale from BOI to SB 16.

Other Parameters

 Applicability of pollution control certificate

 Impact of subsidies and sales tax deferral loans
 Impact of changes in accounting policies
 Unabsorbed depreciation and business loss
 Impact of non-insurance or inadequate insurance of assets
 Extraordinary or windfall gains and losses
 Analysis of bank statements
 Violations of accounting standards if any
 Change in management

 Impact of the new monetary or fiscal policies or significant development in the

macroeconomic policy of the company concerning the industry.

RBI’S GUIDELINES ON THE CREDIT FRAMEWORK IN BANKS

 The grades used in the internal Credit Risk Grading System should represent, without any
ambiguity, the default risks associated with an exposure and enable top management in
decision making. The process of risk identification and risk assessment has to be further
refined over a period of time.

 A Rating Scale could consist of 9 levels, of which 1 to 5 represent various grades of

acceptable Credit Risk and levels 6 to 9 represent various grades of unacceptable Credit
Risk associated with an exposure.
  A bank can initiate the risk grading activity at a relatively smaller/narrower scale, and
introduce new categories as the risk gradation improves.

 The calibration on the ‘Rating Scale’ is expected to define the pricing, and related terms
and conditions for the accepted credit exposures.

 Movement of an existing exposure to the unacceptable category of Credit Risk should

directly identify the extent of provisioning (loan loss reserves) that needs to be earmarked

 for expected losses. Banks should develop their own internal norms, and maintain certain
level of ‘reasonable over-provisioning’ as the best practice.

 Rating assigned to each credit proposal to lead into the related decisions of acceptance (or
rejections), amount, tenure and pricing.

 Credit rating framework could be separate for relatively peculiar businesses like banking,
finance companies, real estate developers, etc. For all industries, a common CRF may be
used.

Managing credit risk:-

For banks and financial institutions selling credit protection through a credit derivative,
management should complete a financial analysis of both reference obligor(s) and the counterparty
(in both default swaps and TRSs), establish separate credit limits for each, and assign appropriate
risk rating. The analysis of the reference obligor should include the same level of scrutiny that a
traditional commercial borrower would receive. Documentation in the credit file should support
the purpose of the transaction and credit worthiness of the reference obligor. Documentation
should be sufficient to support the reference obligor. Documentation should be sufficient to
support the reference obligor’s risk rating. It is especially important for banks and financial
institutions to use rigorous due diligence procedure in originating credit exposure via credit
derivative. Banks and financial institutions should not allow the ease with which they can originate
credit exposure in the capital markets via derivatives to lead to lax underwriting standards, or to
assume exposures indirectly that they would not originate directly.

For banks and financial institutions purchasing credit protection through a credit derivative,
management should review the creditworthiness of the counterparty, establish a credit limit, and
assign a risk rating. The credit analysis of the counterparty should be consistent with that
conducted for other borrowers or trading counterparties. Management should continue to monitor
the credit quality of the underlying credits hedged. Although the credit derivatives may provide
default protection, in many instances the bank will retain the underlying credits after settlement or
maturity of the credit derivatives. In the event the credit quality deteriorates, as legal owner of the
asset, management must take actions necessary to improve the credit.

Banks and financial institutions should measure credit exposures arising from credit derivatives
transactions and aggregate with other credit exposures to reference entities and counterparties.

These transactions can create highly customized exposures and the level of risk/protection can vary
significantly between transactions. Measurement should document and support their exposures
measurement methodology and underlying assumptions.

The cost of protection, however, should reflect the probability of benefiting from this basis risk.
More generally, unless all the terms of the credit derivatives match those of the underlying
exposure, some basis risk will exist, creating an exposure for the terms and conditions of
protection agreements to ensure that the contract provides the protection desired, and that the
hedger has identified sources of basis risk.
CREDIT FILES:-

It’s the file, which provides important source material for loan supervision in regard to information
for internal review and external audit. Branch has to maintain separate credit file compulsorily in
case of Loans exceeding Rs 50 Lakhs which should be maintained for quick access of the related
information

Contents of the credit file:-

 Basic information report on the borrower

 Milestones of the borrowing unit

 Competitive analysis of the borrower

 Credit approval memorandum

 Financial statement

 Copy of sanction communication

 Security documentation list

  Dossier of the sequence of events in the accounts

 Collateral valuation report

 Latest ledger page supervision report

 Half yearly credit reporting of the borrower

 Quarterly risk classification

 Press clippings and industrial analysis appearing in newspaper

 Minutes of latest consortium meeting

 Customer profitability

 Summary of inspection of audit observation

Credit files provide all information regarding present status of the loan account on basis of
credit decision in the past. This file helps the credit officer to monitor the accounts and
provides concise information regarding background and the current status of the account

PROPOSED RISK WEIGHT TABLE

Credit AAA to A+ to BBB+ BB+ Below Unrated

Assessment AA- A- to BBB- To B- B-
Sovereign(Govt.& 0% 20% 50% 100% 150% 100%
Central Bank)
Claims on Banks
Option 1 20% 50% 100% 100% 150% 100%
Option 2a 20% 50% 50% 100% 150% 50%
Option 2b 20% 20% 20% 50% 150% 20%

20%
Corporate
Option 1 = Risk Weight based on risk weight of the country

Option 2a = Risk weight based on assessment of individual bank

Option 2b = Risk Weight based on assessment of individual banks with claims of original maturity
of less than 6 months.

Retail Portfolio (subject to qualifying criteria) 75%

Claims Secured by residential property 35%

Non-Performing Assets:

If specific provision is less than 20% 150%

If specific provision is more than 20% 100%

 Roll out from March 2008

 Risk weight for each balance sheet & off balance sheet item. That is, FB & NFB, both.

 Risk weight for Retail reduced

 Risk weight for Corporate - according to external rating by agencies approved by RBI and
registered with SEBI

 Lower risk weight for smaller home loans (< 20 lacks)

  Risk weight for unutilized limits = (Limit- outstanding) >0 Importance of reporting limit
data correctly (If a limit of Rs.10 lacks is reported in Limit field as Rs.100 lacks, even with
full utilization of actual limit, Rs. 90 lacks will be shown as unutilized limit, and capital
allocated against such fictitious data at prescribed rates).

Standardised Approach – Long term

Rating Risk Weight

AAA 20

AA 30

A 50

BBB 100

BB & below 150

Unrated 100

From 1.4.2009, unrated exposure more than Rs 10 crores will attract a Risk Weight of 150%

For 2008-2009 (wef 1.4.2008), unrated exposure more than Rs 50 crores will attract a Risk Weight
of 150%

Standardized Approach – Short Term

CARE CRISIL FITCH ICRA

PR1+ P1+ F1+ A1+
PR1 P1 F1 A1
PR2 P2 F2 A2
PR3 P3 F3 A3
PR4 & PR5 P4 & P5 B,C,D A4/A5

Short-term and Long-Term Ratings:

  For Exposures with a contractual maturity of less than or equal to one year (except Cash
Credit, Overdraft and other Revolving Credits) Short-term Ratings given by ECAIs will
be applicable.

 For Domestic Cash Credit, Overdraft and other Revolving Credits irrespective of the period
and Term Loan exposures of over 1 year, Long Term Ratings given by ECAIs will be
applicable.

 For Overseas exposures, irrespective of the contractual maturity, Long Term Ratings given
by IRAs will be applicable.

 Rating assigned to one particular entity within a corporate group cannot be used to risk
weight other entities within the same group.

COMPONENTS OF CREDIT RISK

Size of Expected Loss “Expected Loss” EL

1. What is the probability of a Probability of

default (NPA)? Default
PD
(Frequency)
 =

2. How much will be the likely

Exposure at Default EaD
exposure in the case the advance
becomes NPA?

3. How much of that exposure is

Loss Given Default
the bank going to lose?
“Severity” LGD

3.3 RATINGS TO BOI

INSTRUMENT RATINGS as on 31.03.2015 RATING AGENCY

Bank Rating Baa3/P3/Stable/D+ Moody’s

BBB-/ A3/Negative S&P

BBB-/ F3/ Stable Fitch

Instrument Rating ‘AAA/Stable’ CRISIL
Innovative
Perpetual Debt ‘CARE AAA’ CARE
Instruments

Upper Tier II ‘AAA/Stable’ CRISIL

Subordinated
Debt ‘CARE AAA’ CARE
Lower Tier II ‘AAA/Stable’ CRISIL
Subordinated
Debt ‘CARE AAA’ CARE

AAA(Stable) ICRA
Basel III Tier 2 ‘AAA/Stable’ CRISIL

‘CARE AAA’ CARE

AAA(Stable) ICRA

CARE: Credit Analysis & Research Limited CRISIL: CRISIL Ltd

ICRA: ICRA Ltd S&P: Standard & Poor

3.4 CREDIT POLICY:

Bank’s investments in accounts receivable depends on: (a) the volume of credit sales, and (b) the
collection period. There is one way in which the financial manager can affect the volume of credit
sales and collection period and consequently, investment in accounts receivables. That is through
the changes in credit policy. The term credit policy is used to refer to the combination of three
decision variables: (1) credit standards, (2) credit terms, and (3) collection efforts, on which the
financial manager has influence.

Credit Standards:
Credit Standards are criteria to decide the types of customers to whom goods could be sold on
credit. If a firm has more slow-paying customers, its investment in accounts receivable will
increase. The firm will also be exposed to higher risk of default.

Credit Terms:
Credit Terms specify duration of credit and terms of payment by customers. Investment in
accounts receivables will be high if customers are allowed extended time period for making
payments.

Collection Efforts:
Collection efforts determine the actual collection period. The lower the collection period, the lower
the investment in accounts receivable and higher the collection period, the higher the investment in
accounts receivable.

OBJECTIVES OF CREDIT POLICY:

 A balanced growth of the credit portfolio which does not compromise safety.
  Adoption of a forward-looking and market responsive approach for moving into profitable
new areas of lending whish emerges, within the pre-determined exposure ceilings.

 Sound risk management practices to identify measure, monitor and control credit risks.

 Maximize interest yields from the credit portfolio through a judicious management of
varying spreads for loan assets based upon their size, credit rating and tenure

 Ensure due compliance of various regulatory norms, including CAR, Income Recognition
and Asset Classification.

 Accomplish balanced deployment of credit across various sectors and geographical regions.

 Achieve growth of credit to priority sectors / sub sectors and continue to surpass the targets
stipulated by Reserve Bank of India.

 Use pricing as a tool of competitive advantage ensuring however that earnings are
protected.

 Develop and maintain enhanced competencies in credit management at all levels through a
combination of training initiatives and dissemination of best practices

INBANK OF INDIA – BORIVALI WEST BRANCH, MUMBAI

3.5 CREDIT RATING:

InBank of IndiaBorivali West Branch has subscribed to www.cibiilratings.com. Credit

Information Bureau (India) Limited is India’s first Credit Information Company (CIC) founded
in August 2000. CIBIL collects and maintains records of an individual’s payments pertaining to
loans and credit cards. These records are submitted to CIBIL by member banks and credit
institutions, on a monthly basis.

This information is then used to create Credit Information Reports (CIR) and credit scores which
are provided to credit institutions in order to help evaluate and approve loan applications. CIBIL
was created to play a critical role in India’s financial system, helping loan providers manage their
business and helping consumers secure credit quicker and on better terms.unique repository
providing information on almost 14,000 companies rated by CRISIL and it has a user-friendly
query interface which enables user to search and filter companies based on a host of financial and
non-financial parameters.

CIBIL Transunion Score

The CIBIL Transunion Score is a predictive scoring model that uses the credit information
available at CIBIL. The score is a number between 300 and 900 which is calculated at the time a
credit report is accessed and is representative of an individual’s credit behavior. The higher the
numerical value of the score, lower the risk profile of the individual. Each score can be translated
to the odds of at least one trade line for that individual becoming 91 + days delinquent.

For individuals who are not present on the CIBIL database, or if they have less than 6 months of
history, the score will take values of -1 and 0.

CIBIL Transunion Score Version 2.0, the second edition of the credit score from CIBIL and
Transunion, is a better and stronger predictor of risk helping BOI makes superior decisions.
The new version also returns a score for consumers with less than 6 months credit history, thereby
helping BOI makes more objective credit decisions for a large number of BOI borrowers.

Almost 75% of the consumers would receive a score of 50 points lower compared to the previous
version of the score**. This does not mean that the customer’s credit performance has deteriorated.
It just means that with the CIBIL Transunion Score Version 2.0 BOI score cut off can now be
lower sanctioning new credit.

A quick glance on what the new score would be vis a vis the current score with the same
probability of default.

EXISTING NEW
CIBIL Transunion Score CIBIL Transunion Score (V 2.0)
851-900 841-900
801-850 698-840
751-800 662-697
701-750 619-661
651-700 567-618
601-650 521-566
551-600 515-520
300-550 300-514
0 1-5

Impact on score cut offs:

In most cases the new score would return a lower value than its earlier version for a given
consumer**. BOI score cut off for sanctioning new credit could therefore be lower when using
version 2.0 of the score.
Additional score range of 1-5:

A new score range of 1-5 has been introduced (in addition to the range of 300-900) only for
customers with less than 6 months credit history – higher the score, lower the risk associated with
the consumer.

CIBIL Transunion Score Version 2.0 introduces a new score range for customers with limited
credit history.

BOI customers who earlier obtained a score of ‘0’ on account of having less than 6 months of
credit history will now get a new score range ranking them 1 to 5.

Factors Influence the score

Various factors influence the score, including the following:

Payment History

Outstanding Debt

Length of Credit History

Number and types of credit accounts

Utilization

Applications for new credit

These factors impact the score either postively or negatively. Factors that have an unfavourable
impact on the score are explained in reason codes.

Meaning of reason code

A reason code is an explanation of a specific credit factor that can be improved. It explains why
the individual did not receive the most optimal score for a particular factor. A reason code will
only be returned if we did not receive the most points possible for a particular factor. With every
score, we will return a maximum of five reasons why the individual did not get the most optimal
score.

Reason Codes

CODE EXPLANATION

1 Too many tradelines 91+ days delinquent in the past 6 months

2 Presence of a tradeline 91+ days delinquent in the past 6 months
3 Credit card balances are too high in proportion to High Credit Amount
4 Too many tradelines with worst status in the past 6 months
5 Presence of severe delinquency in the past 6 months
6 Presence of a minor delinquency in the past 6 months
7 Presence of a tradeline with worst status in the past 6 months
8 Credit card balances are high in proportion to High Credit Amount
9 High number of trades with low proportion of satisfactory trades

10 Low proportion of satisfactory trades

11 No presence of a revolving tradeline
12 Presence of a tradeline 91+ days delinquent 7 to 12 months ago
13 Low average trade age
14 Presence of a tradeline 91+ days delinquent 13 or more months ago
15 Presence of a minor delinquency 7 to 24 months ago
16 Presence of a severe delinquency 7 to 24 months ago
17 Presence of a high number of enquiries

Explanation of Key Reason Codes

Tradelines 91+ days delinquent – REASON CODES 1, 2, 12, AND 14

This component of the score examines if any of the individuals tradelines have been 91+ days
delinquent in the past. This component looks at the presence as well as the number of this
occurrence over the past 24 months. A presence and severity in terms of the number of trades with
a delinquency of this nature would worsen the score.

Credit card balances are high in proportion to High Credit Amount – REASON CODES 3
AND 8

This component of the score examines the current balance on credit cards in proportion to the
highest credit amount over the past 24 months. A higher value will result in a lower score for that
individual. This component measures the presence of high balances as well as the severity of the
utilization. If an individual has two credit card trades on CIBIL, trade A with balance of RS.

40,000 and High Credit amount of RS. 1,00,000 and trade B with balance of RS. 50,000 and High
Credit amount of RS. 1,50,000, then this component calculates the utilization with refernece to the
High Credit Amount: (40,000 + 50,000) /(1,00,000 + 1,50,000). The presence of a high utilization
or the severity would result in a worse score for the individual.

Minor and Severe Delinquency – REASON CODES 5, 6, 15 AND 16

This component examines the payment pattern of an individual in the past in terms of the number
of times any tradeline has been 30 or 60 days delinquent in the past 24 months. Since not all trades
are reported using the days-past-due, we estimate the days past due based on the overdue amounts
over the past 24 months to calculate this component. This reason code will fire if the trade is not
91+ in the time period but the overdue amounts indicate that the trade is past due.

A high number of delinquencies in the past would in a lower score for the individual.

Satisfactory Trades – REASON CODES 9 AND 10

This component of the scores examines the percentage of trades of an individual that are clean in
terms of past delinquency. Satisfactory trades are measured by the historical overdue amounts of
the past 24 months and the age of the trade. A trade would need to be open for at least 12 months
for it to be termed satisfactory. The higher the percentage of the trades being conducted
satisfactorily, the higher the score for an individual.

Exclusion Codes

CODE EXPLANATION
1 One or more trades with Suit Filed in the past 24 months
2 One or more trades with Willfull Default status in the past 24 months
3 One or more trades with Suit Filed (Willful Default) status in the past 24 months
4 One or more trades Written Off in the past 24 months
5 One or more trades with Suit Filed and Written Off status in the past 24 months
6 One or more trades with Willful Default and Written Off status in the past 24 months
7 One or more trades withSuit Filed ( Willful Default) and Written Off status in the past
24 months
8 One or more trades with restructured debt in the past 24 months
9 One or more trades with settled debt in the past 24 months

With everyone, we will return any exclusion codes that appluy for that individual. Please note that
an individual could have a valid score – between 300 and 900 – and still have an exclusion code if
he/she has these factors – willful default, written off and suit filed – on their credit report.

The following members provide data for CIBIL Services.

Credit Card Company

 1. BOBCARDS LTD.
2. BOI Cards & payment services pvt.ltd,

Financial Institution

1. SECURITIES TRADING CORPORATION OF INDIA LIMITED

2. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA

Foreign Bank

1. AMERICAN EXPRESS BANKING GROUP

2. ANTWEEP DIAMOND BANK N.V.
3. BANK OF AMERICA
4. BANK OF BAHRAIN & KUWAIT B S C
5. BANK OF CEYLON
6. BARCLAYS BANK PLC
7. CHOHUNG BANK

8. CITIBANK N A
9. CREDIT AGRICOLE INDOSUEZ
10. DEUSTCHE BANK
11. STANDARD CHARTED BANK
12. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD
13. THE ROYAL BANK OF SCOTLAND

Housing Finance Company

1. AADHAR HOUSING FINANCE PRIVATE LIMITED

2. APTUS VALUE HOUSING FINANCE INDIA LIMITED
3. AU HOUSING FINANCE PRIVATE LIMITED
4. CANFIN HOMES LTD
 5. DEWAN HOUSING FINANCE CORPORATION LTD
6. DHFL VYSA HOSUING FINANCE LIMITED
7. FIRST BLUE HOME FINANCE LIMITED
8. GIC HOUSING FINANCE LIMITED
9. HABITAT HOUSING FINANCE PRIVATE LIMITED

Nationalised Banks

1. STATE BANK OF INDIA

2. ANDHRA BANK
3. BANK OF BARODA
4. ALLAHABAD BANK
5. BANK OF MAHARASTRA
6. CANARA BANK
7. CENTRAL BANK OF INDIA
8. CORPORATION BANK
9. DENA BANK

10. IDBI BANK LTD

11. INDIAN BANK
12. INDIAN OVERSEAS BANK

Non-banking Financial Company

1. A.K. CAPITAL FINANCE PRIVATE LIMITED

2. ACE FINLEASE PVT.LTD
3. ADITYA BIRLA FINANCE LIMITED
4. AEON CREDIT SERVICE PRIVATE LIMITED
5. AKME FINTRADE INDIAN LTD
3.6 BANK OF INDIA – BORIVALI (W) BRANCH, MUMBAI

Bank of India (Borivali west Branch) sanctioning various loans to customers for their needs or
personal purposes. In those three major loans is

THREE MAJOR LOANS:-

 BOI STAR VEHICLE LOAN

 BOI STAR HOME LOANS
 BOI STAR PERSONAL LOAN

BOI STAR VEHICLE LOAN

BOI offers the best deal for financing new car. Lower interest rates, lowest EMI, minimal
paperwork and quick disbursement.

 SALIENT FEATURES :-

Lowest interest rates & EMI

Longest repayment tenure (7 years)

 ELIGIBILITY :-

Salaried employees, P & SE, Businessmen, Pensioners, Farmers, NRI (jointly with Resident
Indians – close relatives), huf not permitted

 PURPOSE :-

Purchase of new /old two/ four wheeler vehicles like Car, Scooter, and Motorcycle etc. (including
vehicles run on non – conventional energy – electronic or battery operated but registered with
RTO).

o In case of vehicles where registration with RTA is not required, maximum Rs.50,000/- for
2 wheelers & Rs.4.00 lakh for 4 wheelers and preferably with collateral security &
necessarily when the loans above limits of Rs.1.00 lac (Old 2nd hand vehicles not to be
more than 3 years old & comprehensive insurance cover should be available).
Reimbursement of cost of new four wheeler, purchased from own sources can be done
provided the vehicle is not more than 3 months old and have not undergone any accident.
Valuation of the vehicle to be undertaken by the approved valuer.

 MAX QUANTUM OF FINANCE :

o For Indian made vehicles : Rs. 50 lacs ; Imported vehicles : Rs.100 lacs;
 o For companies & corporates : Rs.200 lacs (can be fleet of vehicles) ; Non- resident Indians
: Rs.50 lacs

 ELIGIBLE QUANTUM OF LOAN :

o For individuals: 24 times of Average Monthly Gross emoluments or 2 times of Average

Gross Annual income as per last 3 years ITRs
o For others, i.e. firms/ companies : 2 times of Average Annual cash accrual, i.e. (PAT +
DEPRECIATION) as per company’s/firm’s audited balance sheet/ P&L accounts
o Farmers : As per repayment capacity as applicable in agriculture loans

 NET TAKE HOME PAY :

o For individuals:- 40% - for gross monthly income of Rs.1 lac

o 30% - For gross monthly income of Rs.1 lac and above upto 5 lac
o 25% - For gross monthly income of Rs.5 lac and above
o For others : Min. DSCR 1.5

 AGE :- Not exceeding 65 at the time of availing finance

 MARGIN :

o Individuals (including NRIs):

up to Rs.10.00 lakh – Nil margin on Ex – show Room price excluding

comprehensive insurance/ taxes/ registration charges
 > Rs.10.00 up to Rs.25.00 lakh – 15% On the Road price including comprehensive
insurance/ taxes/ registration charges
 > Rs.25.00 lakh – 25% On the Road Price including comprehensive insurance/
taxes/ registration charges
o Corporates/ firms – 25% min.

 REPAYMENT :

o Two wheelers : 5 years; four wheelers: 7 years; for corporates/ firms: 5 years;
o 2nd hand vehicle : 3 years

 SECURITY :
 o Hypothecation of vehicle purchased out of bank finance – Bank’s Hypothecation
charge to be registered with RTO. – Comprehensive insurance of the vehicle with bank
clause.
o Collateral security to be insisted upon for loans > Rs.25 lakh
o Registration of Banks charge over the vehicle with ROC in case of financing to
corporate/ company apart from charge registration with RTO.

 RATE OF INTEREST : New 4 wheelers : BSS- 0.10% above 1 year MCLR

 GUARANTEE : Required for loans > Rs. 25 lakh & in respect of loans for vehicles not
registered with RTO. Guarantee of resident Indian in respect of loans to NRIs. In other
cases tangible collateral security of acceptable value can be obtained in lieu of guarantee.

 DOCUMENTS REQUIRED FROM CUSTOMERS :

Photograph, Proof of income, Proof of Address, Third party Guarantee, Proforma invoice

 DOCUMENTS TO BE OBTAINED :

o Application cum proposal

o OD – 194 (guarantee deed)
o L – 512
o L – 516 & L – 515
o Comprehensive Insurance Policy with Bank clause
o Letter addressed to insurance company for remitting claim directly to bank in case of
damages
o Blank transfer Forms in Blank in duplicate
o Registration of bank charges on the vehicle with Regional transport authority
o Valuation Certificate for decond hand vehicle from approved valuer.
o Regisration of charge with ROC in case of finance to companies.
o A letter of Authority by the borrower to debit the loan/ SB a/c with intt. Ser. Ch./ ins
Prem.
o Where guarantor’s vehicle is taken as collateral security obtain another CHA- 2 with
modification
 o Employers undertaking for recovery of installment, OR post – dated cheques towards
EMIs
o Sanction Letter.

BOI STAR PERSONAL LOAN

We want funds readily available to our whenever our desire or need, be it a sudden vacation that
we plan with our family or urgent funds required for medical treatment. BOI STAR Credit
Personal Loan helps so much.

 ELIGIBILITY : Salaried employees, professionals and High Net Worth Individuals

(HNI)

 PURPOSE : Any approved purpose.

 AGE : Not to exceed retirement age of the employee/fee for others – repayment period not
to exceed 65 years of age. (Retirement age for salaried proponents & 65 years for others is
the max age at which total loan to be repaid)

 LOAN LIMIT : Clean advance : Max. Rs 5 Lacs ; Secured advance : Max .Rs 10 Lacs

 CALCULATION OF QUANTUM OF LOAN :

 Clean Advance:
 o For salaried proponents : 10 times of monthly net emoluments
o For others : 50 % of gross annual Income
 Secured advance :
o For salaried proponents : 20 times of monthly net emoluments
o For others : 100 % of gross annual income

 SECURITY : FOR SECURED ADVANCES

EQM of property For not less than 150 % of quantum of loan. Pledge of gold/NSC/DBD at
least equal to the loan amount. Pledge of Demat shares of market value not less than 200%
of the amount of the loan

 TYPE OF ADVANCE :
Demand loan / Term loan / OD – reducible / od – non reducible

 MARGIN :
Suitable margin for secured advances. No specific margin to be insisted upon for clean
advances

 REPAYMENT PERIOD :
o Repayment in 36 EMIs for clean advances. (Sanctioning authority may consider
up to 60 months)
o Maximum 60 EMI for secured advances. For non – reducible OD, interest to be
serviced on regular basis. Loan account to be closed before retirement.

 NET TAKE HOME PAY / INCOME (NTHP) :

Not less than 40 % of Gross income

 PROCESSING CHARGES :
One time @ 2 % of loan amount , min. Rs 1000/- and Max Rs 10000/-
  ROI :
Fully secured – 4% + BSS (0.30%) above 1 year MCLR
Clean – 5 % + BSS (0.30%) above 1 year MCLR
Interest concession @ 0.50% p.a. to women beneficiaries.

BOI STAR HOME LOAN SCHEME

BOI Star Home Loans come to you on the solid foundation of trust and transparency built in the
tradition of Bank of India.

Best Practices followed in BOI mentioned below will tell you why it makes sense to do business
with State Bank of India.

 ELIGIBILITY :

 Customers who are in permanent salaried employement / Professionals / Self

employed with Regular

Income / Group of individuals / Corporates (for development of dwelling units

for employees)/ HUF/ NRIPIO/ Staff members. Fordelegation purpose loans to
HUF and PIO is to be considered as ZLCC and above as per their delegation.

 For individuals, marks as per Rating sheet is minimum 20 presently and for
firms/ corporate SBS/MS Model

Rating as applicable to corporates.

  Ordinarily for salaried persons & others – upto the age of – 70 years. The
maximum age mentioned above is not entry but the age by which entire
loan is to be repaid. In case of joint account cases, age of senior proponent is to
be reckoned for deciding outer age limit for repayment. In case of salaried
persons, sanctioning authority to be satisfied about the post retirement
repayment capacity and mentioned in proposal, Deviations by SZLCC & above

 PURPOSE :

 (i) To purchase / construct house / Flat on ownership basis.

 (ii) To Repair / Renovate / Extend existing house / flat.
 (iii) Composite loan for purchase of plot and construction of house thereon
within a max. period 18 months (in exceptional cases 24 months to be permitted
by ZM). No Loan only for the purchase of plot of land.
 Take Over of Housing Loans extended by other Banks / Institutions / NBFCs as
per extant guidelines.
 For 2nd or subsequent sale, the flat / house should have future life of at least 1.5
times of stipulated repayment period Future life to be certified by Bank’s panel
valuer.

 NET TAKE HOME PAY / INCOME : (Net of EMI of propose loan)

For Gross monthly income upto Rs. 1.00 lakh - 40% of Gross monthly income

For Gross monthly income > Rs. 1 lakh & upto Rs. 5 lakh – 30% of Gross salary
income

For Gross monthly income > Rs . 5 lakh - 25% of gross salary income

In case of firms / corporate – DSCR min 1.5

  MARGIN:

Margin for 1st house Margin for 2nd subsequent Margin for reimbursement of
house loan
Loan upto Rs. 30 lakhs 10% Loan upto Rs 20 lakhs 20% Loan upto Rs.20 Lakhs 25%
>30 upto 75 lakhs 20 % > 20 upto 75 lakhs 20% > 20 upto 75 lakhs 25 %
>75 lakhs 25 % > 75 lakhs 25 % > 75 lakhs 25%
Margin to be calculated on the pure cost price of the flat / house excluding stamp duty,
registration charges etc. and comply with RBI instructions on Loan to value. (LTV).

DOCUMENTS

List of papers/ documents applicable to all applicants:

 Completed loan application

 3 Passport size photographs
 Proof of identify (photo copies of Voters ID card/ Passport/ Driving
 Licence/ IT PAN card)
 Proof of residence (photo copies of recent Telephone Bills/ Electricity Bill/
 Property tax receipt/ Passport/ Voters ID card)
 Proof of business address for non-salaried individuals
 Statement of Bank Account/ Pass Book for last six months
  Signature identification from present bankers
 Personal Assets and Liabilities statement

For guarantor (wherever applicable):

 Personal Assets and Liabilities Statement

 2 passport size photographs
 Proof of identification as above
 Proof of residence as above
 Proof of business address as above
 Signature identification from his/her present bankers

Additional documents required for salaried persons:

 Original Salary Certificate from employer

 TDS certificate on Form 16 or copy of IT Returns for last two financial years, duly
acknowledged by IT Department.
3.7In BOI BORIVALI WEST BRANCH, every loan has the following stages:-

Stage 1:- Creating LOS Number for customers

Stage 2:-

(i) Underwriting
(ii) Documentation
(iii) Creating CIF Number for customers
(iv) A/C creation
(v) Limit approval
(vi) Processing Fee
(vii) Inspection
(viii) CIBIL

3.8 Loan Recovery Policy:-

 The debt collection policy (recovery policy) of the bank is built around dignity and respect
to customers. The Bank will not follow policies that are unduly coercive in recovery of
dues from borrowers. The policy is built on courtesy, fair treatment and persuasion. The
bank believes in following fair practices with regard to recovery of dues from borrowers
and taking possession of security (properties / assets charged to the bank as primary or
collateral security) (known as security repossession) and thereby fostering customer
confidence and long term relationship.
 The repayment schedule for any loan sanctioned by the Bank will be fixed taking into
account the repaying capacity and cash flow pattern of the borrower. The bank will explain
to the customer upfront the method of calculation of interest and how the Equated Monthly
Instalments (EMI) or payments through any other mode of repayment will be appropriated
against interest and principal due from the customers. The bank would
 expect the customers to adhere to the repayment schedule agreed to and approach the Bank for
assistance and guidance in case of genuine difficulty in meeting repayment obligations.

 The Bank's Security Repossession Policy (taking possession of the mortgaged properties
under SRESI Act or acquiring the property as non-banking asset through enforcement of
decree) aims at recovery of dues in the event of default and is not aimed at whimsical
deprivation of the property. The policy recognizes fairness and transparency in
repossession, valuation and realization of security. All the practices adopted by the bank for
follow up and recovery of dues and repossession of security will be in consonance with the
law.

These are all steps which have been taken by the bankers after sanctioning the loans to their
customers.

1. After one month, if customer not pay the EMI amount of loans means, in that
account called as “Special Mention Account”.
2. In this stage the bank will starts the Soft Recovery Process to that particular

customers, it means the bank will giving notice to borrowers:

While written communication, telephonic reminders or visits by the bank's representatives to the
borrowers' place or residence will be used as loan follow up measures, the bank will not initiate
any legal or other recovery measures including repossession of the security without giving due
notice in writing. The Bank will follow all such procedures as required under law for recovery /
repossession of security. .

3. The bank will again wait for 90 days, that period also customer not pay the interest
amount means then it is called as ‘Non-Performing Assets’.
In this stage, the bank will start the Repayment Action; it can be classified into two types:
 (i) Willful Default
(ii) Genuine Reason
Willful Default

Intentional failure by a customer to the loan, the customer main intention is to cheat the banks.

Genuine Reason

Sometimes customers has the genuine reason like some major accidents or any other reasons for
unable to pay the loan interest, that time bank will give extra time to the customers to pay the loan
interest.

But in the first situation, the bank will send letter to the customer for reason of non-payment

4. The next step is bank will send on the legal notice to the customers, the legal notice
contains of
Repossession of security is aimed at recovery of dues and not to deprive the
borrower of the property. The recovery process through repossession of security
will involve repossession, valuation of security and realization of security through
appropriate means. All these would be carried out in a fair and transparent manner.
Repossession will be done only after issuing the notice as detailed above. Due
process of law will be followed while taking repossession of the property. The bank
will take all reasonable care for ensuring the safety and security of the property
after taking custody, in the ordinary course of the business.
5. The next step is the bank will published their customer details in newspapers (2
local & national newspapers).
6. The next step is valuation and sale of property repossessed by the bank will be
carried out as per law and in a fair and transparent manner. The bank will have

7. right to recover from the borrower the balance due, if any, after sale of property.
Excess amount, if any, obtained on sale of property will be returned to the
 borrower after meeting all the related expenses provided the bank is not having any
other claims against the borrower.
8. The final step is opportunity for the borrower to take back the security,as
indicated earlier in the policy document; the bank will resort to repossession of
security only for the purpose of realization of its dues as the last resort and not with
intention of depriving the borrower of the property.

Accordingly, the bank will be willing to consider handing over possession of property to the
borrower any time after repossession but before concluding sale transaction of the property,
provided the bank dues are paid in full. If satisfied with the genuineness of borrower's inability to
pay the loan instalments as per the schedule which resulted in the repossession of security, the
bank may consider handing over the property after receiving the instalments in arrears. However,
this would be subject to the bank being convinced of the arrangements made by the borrower to
ensure timely repayment of remaining instalments in future.
 CHAPTER 4
DATA ANALYSIS AND INTERPRETATION

4.1 IN BOIBORIVALI WEST BRANCH LAST 3 YEARS LOAN DETAILS:-

Particulars Amount outstanding Amount outstanding Amount outstanding
31.3.2014 31.3.2015 31.3.2016
(Rs in Crs) (Rs in Crs) (Rs in Crs)
Car Loan 17, 20, 00,000 18, 40, 00,000 22,50,00,000
Home Loan 10, 20, 00,000 11, 23, 00,000 13,86,00,000
Personal Loan 4,90,00,000 5,40,00,000 6,25,00,000
Education Loan 3,89,00,000 4,82,00,000 5,16,00,000
Others 12,20,00,000 13,50,00,000 14,20,00,000
Total 48,39,00,000 53,35,00,000 61,97,00,000

BOI (BORIVALI WEST BRANCH) IN THE YEAR 2014 – LOANS

LOANS

CAR LOAN
HOME LOAN
PERSONAL LOAN
EDUCATIONAL LOAN
OTHERS

BOI (BORIVALI WEST BRANCH) IN THE YEAR 2015 – LOANS

 LOANS

CAR LAON
HOME LOAN
PERSONAL LOAN
EDUCATION LOAN
OTHERS

BOI (BORIVALI WEST BRANCH) IN THE YEAR 2016 – LOANS

LOANS

CAR LAON
HOME LOAN
PERSONAL LOAN
EDUCATIONAL LOAN
OTHERS

In BOIBORIVALI WEST BRANCH, LAST 3 YEARS CAR LOAN DETAILS:-

YEAR LOAN AMOUNT
2014 17, 20, 00,000
2015 18, 40, 00,000
2016 22, 50, 00,000

VEHICLE LOAN AMOUNT

25

20

15
CAR LOAN AMOUNT
10

0
IN BANK OF INDIABORIVALI WEST BRANCH LAST 3 YEARS HOME LOAN
DETAILS:

YEARS HOME LOAN AMOUNT

2014 10, 20, 00,000
2015 11, 23, 00,000
2016 13, 86, 00,000

HOME LOAN AMOUNT

160

140

120

100

80 LOAN AMOUNT

60

40

20

IN BOIBORIVALI WEST BRANCH PERSONAL LOAN DETAILS LAST 3 years:-

Years LOAN AMOUNT
2014 4, 90, 00, 000
2015 5, 40, 00, 000
2016 6, 25, 00, 000

PERSONAL LOAN AMOUNT

7

4
LOAN AMOUNT
3

0
COMPARING THEIR LOAN GROWTH OF BOI BORIVALI WEST BRANCH FOR THE
YEARS OF 2014, 2015 & 2016

TOTAL LOANS
70

60

50

40
TOTAL LOANS
30

20

10

4.2 EMI CALCULATION FOR LOAN:

FORMULA TO CALCULATE EMI

𝐿 ∗ 𝑟 (1 + 𝑟)𝑛
𝐸𝑀𝐼 =
(1 + 𝑟)𝑛 − 1
Where ‘L’ is Loan Amount

‘r’ is Rate of Interest

‘n’ is Number of Years

For Example

A customer taking a loan of RS.1, 00,000 has to be repaid of 5 annual installments. The loan
carries an interest rate of 9% p.a. Calculate the loan installment.

1,00, 𝑂𝑂𝑂 ∗ 0.09 (1 + 0.09)5

𝐸𝑀𝐼 =
(1 + 0.09)5 − 1
9,000(1.09)5
=
(1.09)5 − 1

9,000(1.5386)
=
1.5386 − 1
13,847.4
= = 25,709
0.5386

End of Year Payment Interest Principal Balance

(1) (2) (3) (4) Outstanding
(5) * 9% (2) – (3) (5)
0 - - - 1,00,000
1 25,709 9,000 16,709 83,291
2 25,709 7,496 18,213 65,078
3 25,709 5.857 19,852 45,856
4 25,709 4,127 21,582 24,274
5 25,709 1,435 24,724 -

Suppose, if monthly installment means = 25,709/12 = 2,142.4

4.3 Non-Performing Asset

NPA is used by financial institutions that refer to loans that are in jeopardy of default. Once the
borrower has failed to make interest or principle payments for 90 days/ 3 Months the loan is
considered to be a non-performing asset. Non-performing assets are problematic for financial
institutions since they depend on interest payments for income. Troublesome pressure from the
economy can lead to a sharp increase in non-performing loans and often results in massive write-
downs.

Non-performing asset (NPA) ratio

The nonperforming asset ratio is a measure of bank’s nonperforming assets relative to the total
value of the loans that have made -- often referred to as bank loan book. To calculate this ratio,
simply divide your nonperforming assets by your total loans.

Bank
In Bank of of India Borivali West Branch, the financial year (2015-2016) the total amount of
the year is: Rs.146, 76, 30, 264.11 and the NPA is: Rs.1, 51, 39,320.13,

Provision of RS.52, 33,615.00

Loan and advance details:-

Particulars Amount
Advances 24,81,00,000
Housing Loan 13,86,00,000
Vehicle Loan 2,25,00,000
Education Loan 5,16,00,000
Personal Loan 6,25,00,000
Total 52,33,00,000
𝑇𝑜𝑡𝑎𝑙 𝑙𝑜𝑎𝑛 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 =

𝑇𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟 − 𝑇𝑜𝑡𝑎𝑙 𝑙𝑜𝑎𝑛 𝑎𝑛𝑑 𝑎𝑑𝑣𝑎𝑛𝑐𝑒𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟

= 146, 76, 30,264.11 − 52, 33, 00,000

= 94, 43, 30,264.11

𝑁𝑒𝑡 𝑁𝑜𝑛 − 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔 𝐴𝑠𝑠𝑒𝑡𝑠 = 𝑇𝑜𝑡𝑎𝑙 𝑁𝑃𝐴′ 𝑠 − 𝑃𝑟𝑜𝑣𝑖𝑠𝑖𝑜𝑛

= 1, 51, 39,320.13 − 52, 33, 615.00

= 99, 05, 705.13

𝑁𝑒𝑡 𝑁𝑜𝑛 − 𝑃𝑒𝑟𝑓𝑜𝑟𝑚𝑖𝑛𝑔 𝐴𝑠𝑠𝑒𝑡𝑠

𝑁𝑃𝐴 𝑅𝐴𝑇𝐼𝑂 = × 100
𝑇𝑜𝑡𝑎𝑙 𝐿𝑜𝑎𝑛 𝑜𝑓 𝑡ℎ𝑒 𝑦𝑒𝑎𝑟

99, 05, 705.13

= × 100
94, 43, 30,264.11

= 0.0104 × 100
 = 1.04%

As per the calculation, the total NPA ratio of financial year 2015 - 2016 is 1.04%, so the Credit
Risk Management of Bank of IndiaBorivali West Branch is well maintained.
4.4 COMPETITORS DETAILS

Main competitors of Bank of India are ICICI Bank in private sector banks and Syndicate Bank and
Corporation Bank In public sector.

POSITION OF BANK OF INDIA IN LENDING (PRIVATE SECTOR BANK) IN THE

YEAR 2016 :-

BANK LENDING IN Cr

State Bank of India 390

ICICI bank 250

HDFC 150
BANK OF India 300

LENDING IN Cr

STATE BANK OF India

ICICI BANK
HDFC BANK
BANK OF India
POSITION OF BANK OF INDIA IN LENDING (PUBLIC SECTOR BANK) IN THE
YEAR 2016 :

BANK LENDING IN Cr

State Bank of India 380

Syndicate Bank 360

Bank of India 330

Corporation Bank 350

LENDING IN Cr

STATE BANK OF India

SYNDICATE BANK
BANK OF India
CORPORATION BANK
4.5 INTERPRETATION:

 Considering the above data we can say that year on year the amount of advances lent by
Bank of India has increased which indicates that the bank’s business is really commendable
and the Credit Policy it has maintained is absolutely good.

 Whereas other banks do not have such good business BOI is ahead in terms of its business
when compared to both Public Sector and Private Sector banks, this implies that BOI has
incorporated sound business policies in its bank

 BOI‟s direct agriculture advances as compared to other banks is 10.5% of the Net Bank’s
Credit, which shows that Bank has not lent enough credit to direct agriculture sector.

 In case of indirect agriculture advances, BOI is granting 3.1% of Net Banks Credit, which
is less as compared to Canara Bank, Syndicate Bank and Corporation Bank. BOI has to
entertain indirect sectors of agriculture so that it can have more number of borrowers for
the Bank.

 BOI has advanced 13.6% of Net Banks Credit to total agriculture and 8.9% to weaker
section and 37% to priority sector, which is less as compared with other Bank.
 CHAPTER 5
CONCLUSION

5.1 FINDINGS
Project findings reveal that BOI is sanctioning less Credit to agriculture, as compared with its key
competitor’s viz., Canara Bank, Corporation Bank, Syndicate Bank

Recovery of Credit:

BOI recovery of Credit during the year 2015 is 84.2% Compared to other Banks BOI’s recovery
policy is very good, hence this reduces NPA

Total Advances:As compared total advances of BOI is increased year by year.

Bank of India is granting credit in all sectors in an Equated Monthly Installments so that anybody
can borrow money easily

Project findings reveal that Bank of India is lending more credit or sanctioning more loans as
compared to other Banks.

Bank of India is expanding its Credit in the following focus areas:

 BOI Term Deposits

 BOI Recurring Deposits
 BOI Housing Loan
 BOI Car Loan
 BOI Educational Loan
 BOI Personal Loan …etc.

In case of indirect agriculture advances, BOI is granting 3.1% of Net Banks Credit, which is less as
compared to Canara Bank, Syndicate Bank and Corporation Bank.

BOI‟s direct agriculture advances as compared to other banks is 10.5% of the Net Bank’s Credit,
which shows that Bank has not lent enough credit to direct agriculture sector.

Credit risk management process of BOI used is very effective as compared with other banks.

5.2 RECOMMENDATIONS
  The Bank should keep on revising its Credit Policy which will help Bank’s effort to correct
the course of the policies

 The Chairman and Managing Director/Executive Director should make modifications to

the procedural guidelines required for implementation of the Credit Policy as they may
become necessary from time to time on account of organizational needs.

 Banks has to grant the loans for the establishment of business at a moderate rate of interest.
Because of this, the people can repay the loan amount to bank regularly and promptly.

 Bank should not issue entire amount of loan to agriculture sector at a time, it should release
the loan in installments. If the climatic conditions are good then they have to release
remaining amount.

 BOI has to reduce the Interest Rate.

 BOI has to entertain indirect sectors of agriculture so that it can have more number of
borrowers for the Bank.

5.3 CONCLUSION:
Project undertaken has helped a lot in gaining knowledge of the “Credit Policy and Credit Risk
Management” in Nationalized Bank with special reference to Bank of India. Credit Policy and
Credit Risk Policy of the Bank has become very vital in the smooth operation of the banking
activities. Credit Policy of the Bank provides the framework to determine (a) whether or not to
extend credit to a customer and (b) how much credit to extend. The Project work has certainly
enriched the knowledge about the effective management of “Credit Policy” and “Credit Risk
Management” in banking sector.

“Credit Policy” and “Credit Risk Management” is a vast subject and it is very difficult to cover all
the aspects within a short period. However, every effort has been made to cover most of the
important aspects, which have a direct bearing on improving the financial performance of Banking
Industry

To sum up, it would not be out of way to mention here that the Bank of India has given special
inputs on “Credit Policy” and “Credit Risk Management”. In pursuance of the instructions and
guidelines issued by the Reserve Bank of India, the Bank of India is granting and expanding credit
to all sectors.

The concerted efforts put in by the Management and Staff of Bank of India has helped the Bank in
achieving remarkable progress in almost all the important parameters.

5.4 BIBLIOGRAPHY
BOOKS REFERRED:

1. Macmilan, Risk Management, Macmilan Publishers India Ltd.

2. Kanhaiya singh and vinay dutta, Commercial Bank Management
3. M.Y.Khan and P.K.Jain, Management Accounting (Third Edition), Tata McGraw Hill.
4. Busy Bankers Volume 1 & 2 , Sandipani 2017
.

WEB SITES

1. www.BOI.co.in
2. www.icicidirect.com
3. pavithra file ppt mba
4. www.rbi.org
5. www.indiainfoline.com
6. www.google.com

BANKS INTERNAL RECOREDS:

1. Annual Reports ofBank of India

2. Bank of India Manuals
***********************************************************************************************

REDIT RISK MANAGEMENT IN BANK OF INDIA 9

1.1 INDUSTRY OVERVIEW

Banking is the life blood of trade, commerce and industry. Nowadays, banking sector acts as
the backbone of modern business. Development of any country mainly depends upon the
banking system. A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in the form of deposits
and it lends money to those who need it. The banking is one of the most essential and
important parts of the human life.

In current faster lifestyle peoples may not do proper transitions without developing the proper
bank network. The banking System in India is dominated by nationalized banks. The
performance of the banking sector is more closely linked to the economy than perhaps that of
any other sector.

The growth of the Indian economy is estimated to have slowed down significantly. The
economic slowdown and global developments have affected the banking sectors' performance
in India in FY16 resulting in moderate business growth. It has forced banks to consolidate
their operations, re-adjust their focus and strive to strengthen their balance sheets.

The banking sector in India is on a growing trend. It has vastly benefitted from the surge in
disposable income of individuals in the country. There has also been a noticeable upsurge in
transactions through ATMs, and also internet and mobile banking. Consequently, the
different banks, viz public, private and foreign banks have invested considerably to increase
their banking network and thus, their customer reach.

The banking industry in India has the potential to become the fifth largest banking industry in
the world by 2020 and third largest by 2025 according to a KPMG-CII report. Over the next
decade, the banking sector is projected to create up to two million new jobs, driven by the
efforts of the RBI and the Government of India to integrate financial services into rural areas.
Also, the traditional way of operations will slowly give way to modern technology.

MARKET SIZE
The Indian banking sector is fragmented, with 46 commercial banks jostling for business with
dozens of foreign banks as well as rural and co-operative lenders. BANK OF INDIA control
11 percent of the market, leaving relatively small shares for private rivals.

Banks have opened 10 crore accounts under the Pradhan Mantri Jan Dhan Yojana (PMJDY)
till November 19, according to Ms Snehlata Shrivastava, Additional Secretary, Department of
Financial Services, Ministry of Finance, and Government of India. Of the 77.3 million
accounts, public sector banks have opened 62.1 million accounts with a total balance of Rs
4,946.03 core (US$ 802.64 million), and have distributed RuPay debit cards to around 43
million accounts.

Total banking sector credit is anticipated to grow at a CAGR of 18.1 per cent to reach US$
2.4 trillion by 2017. The total banking assets in India touched US$ 1.8 trillion in FY13 and is
anticipated to cross US$ 28.5 trillion in FY25.

INVESTMENTS
There have been many investments and developments in the Indian banking sector in the past
few months. Some of the recent major are:

 Kotak Mahindra Bank plans to acquire ING Vysya Bank in an all-stock deal. The deal
will make Kotak the fourth-largest private bank in the country in terms of total
business. ING shareholders will now get 725 Kotak Bank shares for every 1,000
shares they hold.

 Bharatiya Mahila Bank Ltd (BMB) has launched its internet banking facility by the
name BMB Smart Banking, along with its newly designed website. Currently, this
women focused bank has branch network of 33 branches and all of them on core
banking solutions with onsite ATMs.

 The United Economic Forum (UEF) has signed a MoU with the Indian Overseas
Bank (IOB) for financing entrepreneurs from backward communities to set up
businesses in

CREDIT RISK MANAGEMENT IN BANK OF INDIA

Tamil Nadu. As part of the agreement, entrepreneurs who have been chosen by the
UEF, will get term loan / working capital requirements from the bank.
State Bank of India getting merge with their associate banks (i.e) State bank of
Travancore, State bank of Hyderabad, State bank of Bikaner & jaipur, State bank of
Patiala, State bank of Mysore on March 2017 & came in Top 50 banks in world.

Growth in Credit off – take in India

In March FY16, total credit extended surged to US$ 1,016 billion.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
Growth in Deposits in India
During FY06–16, deposits grew at a CAGR of 11.47 per cent and reached 1.46 trillion in FY16.
Growth in ATMs in India

CREDIT RISK MANAGEMENT IN BANK OF INDIA

Total NPAs in Banks in India

NPAs in India is expected to be more than 12 lakh crores in 2016 as per RBI
CREDIT RISK MANAGEMENT IN BANK OF INDIA

INDIAN BANKING SYSTEM

RESERVE BANK OF INDIA (RBI)
Reserve Bank of India is the Central Bank of our country.
It holds the apex position in the banking structure.
RBI performs various developmental and promotional functions.
It has given wide powers to supervise and control the banking structure.
It occupies the pivotal position in the monetary and banking structure of the country.

CREDIT RISK MANAGEMENT IN BANK OF INDIA

In many countries central bank is known by different names.

They have the authority to formulate and implement monetary and credit policies.
It is owned by the government of a country and has the monopoly power of issuing
notes.

MAJOR FUNCTIONS OF RBI

Issue of Bank Notes:

The Reserve Bank of India has the sole right to issue currency notes except one rupee notes
which are issued by the Ministry of Finance. Currency notes issued by the Reserve Bank are
declared unlimited legal tender throughout the country.

Banker to Government:
As banker to the government the Reserve Bank manages the banking needs of the
government. It has to-maintain and operate the government’s deposit accounts. It collects
receipts of funds and makes payments on behalf of the government. It represents the
Government of India as the member of the IMF and the World Bank.

Custodian of Cash Reserves of Commercial Banks:

The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the
cash reserves of the commercial banks.
CREDIT RISK MANAGEMENT IN BANK OF INDIA

Custodian of Country’s Foreign Currency Reserves:

The Reserve Bank has the custody of the country’s reserves of international currency, and
this enables the Reserve Bank to deal with crisis connected with adverse balance of payments
position.

Lender of Last Resort:

The commercial banks approach the Reserve Bank in times of emergency to tide over
financial difficulties, and the Reserve bank comes to their rescue though it might charge a
higher rate of interest.

Central Clearance and Accounts Settlement:

Since commercial banks have their surplus cash reserves deposited in the Reserve Bank, it is
easier to deal with each other and settle the claim of each on the other through book keeping
entries in the books of the Reserve Bank.

Controller of Credit:
Since credit money forms the most important part of supply of money, and since the supply
of money has important implications for economic stability, the importance of control of
credit becomes obvious. Credit is controlled by the Reserve Bank in accordance with the
economic priorities of the government.
CREDIT RISK MANAGEMENT IN BANK OF INDIA

1.2 INTRODUCTION OF BANK OF INDIA

 Bank of India was founded on 7th September 1906 by a group of eminent businessmen
of Mumbai like Sir Sassoon David, Sir Cowasjee Jehangir, first Baronet, and Mr.
Ramnarain Hurnandrai
 Beginning with one office in Mumbai with paid up capital of Rs. 50 lakhs and
employing 50 staff, the bank made rapid progress and on the eve of nationalization in
1969 had 207 branches in India, 12 branches abroad, a networth of Rs. 11 crores,
Deposits of Rs. 436 crores and Advances of Rs. 296 crores.
 Bank of India has many firsts to its credit.
It was the first indian bank to establish a branch outside India when it opened its
London branch on 1st July 1946.
o It was also the first Indian Bank to open branch in Continental Europe in Paris
in 1974.
BOI is the first Indian bank to offer ATM services of fully computerized
branch Mahalaxmi, Mumbai on 8th August 1988.
 The bank made its maiden public issue in February 1997.

BANK OF INDIA – TODAY

Bank of India is a premiere Bank today with a rich history of success of more than
100 years.
Beginning with one office in Mumbai, with a paid-up capital of ₹5
million (US$78,000) and 50 employees, the Bank has made a rapid growth over the
years and blossomed into a mighty institution with a strong national presence and
sizable international operations. In business volume, the Bank occupies a premier
position among the nationalised banks.
The bank has 4,963 branches in India spread over all states/ union territories including
specialised branches. These branches are controlled through 54 Zonal Offices. There
are 60 branches/ offices and 5 Subsidiaries and 1 joint venture abroad.
The Bank has more than 68 Million strong customer base.

CREDIT RISK MANAGEMENT IN BANK OF INDIA

 Government shareholding in the bank is at 67.11%.

 Bank also has strategic investments in Central Depository Services ltd. The Bank has
equity Participation in ASREC, The Asset Reconstruction Company floated by UTI,
Multi Commodity Exchange (MCX), CIBIL, SME Rating Agency of India ltd.,
National
Collateral Management Services ltd. And National Commodity & Derivatives
Exchange ltd. (NCDEX).
 The Bank has arrange of well – structured products, services and skilled staff.
 The bank has more than 70000 employees on its roll across the Globe as on June
2016.
 The Bank has 8 Depository Participant Offices in major cities of the country.
 Organization Structure has been revamped to increase customer focus – SBU
structures evolved for key business segments.
CREDIT RISK MANAGEMENT IN BANK OF INDIA

ABOUT LOGO
symbol is Goddess Lakshmi, inside the star. It means your money will increase by the
blessings of Maa (mother) Lakshmi and safe inside the star. Stars represent branches spread
all over the world, like stars everywhere im the sky and that all customers are like family
members.
Slogan : Relationship beyond banking
CREDIT RISK MANAGEMENT IN BANK OF INDIA

Bank’s Subsidaries / Alliances / Joint Ventures:

Associates :
 Regional Rural Banks (RRB’s) : 4 Regional Rural Banks sponsored by our bank in
54 Districts in the states of M.P., U.P., Jharkhand & Maharashtra.
 Securities Trading Corporation of India Ltd. : Bank is the single largest
stakeholder eith 29.95% stake in its equity.
 ASREC (India) Ltd : Promoted by specified Undertaking of UTI to undertake
securitization and Asset reconstruction activities. Bank holds 26.02% stake.
Indo Zambia Bank Ltd. : A joint venture of 3 Indian Banks namely Bank of India,
Bank of Baroda, Central Bank of India and Govt. of Zambia with equity ratio of
20:20:20 & 40 per cent respectively.

Subsidiaries :
 BOI Shareholding Ltd. : A Joint Venture with Bombay Stock Exchange to manage
the BSE Clearing House activities.
 Bank of India (Indonesia Ltd) : Wholly owned subsidiary.
 Bank of India (Tanzania) Ltd., Dar-es-Salaam : The wholly ownedsubsidiary was
incorporated on 16.07.07. First branch of the subsidiary is opened in Dar-es-salaam
on 22.07.08.
  Bank of India (New Zealand) Ltd: Wholly ownedsubsidiary of the Bank Operations
started functioning From October’ 2011.
• BhartiAXA : Memorandum of Understanding signed with AXA for acquiring equity
stake for re-entry into Mutual Fund business.

CREDIT RISK MANAGEMENT IN BANK OF INDIA

Joint Ventures :
 Star Dai – Ichi Life Insurance Co. Ltd.: A joint venture agreement between BOI,
UBI and UBI and the Dai – Ichi Mutual Life Insurance Co., Japan with capital stake
of 48% by BOI, 26% by UBI and 26% by Dai – Ichi
Others :
CDSL : Promoted in 1997 by BSE. Bank holds 5.57% stake.
CIBIL : Formed in august 2000 for priority Credit Information and Risk Analysis
Services to banking & Finance sectors. Bank holds 5% stake in Equity capital.
SME Rating Agency (India) Ltd (SMERA) : Promoted by SIDBI in association
with Dun & Brad Street in 2005-06. Bank holds 4% stake.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
22
BOI’S JOURNEY THROUGH NUMBERS
No.4
5thLargest Bank in India (Deposits, Advances,
Profits, Branches, Employees)
25 crores+ Active customer base
26 lakhs crores Business size
1 lakh+ Touch points
43,515 Pan-India ATMs (18% of market
share in ATM population in India)
45,487 Business correspondent and Customer Service
Points
5.63 crores+ Core Banking Business Transactions (daily
average transactions)
70 lakhs+
ATM transactions per day (38% of the
country’s total ATM transactions)
17 crores+ Bank Group debit card holders (43%+ market
share)
1.77 crore+ Internet banking users
95 lakhs Mobile Banking users
1,35,853 POS machines
48 lakhs+ Green Remit Cards
52,260 Pan-India village coverage

CREDIT RISK MANAGEMENT IN BANK OF INDIA

61.60 lakhs Kisan

Credit Cards
CENTRAL BOARD OF DIRECTORS
Shri G. Padmanabhan( Non-Executive Chairman )
Shri Dinabandhu Mohapatra(Managing Director & CEO)
Shri R A Sankara Narayanan(Executive Director)
Shri Neelam Damodharan(Executive Director)
Shri Atanu Kumar Das(Executive Director)
Shri Girish Chandra Murmu(Govt. Nominee Director )
Smt.R.Sebastian(RBI Nominee Director)
Ms. Veni Thapar(Part-time Non-official Director)
Shri Neeraj Bhatia (Shareholder Director) (From 25.10.2014)
Shri Sanjiv Kumar Arora(Shareholder Director) (From 25.10.2014)
CREDIT RISK MANAGEMENT IN BANK OF INDIA
24
VISION, MISSION& VALUES
VISION :
My BOI
My Customer first.
My BOI: First in customer satisfaction
MISSION :
We will be prompt, polite and proactive with our customers.
We will speak the language of young India.
 We will create products and services that help our customers achieve their goals.
We will go beyond the call of duty to make our customers feel valued.
We will be of service even in the remotest part of our country.
We will offer excellence in services to those abroad as much as we do to those in
India.
We will imbibe state-of-the-art technology to drive excellence.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
25
QUALITY POLICY :
Bank of India are committed to become the Bank of choice by providing
Superior
Pro – active
Innovative
State of the art
Banking services with an attitude of Care and Concern for the Customers and Patrons.
VALUES :
Bank of India believes in :-
Nation Building
Ethics & Integrity
Value for our customers
Pride for our employees
Profitable Growth
Contributing to society
One Bank of India
CREDIT RISK MANAGEMENT IN BANK OF INDIA
26
BOI MAJOR PRODUCTS & SERVICES
PRODUCTS:
Bank of India renders varieties of services to customers through the following products:
BOI Term Deposits
BOI Recurring Deposits
BOI Housing Loan
BOI Educational Loan
BOI Loan For Pensioners
Loan Against Mortgage Of Property
 Loan Against Shares & Debentures
Rent Plus Scheme
Medi-Plus Scheme
Rates Of Interest

CREDIT RISK MANAGEMENT IN BANK OF INDIA

27
SERVICES
DOMESTIC TREASURY
BOI VISHWA YATRA FOREIGN TRAVEL CARD
BROKING SERVICES
REVISED SERVICE CHARGES
ATM SERVICES
INTERNET BANKING
E-PAY
E-RAIL
RBIEFT
SAFE DEPOSIT LOCKER
GIFT CHEQUES
MICR CODES FOREIGN INWARD REMITTANCES
Other Products and Services are:-
Working Capital Finance
BOI offers working capital finance to meet the entire range of short-term fund requirements
that arise within a corporate's day-to-day operational cycle.
Project Finance
The BOI has formed a dedicated Project Finance Strategic Business Unit to assess credit
proposals from and extend term loans for large industrial and infrastructure projects.
Deferred Payment Guarantees

CREDIT RISK MANAGEMENT IN BANK OF INDIA

28
BOI can extend deferred payment guarantees to industrial projects for obtaining imported
equipment.
Corporate Term Loan
The BOI corporate term loans can support your company in funding on-going business
expansion, repaying high cost debt, technology up gradation, R&D expenditure, leveraging
specific cash streams that accrue into your company, implementing early retirement schemes
and supplementing working capital
Structured Finance
BOI structured finance involves assembling unique credit configurations to meet the complex
fund requirements of large industrial and infrastructure projects.
Dealer Financing
BOI extends financial support to the corporate distribution networks, by providing both
working capital finance and term loans to select dealers of identified companies.
Loan Syndication
The BOI leverages its vast network of relationships to arrange syndicated credit products for
corporate clients and industrial projects.
Equipment Leasing
The BOI's has deployed a dedicated Strategic Business Unit for lease financing that is richly
experienced in arranging lease contracts for procuring expensive equipment for your project
or plant.
CREDIT RISK MANAGEMENT IN BANK OF INDIA

1.3 OBJECTIVES OF STUDY

1. To Study the complete structure and history of Bank of India.
2. To know the different methods available for credit appraisal.
3. To understanding the credit appraisal procedure used inBank of India.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
30
4. To identify the risks faced by the banking industry.
5. To trace out the process and system of risk management.
6. To gain insights into the credit risk management activities of theBank of India.
7. To know the RBI Guidelines regarding credit rating and risk analysis.
8. To examine the techniques adopted by banking industry for risk management

1.4 LIMITATIONS:

1. This study is only restricted toBank of India only.

2. The result of the study may not be applicable to any other banks.
3. Since the part of the study is based on their perceptions, the findings may change over
the years in keeping with changes in environmental factor.
4. The present study does not ascertain the views from the borrowers who are not
directly concerned with management of non-performing asset.
5. The time constraint was a limiting factor, as more in depth analysis could not be
carried.
6. Some of the information is of confidential in nature that could not be divulged for the
study.
7. Employees were not co operative
CREDIT RISK MANAGEMENT IN BANK OF INDIA
31
CHAPTER 2
RESEARCH METHODOLOGY
2.1 RESEARCH METHODOLOGY
A research method is simply a technique for collecting data and involves a specific
instrument such as a self-completion questionnaire or structured interview schedule, or
participant observation whereby the researcher listens to and watches others” .There are two
main research methods; qualitative and quantitative. Qualitative is geared primarily to the
construction of qualitative data which consist mainly of Depth interviewing or focus groups.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
32
Quantitative on the other hand is geared primarily to the construction of quantitative data and
consist of the usage of formal questionnaires techniques at some stage, whether for face to
face interviews, telephone research, postal or postal research, or it may involve various forms
of experimental or quasi experimental research.
This paper is theoretical modal based on the extensive research for which the secondary
source of information has gathered. The sources include online publications, Books and
journals.
The present paper is a case study which is restricted to branch of BOI in Borivali West
Branch. The objective of research paper is to study the Credit Risk Assessment Model of BOI
Bank and to check the commercial, financial & technical viability of the project proposed &
its funding pattern. To observe the movements to reduce various risk parameters which are
broadly categorized into financial risk, business risk, industrial risk & management risk. For
the purpose, the secondary data is collected through the Books & magazines, Database at
BOI, Websites, E-circulars of BOI.
2.2 RESEARCH DESISGN
Research design provides the framework for the collection and analysis of data or it is the
plan and structure of investigation so conceived as to obtain answers to research questions.
This means it gives the procedure necessary for obtaining the information needed to solve the
research problems. I have used a qualitative approach to interview bank managers because I
CREDIT RISK MANAGEMENT IN BANK OF INDIA
33
believed that since they are experienced professionals in their field, they must probably have
a deep and broader knowledge on the topic.
2.3 PURPOSE OF THE RESEARCH
Risk Analysis and Risk Management has got much importance in the Indian Economy
during this liberalization period. The foremost among the challenges faced by the
banking sector today is the challenge of understanding and managing the risk.
The very nature of the banking business is having the threat of risk imbibed in it.
Banks' main role is intermediation between those having resources and those
requiring resources. For management of risk at corporate level, various risks like
credit risk, market risk or operational risk have to be converted into one composite
measure.
Therefore, it is necessary that measurement of operational risk should be in tandem
with other measurements of credit and market risk so that the requisite composite
estimate can be worked out. So, regarding to international banking rule (Basel
Committee Accords) and RBI guidelines the investigation of risk analysis and risk
management in banking sector is being most important.
2.4 DATA COLLECTION METHOD
To fulfill the objectives of my study, I have taken both into considerations viz primary &
Secondary data
CREDIT RISK MANAGEMENT IN BANK OF INDIA
34
Primary data: Primary data has been collected through personal interview by direct contact
method. The method which was adopted to collect the information is „Personal Interview’
method.
Personal interview and discussion was made with manager and other personnel in the
organization for this purpose.
Secondary data: The data is collected from the Magazines, Annual reports, Internet, Text
books. The various sources that were used for the collection of secondary data are Internal
files & materials.
Websites
www.indiainfoline.com
www.BOI.co.in
Www.Wikepedia.com and other site
CREDIT RISK MANAGEMENT IN BANK OF INDIA
35
CHAPTER 3
REVIEW OF LITERATURE
3.1 CREDIT RISK MANAGEMENT
Preamble
CREDIT RISK MANAGEMENT IN BANK OF INDIA
36
This policy seeks to lay down the Bank’s approach to the management of Credit Risk and put
in place a comprehensive framework for identification, assessment, monitoring, management
and reporting of Credit Risk in a timely and efficient manner. Credit Risk Management
operate within the framework of the Bank’s Corporate Vision and Mission, Risk appetite,
concomitant with prudential controls and should be in line with the regulatory compliance
needs. The Policy also seeks to create systems and procedures to actively mitigate Credit
Risks, optimize resources primarily to protect the Bank against the downside and at the same
time provide an appropriate and reasonable return commensurate with the risk profile
adopted.
Definition
Credit risk estimates from a bank’s dealings with an Individual, Corporate, Bank, Financial
Institution or a Sovereign.
Scope of the Policy
The Credit Risk Management Policy as enunciated herein covers the Bank’s Domestic as
well as Foreign Operations. In addition to these guidelines, International Banking Group shall
formulate a similar framework for Bank’s Foreign Offices keeping in view the Regulations /
Parameters laid down by the host Country Central Banks / Regulators, the directions of the
Reserve Bank of India and also that of the Bank’s Board in this regard from time to time.
CRM policy provides a broad framework for management of Credit Risk, within which the
Business Groups / Business Units / Departments Corporate Centre are expected to formulate
procedures for management of Credit Risk inherent to their respective products and services.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
37
RISK GOVERNANCE STRUCTURE INBANK OF INDIA
An independent Risk Governance structure in line with the international best practices has to
be put in place by Banks. A ‘Chief Risk Officer’ position at the Board level to be created in
the Bank for integrated Risk Management with separate Departments under him/her for
Credit, Market and Operational risks. Since the Risk Governance Framework brings together
all Risk Management Departments under one umbrella, it provides an integrated view of risk
as a whole and facilities adoption of a holistic approach.
The following table will give an outline of architecture for management of risks Banks.
Risk Type Architecture
Credit Risk (Domestic Loans) Credit Policy & Procedures Committee (CPPC)
and Credit Risk Management Committee (CRMC)
Market Risk (Investments
including liquidity risk)
Asset and Liability Management Committee
(ALCO)
Credit Risk (International
Exposures)
Credit Policy & Procedures Committee (CPPC)
and Credit Risk Management Committee (CRMC)
Operational Risk Operational Risk Management Committee
(ORMC)
Overall Risk Management Risk Management Committee of the Board
(RMCB)
ORGANISATIONAL STRUCTURE OFBANK OF INDIA
In accordance with the need for a separate and independent Risk Management Governance
Structure, the following Integrated Risk Management Structure has been approved by the
Appropriate Authority.
Risk Management
Committees
CREDIT RISK MANAGEMENT IN BANK OF INDIA
38
Inspection and
Management Audit
ALCO
BOARD OF DIRECTORS
RISK MANAGEMENT
COMMITTEE OF THE BOARD
Credit Risk Management
Committee
Operational Risk
Management Committee
Market Risk Management
Committee
Group Risk Management
Committee
MD & CCRO
CGM (RM)
GM (Credit Risk)
Credit Risk
Management
Team
DGM
(MarketRisk)
Market Risk
Management
Team
DGM (Operational
Risk)
Operational risk
Management Team
DGM (Group
Risk)
Group Risk
Management
Team
Risk Analytics
& Validation
CREDIT RISK MANAGEMENT
DEPARTMEMENT
CREDIT RISK MANAGEMENT IN BANK OF INDIA
39
Credit Risk Management Committee (CRMC)
The Credit Risk Management Committee (CRMC) shall comprise of the following:
MD & CCRO – Chairman
CGM (Risk Management)
CGM (Financial Control)
CGM (Internal Audit)
CGM (Corporate Accounts Group)
CGM (Mid-Corporate)
CGM (Foreign Offices)
CGM (Global Markets)
GM (Credit Risk Management)
TYPES OF RISKS TO WHICH THE BANKS ARE EXPOSED
Banks in the process of financial intermediation are confronted with various types of
financial as well as non-financial risks, Viz., credit, interest rate, foreign exchange rate,
liquidity, and equity price, commodity price, legal, regulatory, reputational and operational
Credit Risk
Assessment &
Risk Reporting
Credit Risk
Modeling
Industry Risk Policy Related
Matters
Base I II
Implementation
MIS Section
CREDIT RISK MANAGEMENT IN BANK OF INDIA
40
risks. These are highly interdependent and events that affect the area of risks can have
ramification for a range of other risk categories.
Credit Risk
It is defined as the possibility of loss associated with diminution in the credit quality of
borrowers or counter parties. In a bank’s portfolio, losses stem from outsight default due to
inability or unwillingness of a customer or counterparty to meet commitments relating to
lending, trading, settlement and other financial transactions
Market Risk
It is defined as the possibility of losses caused by changes in the market variables. Market
risk is the to the bank’s earnings and capital due to changes in the market level of interest
rates or prices of securities, foreign exchange and equities, as well as the volatilities therein.
Operational Risk
It is defined by the Basel Committee as ‘the risk of direct or indirect loss resulting from
inadequate or failed internal process, people and systems or from external events’. RBI
defines
operation risk as any risk which is not categorized as market or credit risk, or the risk of loss
arising from human or technical errors, or from external events.
The exposure to the credit risks large in case of financial institutions, such commercial banks
when firms borrow money they in turn expose lenders to credit risk, the risk that the firm will
CREDIT RISK MANAGEMENT IN BANK OF INDIA
41
default on its promised payments. As a consequence, borrowing exposes the firm owners to
the risk that firm will be unable to pay its debt and thus be forced to bankruptcy.
CONTRIBUTORS OF CREDIT RISK:
Corporate assets
Retail assets
Non-SLR portfolio
May result from trading and banking book
Interbank transactions
Derivatives
Settlement, etc
Steps involved in Risk Management
The steps involved in managing risks are:
Identification
Measurement
Monitoring
Controlling
Identification and measurement of risks will help in categorization of risks into High,
Medium and Low to enable the bank to initiate steps for monitoring and controlling. These
steps are a continuing process.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
42
KEY ELEMENTS OF CREDIT RISK MANAGEMENT:
Establishing appropriate credit risk environment
Operating under sound credit granting process
Maintaining an appropriate credit administration, measurement & Monitoring
Ensuring adequate control over credit risk
Banks should have a credit risk strategy which in our case is communicated
throughout the organization through credit policy.
Steps to follow to minimize different type of risks:-
Standardized
• Internal Ratings
• Credit Risk Models
d
CREDIT RISK MANAGEMENT IN BANK OF INDIA
43
CREDIT RATING
Definition:-
RISKS
Credit Risks
Market Risks
Operational Risks
• Trading Book
• Banking Book
• Operational
• Others
CREDIT RISK MANAGEMENT IN BANK OF INDIA
44
Credit rating is the process of assigning a letter rating to borrower indicating that
creditworthiness of the borrower.
Rating is assigned based on the ability of the borrower (company). To repay the debt and his
willingness to do so. The higher rating of company the lower the probability of its default.
Use in decision making:-
Credit rating helps the bank in making several key decisions regarding credit including
1. Whether to lend to a particular borrower or not; what price to charge?
2. What are the products to be offered to the borrower and for what tenure?
3. At what level should sanctioning be done, it should however be noted that credit rating is
one of inputs used in credit decisions.
4. There are various factors (adequacy of borrowers, cash flow, collateral provided, and
relationship with the borrower)
5 .Probability of the borrowers default based on past data.
3.2 CREDIT RISK ASSESSMENT PROCESS INBANK OF INDIA
CREDIT RISK MANAGEMENT IN BANK OF INDIA
45
Before a credit facility is sanctioned to any Client / Obligor, the risk level should be
measured, as per the relevant Credit Risk Assessment (CRA) Model developed by
CRMD.
The appraisal process should involve an in-depth study of the financial, commercial,
technical and managerial aspects of the Borrower and of the risk arising from the
Industry or Industries to which the Borrower belongs.
For each credit proposal, a credit rating would be assigned using the internal credit
rating system.
The Bank has developed Credit Risk Assessment (CRA) Models, which are used for
assessing the Credit Risk of Working Capital, Term Loan and Non-fund based
exposures to Commercial and Institutional borrowers, SSI, Trade & Services and
Agriculture segments for exposures of RS 25 lacks and above, but upto RS. 5 Crores
(Simplified Model) and for exposures in excess of RS. 5 Crores (Regular Model).
Under each category, there are separate models for the Trading and Non-Trading
Sectors.
The rating process would entail a comprehensive evaluation of the Borrower, the
Industry, the Borrower’s business position in the Industry and the techno-economic
aspects of the Project (if any), the financial position of the Borrower and the quality of
the management.
Thus, the rating would reflect the risk involved in the facility / borrower and would be
an evaluation of the borrower’s intrinsic strength.
The rating should be reviewed periodically and update at yearly intervals. The risk
rating of facilities assigned the lowest pass grades should invariably be reviewed at
half-yearly intervals.
Entry barriers have been prescribed in the CRA Models. A proposal obtaining Zero
score in the entry barrier would not be subject to further process and stand declined.
No deviation is envisaged to be permitted in this regard.
The CRA models adopted by the Bank prescribe hurdle rates / minimum scorers for
new connections / enhancements. Proposals below hurdle rates may be considered
with a approval of the appropriate authority as provided in the loan policy.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
46
In simple terms, Credit Appraisal Process is
Receipt of application from applicant
|
Receipt of documents (Balance sheet, KYC papers, Different govt.registration no., MOA,
AOA, and Properties documents)
|
Pre-sanction visit by bank officers
|
Check for RBI defaulters list, willful defaulters list, CIBIL data, ECGC caution list, etc.
|
Title clearance reports of the properties to be obtained from empanelled advocates
|
Valuation reports of the properties to be obtained from empanelled valuer /engineers
|
Preparation of financial data
|
Proposal preparation
|
CREDIT RISK MANAGEMENT IN BANK OF INDIA
47
Assessment of proposal
|
Sanction/approval of proposal by appropriate sanctioning authority
|
Documentations, agreements, mortgages
|
Disbursement of loan
|
Post sanction activities such as receiving stock statements, review of accounts, renew of
accounts, etc. (On regular basis)
Credit Risk Assessment Some Major Parameters Are
Financial Parameters
Business and Industry risk Parameters
CREDIT RISK MANAGEMENT IN BANK OF INDIA
48
Management Parameters
Financial Parameters
The assessment of financial risk involves appraisal of the financial strength of the Borrower
based on performance and financial indicators. The overall financial risk is assessed in terms
of static ratios, year on year movements, future prospects and risk mitigation (Collateral
security / financial standing)
Business and Industry risk Parameters
The following characteristics of an industry risk & business risk which pose varying degrees
of risk are built into the Bank’s CRA model:
Competition & Market Risk
Industry outlook
Regulatory risk
Industry Cyclicality
Input and output profile
Capacity utilization
Technology and Contemporary issues like R&D, Distribution network etc.
Management Parameters
The management of an Enterprise / Group is rated on the following parameters:
CREDIT RISK MANAGEMENT IN BANK OF INDIA
49
Integrity (Corporate Governance)
Track record/ payment record/ conduct of account
Managerial competence/ commitment
Expertise
Structure & systems
 Experience in the industry
Credibility: ability to meet sales projections
Credibility: ability to meet profit projections
Succession plan/ Key Person
Length of relationship with the Bank
The risk parameters as mentioned above are individually scored to arrive at an aggregate
score of 100 (subject to qualitative factors – negative parameters). The overall score thus
obtained (out of a maximum of 100) is rated on a 16 point scale from BOI to SB 16.
Other Parameters
Applicability of pollution control certificate
Impact of subsidies and sales tax deferral loans
Impact of changes in accounting policies
Unabsorbed depreciation and business loss
Impact of non-insurance or inadequate insurance of assets
Extraordinary or windfall gains and losses
Analysis of bank statements
Violations of accounting standards if any
Change in management
Impact of the new monetary or fiscal policies or significant development in the
macroeconomic policy of the company concerning the industry.
RBI’S GUIDELINES ON THE CREDIT FRAMEWORK IN BANKS
CREDIT RISK MANAGEMENT IN BANK OF INDIA
50
The grades used in the internal Credit Risk Grading System should represent, without
any ambiguity, the default risks associated with an exposure and enable top
management in decision making. The process of risk identification and risk
assessment has to be further refined over a period of time.
A Rating Scale could consist of 9 levels, of which 1 to 5 represent various grades of
acceptable Credit Risk and levels 6 to 9 represent various grades of unacceptable
Credit Risk associated with an exposure.
A bank can initiate the risk grading activity at a relatively smaller/narrower scale, and
introduce new categories as the risk gradation improves.
The calibration on the ‘Rating Scale’ is expected to define the pricing, and related
terms and conditions for the accepted credit exposures.
Movement of an existing exposure to the unacceptable category of Credit Risk should
directly identify the extent of provisioning (loan loss reserves) that needs to be
earmarked
for expected losses. Banks should develop their own internal norms, and maintain
certain level of ‘reasonable over-provisioning’ as the best practice.
Rating assigned to each credit proposal to lead into the related decisions of acceptance
(or rejections), amount, tenure and pricing.
Credit rating framework could be separate for relatively peculiar businesses like
banking, finance companies, real estate developers, etc. For all industries, a common
CRF may be used.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
51
Managing credit risk:-
For banks and financial institutions selling credit protection through a credit derivative,
management should complete a financial analysis of both reference obligor(s) and the
counterparty (in both default swaps and TRSs), establish separate credit limits for each, and
assign appropriate risk rating. The analysis of the reference obligor should include the same
level of scrutiny that a traditional commercial borrower would receive. Documentation in the
credit file should support the purpose of the transaction and credit worthiness of the reference
obligor. Documentation should be sufficient to support the reference obligor. Documentation
should be sufficient to support the reference obligor’s risk rating. It is especially important
for banks and financial institutions to use rigorous due diligence procedure in originating
credit exposure via credit derivative. Banks and financial institutions should not allow the
ease with which they can originate credit exposure in the capital markets via derivatives to
lead to lax underwriting standards, or to assume exposures indirectly that they would not
originate directly.
For banks and financial institutions purchasing credit protection through a credit derivative,
management should review the creditworthiness of the counterparty, establish a credit limit,
and assign a risk rating. The credit analysis of the counterparty should be consistent with that
conducted for other borrowers or trading counterparties. Management should continue to
monitor the credit quality of the underlying credits hedged. Although the credit derivatives
may provide default protection, in many instances the bank will retain the underlying credits
after settlement or maturity of the credit derivatives. In the event the credit quality
deteriorates, as legal owner of the asset, management must take actions necessary to improve
the credit.
Banks and financial institutions should measure credit exposures arising from credit
derivatives transactions and aggregate with other credit exposures to reference entities and
counterparties.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
52
These transactions can create highly customized exposures and the level of risk/protection
can vary significantly between transactions. Measurement should document and support their
exposures measurement methodology and underlying assumptions.
The cost of protection, however, should reflect the probability of benefiting from this basis
risk. More generally, unless all the terms of the credit derivatives match those of the
underlying exposure, some basis risk will exist, creating an exposure for the terms and
conditions of protection agreements to ensure that the contract provides the protection
desired, and that the hedger has identified sources of basis risk.
CREDIT FILES:-
It’s the file, which provides important source material for loan supervision in regard to
information for internal review and external audit. Branch has to maintain separate credit file
compulsorily in case of Loans exceeding Rs 50 Lakhs which should be maintained for quick
access of the related information
CREDIT RISK MANAGEMENT IN BANK OF INDIA
53
Contents of the credit file:-
Basic information report on the borrower
Milestones of the borrowing unit
Competitive analysis of the borrower
Credit approval memorandum
Financial statement
Copy of sanction communication
Security documentation list
Dossier of the sequence of events in the accounts
Collateral valuation report
Latest ledger page supervision report
Half yearly credit reporting of the borrower
Quarterly risk classification
Press clippings and industrial analysis appearing in newspaper
Minutes of latest consortium meeting
Customer profitability
Summary of inspection of audit observation
Credit files provide all information regarding present status of the loan account on basis
of credit decision in the past. This file helps the credit officer to monitor the accounts and
provides concise information regarding background and the current status of the account
PROPOSED RISK WEIGHT TABLE
Credit
Assessment
AAA to
AAA+
to
ABBB+
to BBBBB+
To BBelow
BUnrated
CREDIT RISK MANAGEMENT IN BANK OF INDIA
54
Sovereign(Govt.&
Central Bank)
0% 20% 50% 100% 150% 100%
Claims on Banks
Option 1 20% 50% 100% 100% 150% 100%
Option 2a 20% 50% 50% 100% 150% 50%
Option 2b 20% 20% 20% 50% 150% 20%
Corporate 20%
Option 1 = Risk Weight based on risk weight of the country
Option 2a = Risk weight based on assessment of individual bank
Option 2b = Risk Weight based on assessment of individual banks with claims of original
maturity of less than 6 months.
Retail Portfolio (subject to qualifying criteria) 75%
Claims Secured by residential property 35%
Non-Performing Assets:
If specific provision is less than 20% 150%
If specific provision is more than 20% 100%
Roll out from March 2008
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55
Risk weight for each balance sheet & off balance sheet item. That is, FB & NFB,
both.
Risk weight for Retail reduced
Risk weight for Corporate - according to external rating by agencies approved by RBI
and registered with SEBI
Lower risk weight for smaller home loans (< 20 lacks)
Risk weight for unutilized limits = (Limit- outstanding) >0 Importance of reporting
limit data correctly (If a limit of Rs.10 lacks is reported in Limit field as Rs.100 lacks,
even with full utilization of actual limit, Rs. 90 lacks will be shown as unutilized
limit, and capital allocated against such fictitious data at prescribed rates).
Standardised Approach – Long term
Rating Risk Weight
AAA 20
AA 30
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56
A 50
BBB 100
BB & below 150
Unrated 100
From 1.4.2009, unrated exposure more than Rs 10 crores will attract a Risk Weight of 150%
For 2008-2009 (wef 1.4.2008), unrated exposure more than Rs 50 crores will attract a Risk
Weight of 150%
Standardized Approach – Short Term
CARE CRISIL FITCH ICRA
PR1+ P1+ F1+ A1+
PR1 P1 F1 A1
PR2 P2 F2 A2
PR3 P3 F3 A3
CREDIT RISK MANAGEMENT IN BANK OF INDIA
57
PR4 & PR5 P4 & P5 B,C,D A4/A5
Short-term and Long-Term Ratings:
For Exposures with a contractual maturity of less than or equal to one year (except
Cash Credit, Overdraft and other Revolving Credits) Short-term Ratings given by
ECAIs will be applicable.
For Domestic Cash Credit, Overdraft and other Revolving Credits irrespective of the
period and Term Loan exposures of over 1 year, Long Term Ratings given by ECAIs
will be applicable.
For Overseas exposures, irrespective of the contractual maturity, Long Term Ratings
given by IRAs will be applicable.
Rating assigned to one particular entity within a corporate group cannot be used to
risk weight other entities within the same group.
COMPONENTS OF CREDIT RISK
=
Size of Expected Loss “Expected Loss” EL
CREDIT RISK MANAGEMENT IN BANK OF INDIA
58
=
=
=
3.3 RATINGS TO BOI
INSTRUMENT RATINGS as on 31.03.2015 RATING AGENCY
Bank Rating Baa3/P3/Stable/D+
BBB-/ A3/Negative
Moody’s
S&P
1. What is the probability of a default
(NPA)?
2. How much will be the likely exposure in
the case the advance becomes NPA?
3. How much of that exposure is the bank
going to lose?
Probability of
Default
(Frequency)
Exposure at Default
Loss Given Default
“Severity”
PD
EaD
LGD
CREDIT RISK MANAGEMENT IN BANK OF INDIA
59
BBB-/ F3/ Stable Fitch
Instrument Rating
Innovative
Perpetual Debt
Instruments
‘AAA/Stable’
‘CARE AAA’
CRISIL
CARE
Upper Tier II
Subordinated Debt
‘AAA/Stable’
‘CARE AAA’
CRISIL
CARE
Lower Tier II
Subordinated Debt
‘AAA/Stable’
‘CARE AAA’
AAA(Stable)
CRISIL
CARE
ICRA
Basel III Tier 2 ‘AAA/Stable’
‘CARE AAA’
AAA(Stable)
CRISIL
CARE
ICRA
CARE: Credit Analysis & Research Limited CRISIL: CRISIL Ltd
ICRA: ICRA Ltd S&P: Standard & Poor
3.4 CREDIT POLICY:
Bank’s investments in accounts receivable depends on: (a) the volume of credit sales, and (b)
the collection period. There is one way in which the financial manager can affect the volume
of credit sales and collection period and consequently, investment in accounts receivables.
That is through the changes in credit policy. The term credit policy is used to refer to the
CREDIT RISK MANAGEMENT IN BANK OF INDIA
60
combination of three decision variables: (1) credit standards, (2) credit terms, and (3)
collection efforts, on which the financial manager has influence.
Credit Standards:
Credit Standards are criteria to decide the types of customers to whom goods could be sold on
credit. If a firm has more slow-paying customers, its investment in accounts receivable will
increase. The firm will also be exposed to higher risk of default.
Credit Terms:
Credit Terms specify duration of credit and terms of payment by customers. Investment in
accounts receivables will be high if customers are allowed extended time period for making
payments.
Collection Efforts:
Collection efforts determine the actual collection period. The lower the collection period, the
lower the investment in accounts receivable and higher the collection period, the higher the
investment in accounts receivable.
OBJECTIVES OF CREDIT POLICY:
A balanced growth of the credit portfolio which does not compromise safety.
Adoption of a forward-looking and market responsive approach for moving into
profitable new areas of lending whish emerges, within the pre-determined exposure
ceilings.
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61
Sound risk management practices to identify measure, monitor and control credit
risks.
Maximize interest yields from the credit portfolio through a judicious management of
varying spreads for loan assets based upon their size, credit rating and tenure
Ensure due compliance of various regulatory norms, including CAR, Income
Recognition and Asset Classification.
Accomplish balanced deployment of credit across various sectors and geographical
regions.
Achieve growth of credit to priority sectors / sub sectors and continue to surpass the
targets stipulated by Reserve Bank of India.
Use pricing as a tool of competitive advantage ensuring however that earnings are
protected.
Develop and maintain enhanced competencies in credit management at all levels
through a combination of training initiatives and dissemination of best practices
INBANK OF INDIA – BORIVALI WEST BRANCH, MUMBAI
3.5 CREDIT RATING:
InBank of IndiaBorivali West Branch has subscribed to www.cibiilratings.com. Credit
Information Bureau (India) Limited is India’s first Credit Information Company (CIC)
founded in August 2000. CIBIL collects and maintains records of an individual’s payments
CREDIT RISK MANAGEMENT IN BANK OF INDIA
62
pertaining to loans and credit cards. These records are submitted to CIBIL by member banks
and credit institutions, on a monthly basis.
This information is then used to create Credit Information Reports (CIR) and credit scores
which are provided to credit institutions in order to help evaluate and approve loan
applications. CIBIL was created to play a critical role in India’s financial system, helping
loan providers manage their business and helping consumers secure credit quicker and on
better terms.unique repository providing information on almost 14,000 companies rated by
CRISIL and it has a user-friendly query interface which enables user to search and filter
companies based on a host of financial and non-financial parameters.
CIBIL Transunion Score
The CIBIL Transunion Score is a predictive scoring model that uses the credit information
available at CIBIL. The score is a number between 300 and 900 which is calculated at the
time a credit report is accessed and is representative of an individual’s credit behavior. The
higher the numerical value of the score, lower the risk profile of the individual. Each score
can be translated to the odds of at least one trade line for that individual becoming 91 + days
delinquent.
For individuals who are not present on the CIBIL database, or if they have less than 6 months
of history, the score will take values of -1 and 0.
CIBIL Transunion Score Version 2.0, the second edition of the credit score from CIBIL and
Transunion, is a better and stronger predictor of risk helping BOI makes superior decisions.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
63
The new version also returns a score for consumers with less than 6 months credit history,
thereby helping BOI makes more objective credit decisions for a large number of BOI
borrowers.
Almost 75% of the consumers would receive a score of 50 points lower compared to the
previous version of the score**. This does not mean that the customer’s credit performance
has deteriorated. It just means that with the CIBIL Transunion Score Version 2.0 BOI score
cut off can now be lower sanctioning new credit.
A quick glance on what the new score would be vis a vis the current score with the same
probability of default.
EXISTING
CIBIL Transunion Score
NEW
CIBIL Transunion Score (V 2.0)
851-900 841-900
801-850 698-840
751-800 662-697
701-750 619-661
651-700 567-618
601-650 521-566
551-600 515-520
300-550 300-514
0 1-5
Impact on score cut offs:
In most cases the new score would return a lower value than its earlier version for a given
consumer**. BOI score cut off for sanctioning new credit could therefore be lower when
using version 2.0 of the score.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
64
Additional score range of 1-5:
A new score range of 1-5 has been introduced (in addition to the range of 300-900) only for
customers with less than 6 months credit history – higher the score, lower the risk associated
with the consumer.
CIBIL Transunion Score Version 2.0 introduces a new score range for customers with limited
credit history.
BOI customers who earlier obtained a score of ‘0’ on account of having less than 6 months of
credit history will now get a new score range ranking them 1 to 5.
Factors Influence the score
Various factors influence the score, including the following:
Payment History
Outstanding Debt
Length of Credit History
Number and types of credit accounts
Utilization
Applications for new credit
These factors impact the score either postively or negatively. Factors that have an
unfavourable impact on the score are explained in reason codes.
Meaning of reason code
CREDIT RISK MANAGEMENT IN BANK OF INDIA
65
A reason code is an explanation of a specific credit factor that can be improved. It explains
why the individual did not receive the most optimal score for a particular factor. A reason
code will only be returned if we did not receive the most points possible for a particular
factor. With every score, we will return a maximum of five reasons why the individual did
not get the most optimal score.
Reason Codes
CODE EXPLANATION
1 Too many tradelines 91+ days delinquent in the past 6 months
2 Presence of a tradeline 91+ days delinquent in the past 6 months
3 Credit card balances are too high in proportion to High Credit Amount
4 Too many tradelines with worst status in the past 6 months
5 Presence of severe delinquency in the past 6 months
6 Presence of a minor delinquency in the past 6 months
7 Presence of a tradeline with worst status in the past 6 months
8 Credit card balances are high in proportion to High Credit Amount
9 High number of trades with low proportion of satisfactory trades
10 Low proportion of satisfactory trades
11 No presence of a revolving tradeline
12 Presence of a tradeline 91+ days delinquent 7 to 12 months ago
13 Low average trade age
14 Presence of a tradeline 91+ days delinquent 13 or more months ago
15 Presence of a minor delinquency 7 to 24 months ago
16 Presence of a severe delinquency 7 to 24 months ago
17 Presence of a high number of enquiries
Explanation of Key Reason Codes
Tradelines 91+ days delinquent – REASON CODES 1, 2, 12, AND 14
CREDIT RISK MANAGEMENT IN BANK OF INDIA
66
This component of the score examines if any of the individuals tradelines have been 91+ days
delinquent in the past. This component looks at the presence as well as the number of this
occurrence over the past 24 months. A presence and severity in terms of the number of trades
with a delinquency of this nature would worsen the score.
Credit card balances are high in proportion to High Credit Amount – REASON
CODES 3 AND 8
This component of the score examines the current balance on credit cards in proportion to the
highest credit amount over the past 24 months. A higher value will result in a lower score for
that individual. This component measures the presence of high balances as well as the
severity of the utilization. If an individual has two credit card trades on CIBIL, trade A with
balance of RS.
40,000 and High Credit amount of RS. 1,00,000 and trade B with balance of RS. 50,000 and
High Credit amount of RS. 1,50,000, then this component calculates the utilization with
refernece to the High Credit Amount: (40,000 + 50,000) /(1,00,000 + 1,50,000). The presence
of a high utilization or the severity would result in a worse score for the individual.
Minor and Severe Delinquency – REASON CODES 5, 6, 15 AND 16
This component examines the payment pattern of an individual in the past in terms of the
number of times any tradeline has been 30 or 60 days delinquent in the past 24 months. Since
not all trades are reported using the days-past-due, we estimate the days past due based on the
overdue amounts over the past 24 months to calculate this component. This reason code will
fire if the trade is not 91+ in the time period but the overdue amounts indicate that the trade is
past due.
A high number of delinquencies in the past would in a lower score for the individual.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
67
Satisfactory Trades – REASON CODES 9 AND 10
This component of the scores examines the percentage of trades of an individual that are
clean in terms of past delinquency. Satisfactory trades are measured by the historical overdue
amounts of the past 24 months and the age of the trade. A trade would need to be open for at
least 12 months for it to be termed satisfactory. The higher the percentage of the trades being
conducted satisfactorily, the higher the score for an individual.
Exclusion Codes
CODE EXPLANATION
1 One or more trades with Suit Filed in the past 24 months
2 One or more trades with Willfull Default status in the past 24 months
3 One or more trades with Suit Filed (Willful Default) status in the past 24 months
4 One or more trades Written Off in the past 24 months
5 One or more trades with Suit Filed and Written Off status in the past 24 months
6 One or more trades with Willful Default and Written Off status in the past 24
months
7 One or more trades withSuit Filed ( Willful Default) and Written Off status in the
past 24 months
8 One or more trades with restructured debt in the past 24 months
9 One or more trades with settled debt in the past 24 months
With everyone, we will return any exclusion codes that appluy for that individual. Please note
that an individual could have a valid score – between 300 and 900 – and still have an
exclusion code if he/she has these factors – willful default, written off and suit filed – on their
credit report.
The following members provide data for CIBIL Services.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
68
Credit Card Company
1. BOBCARDS LTD.
2. BOI Cards & payment services pvt.ltd,
Financial Institution
1. SECURITIES TRADING CORPORATION OF INDIA LIMITED
2. SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
Foreign Bank
1. AMERICAN EXPRESS BANKING GROUP
2. ANTWEEP DIAMOND BANK N.V.
3. BANK OF AMERICA
4. BANK OF BAHRAIN & KUWAIT B S C
5. BANK OF CEYLON
6. BARCLAYS BANK PLC
7. CHOHUNG BANK
8. CITIBANK N A
9. CREDIT AGRICOLE INDOSUEZ
10. DEUSTCHE BANK
11. STANDARD CHARTED BANK
12. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD
13. THE ROYAL BANK OF SCOTLAND
Housing Finance Company
1. AADHAR HOUSING FINANCE PRIVATE LIMITED
2. APTUS VALUE HOUSING FINANCE INDIA LIMITED
3. AU HOUSING FINANCE PRIVATE LIMITED
CREDIT RISK MANAGEMENT IN BANK OF INDIA
69
4. CANFIN HOMES LTD
5. DEWAN HOUSING FINANCE CORPORATION LTD
6. DHFL VYSA HOSUING FINANCE LIMITED
7. FIRST BLUE HOME FINANCE LIMITED
8. GIC HOUSING FINANCE LIMITED
9. HABITAT HOUSING FINANCE PRIVATE LIMITED
Nationalised Banks
1. STATE BANK OF INDIA
2. ANDHRA BANK
3. BANK OF BARODA
4. ALLAHABAD BANK
5. BANK OF MAHARASTRA
6. CANARA BANK
7. CENTRAL BANK OF INDIA
8. CORPORATION BANK
9. DENA BANK
10. IDBI BANK LTD
11. INDIAN BANK
12. INDIAN OVERSEAS BANK
Non-banking Financial Company
1. A.K. CAPITAL FINANCE PRIVATE LIMITED
2. ACE FINLEASE PVT.LTD
3. ADITYA BIRLA FINANCE LIMITED
4. AEON CREDIT SERVICE PRIVATE LIMITED
5. AKME FINTRADE INDIAN LTD
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70
3.6 BANK OF INDIA – BORIVALI (W) BRANCH, MUMBAI
Bank of India (Borivali west Branch) sanctioning various loans to customers for their needs
or personal purposes. In those three major loans is
THREE MAJOR LOANS:-
BOI STAR VEHICLE LOAN
BOI STAR HOME LOANS
BOI STAR PERSONAL LOAN
BOI STAR VEHICLE LOAN
CREDIT RISK MANAGEMENT IN BANK OF INDIA
71
BOI offers the best deal for financing new car. Lower interest rates, lowest EMI, minimal
paperwork and quick disbursement.
SALIENT FEATURES :-
Lowest interest rates & EMI
Longest repayment tenure (7 years)
ELIGIBILITY :-
Salaried employees, P & SE, Businessmen, Pensioners, Farmers, NRI (jointly with Resident
Indians – close relatives), huf not permitted
PURPOSE :-
Purchase of new /old two/ four wheeler vehicles like Car, Scooter, and Motorcycle etc.
(including vehicles run on non – conventional energy – electronic or battery operated but
registered with RTO).
o In case of vehicles where registration with RTA is not required, maximum
Rs.50,000/- for 2 wheelers & Rs.4.00 lakh for 4 wheelers and preferably with
collateral security & necessarily when the loans above limits of Rs.1.00 lac (Old 2nd
hand vehicles not to be more than 3 years old & comprehensive insurance cover
should be available). Reimbursement of cost of new four wheeler, purchased from
own sources can be done provided the vehicle is not more than 3 months old and have
not undergone any accident. Valuation of the vehicle to be undertaken by the
approved valuer.
MAX QUANTUM OF FINANCE :
o For Indian made vehicles : Rs. 50 lacs ; Imported vehicles : Rs.100 lacs;
CREDIT RISK MANAGEMENT IN BANK OF INDIA
72
o For companies & corporates : Rs.200 lacs (can be fleet of vehicles) ; Non- resident
Indians : Rs.50 lacs
ELIGIBLE QUANTUM OF LOAN :
o For individuals: 24 times of Average Monthly Gross emoluments or 2 times of
Average Gross Annual income as per last 3 years ITRs
o For others, i.e. firms/ companies : 2 times of Average Annual cash accrual, i.e. (PAT
+ DEPRECIATION) as per company’s/firm’s audited balance sheet/ P&L accounts
o Farmers : As per repayment capacity as applicable in agriculture loans
NET TAKE HOME PAY :
o For individuals:- 40% - for gross monthly income of Rs.1 lac
o 30% - For gross monthly income of Rs.1 lac and above upto 5 lac
o 25% - For gross monthly income of Rs.5 lac and above
o For others : Min. DSCR 1.5
AGE :- Not exceeding 65 at the time of availing finance
MARGIN :
o Individuals (including NRIs):
up to Rs.10.00 lakh – Nil margin on Ex – show Room price excluding
comprehensive insurance/ taxes/ registration charges
> Rs.10.00 up to Rs.25.00 lakh – 15% On the Road price including
comprehensive insurance/ taxes/ registration charges
> Rs.25.00 lakh – 25% On the Road Price including comprehensive insurance/
taxes/ registration charges
o Corporates/ firms – 25% min.
REPAYMENT :
o Two wheelers : 5 years; four wheelers: 7 years; for corporates/ firms: 5 years;
o 2nd hand vehicle : 3 years
SECURITY :
CREDIT RISK MANAGEMENT IN BANK OF INDIA
73
o Hypothecation of vehicle purchased out of bank finance – Bank’s Hypothecation
charge to be registered with RTO. – Comprehensive insurance of the vehicle with
bank clause.
o Collateral security to be insisted upon for loans > Rs.25 lakh
o Registration of Banks charge over the vehicle with ROC in case of financing to
corporate/ company apart from charge registration with RTO.
RATE OF INTEREST : New 4 wheelers : BSS- 0.10% above 1 year MCLR
GUARANTEE : Required for loans > Rs. 25 lakh & in respect of loans for vehicles
not registered with RTO. Guarantee of resident Indian in respect of loans to NRIs. In
other cases tangible collateral security of acceptable value can be obtained in lieu of
guarantee.
 DOCUMENTS REQUIRED FROM CUSTOMERS :
Photograph, Proof of income, Proof of Address, Third party Guarantee, Proforma
invoice
DOCUMENTS TO BE OBTAINED :
o Application cum proposal
o OD – 194 (guarantee deed)
o L – 512
o L – 516 & L – 515
o Comprehensive Insurance Policy with Bank clause
o Letter addressed to insurance company for remitting claim directly to bank in case
of damages
o Blank transfer Forms in Blank in duplicate
o Registration of bank charges on the vehicle with Regional transport authority
o Valuation Certificate for decond hand vehicle from approved valuer.
o Regisration of charge with ROC in case of finance to companies.
o A letter of Authority by the borrower to debit the loan/ SB a/c with intt. Ser. Ch./
ins Prem.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
74
o Where guarantor’s vehicle is taken as collateral security obtain another CHA- 2
with modification
o Employers undertaking for recovery of installment, OR post – dated cheques
towards EMIs
o Sanction Letter.
BOI STAR PERSONAL LOAN
We want funds readily available to our whenever our desire or need, be it a sudden vacation
that we plan with our family or urgent funds required for medical treatment. BOI STAR
Credit Personal Loan helps so much.
ELIGIBILITY : Salaried employees, professionals and High Net Worth Individuals
(HNI)
PURPOSE : Any approved purpose.
AGE : Not to exceed retirement age of the employee/fee for others – repayment
period not to exceed 65 years of age. (Retirement age for salaried proponents & 65
years for others is the max age at which total loan to be repaid)
LOAN LIMIT : Clean advance : Max. Rs 5 Lacs ; Secured advance : Max .Rs 10
Lacs
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75
CALCULATION OF QUANTUM OF LOAN :
Clean Advance:
o For salaried proponents : 10 times of monthly net emoluments
o For others : 50 % of gross annual Income
 Secured advance :
o For salaried proponents : 20 times of monthly net emoluments
o For others : 100 % of gross annual income
SECURITY : FOR SECURED ADVANCES
EQM of property For not less than 150 % of quantum of loan. Pledge of
gold/NSC/DBD at least equal to the loan amount. Pledge of Demat shares of market
value not less than 200% of the amount of the loan
TYPE OF ADVANCE :
Demand loan / Term loan / OD – reducible / od – non reducible
MARGIN :
Suitable margin for secured advances. No specific margin to be insisted upon for
clean advances
REPAYMENT PERIOD :
o Repayment in 36 EMIs for clean advances. (Sanctioning authority may
consider up to 60 months)
o Maximum 60 EMI for secured advances. For non – reducible OD, interest
to be serviced on regular basis. Loan account to be closed before
retirement.
NET TAKE HOME PAY / INCOME (NTHP) :
Not less than 40 % of Gross income
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76
PROCESSING CHARGES :
One time @ 2 % of loan amount , min. Rs 1000/- and Max Rs 10000/-
ROI :
Fully secured – 4% + BSS (0.30%) above 1 year MCLR
Clean – 5 % + BSS (0.30%) above 1 year MCLR
Interest concession @ 0.50% p.a. to women beneficiaries.
BOI STAR HOME LOAN SCHEME
BOI Star Home Loans come to you on the solid foundation of trust and transparency built in
the tradition of Bank of India.
Best Practices followed in BOI mentioned below will tell you why it makes sense to do
business with State Bank of India.
ELIGIBILITY :
Customers who are in permanent salaried employement / Professionals /
Self employed with Regular
Income / Group of individuals / Corporates (for development of dwelling
units for employees)/ HUF/ NRIPIO/ Staff members. Fordelegation
purpose loans to HUF and PIO is to be considered as ZLCC and above as
per their delegation.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
77
For individuals, marks as per Rating sheet is minimum 20 presently and
for firms/ corporate SBS/MS Model
Rating as applicable to corporates.
Ordinarily for salaried persons & others – upto the age of – 70 years. The
maximum age mentioned above is not entry but the age by which
entire loan is to be repaid. In case of joint account cases, age of senior
proponent is to be reckoned for deciding outer age limit for repayment. In
case of salaried persons, sanctioning authority to be satisfied about the post
retirement repayment capacity and mentioned in proposal, Deviations by
SZLCC & above
PURPOSE :
(i) To purchase / construct house / Flat on ownership basis.
(ii) To Repair / Renovate / Extend existing house / flat.
(iii) Composite loan for purchase of plot and construction of house thereon
within a max. period 18 months (in exceptional cases 24 months to be
permitted by ZM). No Loan only for the purchase of plot of land.
Take Over of Housing Loans extended by other Banks / Institutions /
NBFCs as per extant guidelines.
For 2nd or subsequent sale, the flat / house should have future life of at least
1.5 times of stipulated repayment period Future life to be certified by
Bank’s panel valuer.
NET TAKE HOME PAY / INCOME : (Net of EMI of propose loan)
For Gross monthly income upto Rs. 1.00 lakh - 40% of Gross monthly
income
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78
For Gross monthly income > Rs. 1 lakh & upto Rs. 5 lakh – 30% of Gross salary
income
For Gross monthly income > Rs . 5 lakh - 25% of gross salary income
In case of firms / corporate – DSCR min 1.5
MARGIN:
Margin for 1st house Margin for 2nd subsequent
house
Margin for reimbursement of
loan
Loan upto Rs. 30 lakhs 10% Loan upto Rs 20 lakhs 20% Loan upto Rs.20 Lakhs 25%
>30 upto 75 lakhs 20 % > 20 upto 75 lakhs 20% > 20 upto 75 lakhs 25 %
>75 lakhs 25 % > 75 lakhs 25 % > 75 lakhs 25%
Margin to be calculated on the pure cost price of the flat / house excluding stamp duty,
registration charges etc. and comply with RBI instructions on Loan to value. (LTV).
DOCUMENTS
List of papers/ documents applicable to all applicants:
Completed loan application
3 Passport size photographs
Proof of identify (photo copies of Voters ID card/ Passport/ Driving
CREDIT RISK MANAGEMENT IN BANK OF INDIA
79
Licence/ IT PAN card)
Proof of residence (photo copies of recent Telephone Bills/ Electricity Bill/
Property tax receipt/ Passport/ Voters ID card)
Proof of business address for non-salaried individuals
Statement of Bank Account/ Pass Book for last six months
Signature identification from present bankers
Personal Assets and Liabilities statement
For guarantor (wherever applicable):
Personal Assets and Liabilities Statement
2 passport size photographs
Proof of identification as above
Proof of residence as above
Proof of business address as above
Signature identification from his/her present bankers
Additional documents required for salaried persons:
Original Salary Certificate from employer
TDS certificate on Form 16 or copy of IT Returns for last two financial years, duly
acknowledged by IT Department.
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80
3.7In BOI BORIVALI WEST BRANCH, every loan has the following stages:-
Stage 1:- Creating LOS Number for customers
Stage 2:-
(i) Underwriting
(ii) Documentation
(iii) Creating CIF Number for customers
(iv) A/C creation
(v) Limit approval
(vi) Processing Fee
(vii) Inspection
(viii) CIBIL
3.8 Loan Recovery Policy:-
 The debt collection policy (recovery policy) of the bank is built around dignity and
respect to customers. The Bank will not follow policies that are unduly coercive in
recovery of dues from borrowers. The policy is built on courtesy, fair treatment and
persuasion. The bank believes in following fair practices with regard to recovery of
dues from borrowers and taking possession of security (properties / assets charged to
the bank as primary or collateral security) (known as security repossession) and
thereby fostering customer confidence and long term relationship.
The repayment schedule for any loan sanctioned by the Bank will be fixed taking into
account the repaying capacity and cash flow pattern of the borrower. The bank will
explain to the customer upfront the method of calculation of interest and how the
Equated Monthly Instalments (EMI) or payments through any other mode of
repayment will be appropriated against interest and principal due from the customers.
The bank would
CREDIT RISK MANAGEMENT IN BANK OF INDIA
81
expect the customers to adhere to the repayment schedule agreed to and approach the
Bank for assistance and guidance in case of genuine difficulty in meeting repayment
obligations.
The Bank's Security Repossession Policy (taking possession of the mortgaged
properties under SRESI Act or acquiring the property as non-banking asset through
enforcement of decree) aims at recovery of dues in the event of default and is not
aimed at whimsical deprivation of the property. The policy recognizes fairness and
transparency in repossession, valuation and realization of security. All the practices
adopted by the bank for follow up and recovery of dues and repossession of security
will be in consonance with the law.
These are all steps which have been taken by the bankers after sanctioning the loans to
their customers.
1. After one month, if customer not pay the EMI amount of loans means, in that
account called as “Special Mention Account”.
2. In this stage the bank will starts the Soft Recovery Process to that particular
customers, it means the bank will giving notice to borrowers:
While written communication, telephonic reminders or visits by the bank's representatives to
the borrowers' place or residence will be used as loan follow up measures, the bank will not
initiate any legal or other recovery measures including repossession of the security without
giving due notice in writing. The Bank will follow all such procedures as required under law
for recovery / repossession of security. .
3. The bank will again wait for 90 days, that period also customer not pay the
interest amount means then it is called as ‘Non-Performing Assets’.
In this stage, the bank will start the Repayment Action; it can be classified into two types:
CREDIT RISK MANAGEMENT IN BANK OF INDIA
82
(i) Willful Default
(ii) Genuine Reason
Willful Default
Intentional failure by a customer to the loan, the customer main intention is to cheat the
banks.
Genuine Reason
Sometimes customers has the genuine reason like some major accidents or any other reasons
for unable to pay the loan interest, that time bank will give extra time to the customers to pay
the loan interest.
But in the first situation, the bank will send letter to the customer for reason of non-payment
4. The next step is bank will send on the legal notice to the customers, the legal
notice contains of
Repossession of security is aimed at recovery of dues and not to deprive the
borrower of the property. The recovery process through repossession of
security will involve repossession, valuation of security and realization of
security through appropriate means. All these would be carried out in a fair
and transparent manner. Repossession will be done only after issuing the
notice as detailed above. Due process of law will be followed while taking
repossession of the property. The bank will take all reasonable care for
ensuring the safety and security of the property after taking custody, in the
ordinary course of the business.
5. The next step is the bank will published their customer details in newspapers
(2 local & national newspapers).
6. The next step is valuation and sale of property repossessed by the bank will be
carried out as per law and in a fair and transparent manner. The bank will have
CREDIT RISK MANAGEMENT IN BANK OF INDIA
83
7. right to recover from the borrower the balance due, if any, after sale of
property. Excess amount, if any, obtained on sale of property will be returned
to the
borrower after meeting all the related expenses provided the bank is not
having any other claims against the borrower.
8. The final step is opportunity for the borrower to take back the security,as
indicated earlier in the policy document; the bank will resort to repossession of
security only for the purpose of realization of its dues as the last resort and not
with intention of depriving the borrower of the property.
Accordingly, the bank will be willing to consider handing over possession of property to the
borrower any time after repossession but before concluding sale transaction of the
property, provided the bank dues are paid in full. If satisfied with the genuineness of
borrower's inability to pay the loan instalments as per the schedule which resulted in the
repossession of security, the bank may consider handing over the property after receiving the
instalments in arrears. However, this would be subject to the bank being convinced of the
arrangements made by the borrower to ensure timely repayment of remaining instalments in
future.
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84
CHAPTER 4
DATA ANALYSIS AND INTERPRETATION
CREDIT RISK MANAGEMENT IN BANK OF INDIA
85
4.1 IN BOIBORIVALI WEST BRANCH LAST 3 YEARS LOAN DETAILS:-
Particulars Amount outstanding
31.3.2014
(Rs in Crs)
Amount outstanding
31.3.2015
(Rs in Crs)
Amount outstanding
31.3.2016
(Rs in Crs)
Car Loan 17, 20, 00,000 18, 40, 00,000 22,50,00,000
Home Loan 10, 20, 00,000 11, 23, 00,000 13,86,00,000
Personal Loan 4,90,00,000 5,40,00,000 6,25,00,000
Education Loan 3,89,00,000 4,82,00,000 5,16,00,000
Others 12,20,00,000 13,50,00,000 14,20,00,000
Total 48,39,00,000 53,35,00,000 61,97,00,000
BOI (BORIVALI WEST BRANCH) IN THE YEAR 2014 – LOANS
LOANS
CAR LOAN
HOME LOAN
PERSONAL LOAN
EDUCATIONAL LOAN
OTHERS
CREDIT RISK MANAGEMENT IN BANK OF INDIA
86
BOI (BORIVALI WEST BRANCH) IN THE YEAR 2015 – LOANS
LOANS
CAR LAON
HOME LOAN
PERSONAL LOAN
EDUCATION LOAN
OTHERS
BOI (BORIVALI WEST BRANCH) IN THE YEAR 2016 – LOANS
LOANS
CAR LAON
HOME LOAN
PERSONAL LOAN
EDUCATIONAL LOAN
OTHERS
CREDIT RISK MANAGEMENT IN BANK OF INDIA
87
In BOIBORIVALI WEST BRANCH, LAST 3 YEARS CAR LOAN DETAILS:-
YEAR LOAN AMOUNT
2014 17, 20, 00,000
2015 18, 40, 00,000
2016 22, 50, 00,000
0
5
10
15
20
25
VEHICLE LOAN AMOUNT
CAR LOAN AMOUNT
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88
IN BANK OF INDIABORIVALI WEST BRANCH LAST 3 YEARS HOME LOAN
DETAILS:
YEARS HOME LOAN AMOUNT
2014 10, 20, 00,000
2015 11, 23, 00,000
2016 13, 86, 00,000
0
20
40
60
80
100
120
140
160
HOME LOAN AMOUNT
LOAN AMOUNT
IN BOIBORIVALI WEST BRANCH PERSONAL LOAN DETAILS LAST 3 years:-
CREDIT RISK MANAGEMENT IN BANK OF INDIA
89
Years LOAN AMOUNT
2014 4, 90, 00, 000
2015 5, 40, 00, 000
2016 6, 25, 00, 000
0
1
2
3
4
5
6
7
PERSONAL LOAN AMOUNT
LOAN AMOUNT
CREDIT RISK MANAGEMENT IN BANK OF INDIA
90
COMPARING THEIR LOAN GROWTH OF BOI BORIVALI WEST BRANCH FOR
THE YEARS OF 2014, 2015 & 2016
0
10
20
30
40
50
60
70
TOTAL LOANS
4.2 EMI CALCULATION FOR LOAN:
FORMULA TO CALCULATE EMI
Where ‘L’ is Loan Amount
‘r’ is Rate of Interest
‘n’ is Number of Years
For Example
CREDIT RISK MANAGEMENT IN BANK OF INDIA
91
A customer taking a loan of RS.1, 00,000 has to be repaid of 5 annual installments. The
loan carries an interest rate of 9% p.a. Calculate the loan installment.
= 25,709
End of Year
(1)
Payment
(2)
Interest
(3)
(5) * 9%
Principal
(4)
(2) – (3)
Balance
Outstanding
(5)
0 - - - 1,00,000
1 25,709 9,000 16,709 83,291
2 25,709 7,496 18,213 65,078
3 25,709 5.857 19,852 45,856
4 25,709 4,127 21,582 24,274
5 25,709 1,435 24,724 -
Suppose, if monthly installment means = 25,709/12 = 2,142.4
4.3 Non-Performing Asset
NPA is used by financial institutions that refer to loans that are in jeopardy of default. Once
the borrower has failed to make interest or principle payments for 90 days/ 3 Months the loan
is considered to be a non-performing asset. Non-performing assets are problematic for
financial institutions since they depend on interest payments for income. Troublesome
pressure from the economy can lead to a sharp increase in non-performing loans and often
results in massive write-downs.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
92
Non-performing asset (NPA) ratio
The nonperforming asset ratio is a measure of bank’s nonperforming assets relative to the
total value of the loans that have made -- often referred to as bank loan book. To calculate
this ratio, simply divide your nonperforming assets by your total loans.
Bank
In Bank of of India Borivali West Branch, the financial year (2015-2016) the total
amount of the year is: Rs.146, 76, 30, 264.11 and the NPA is: Rs.1, 51, 39,320.13,
Provision of RS.52, 33,615.00
Loan and advance details:-
Particulars Amount
Advances 24,81,00,000
Housing Loan 13,86,00,000
Vehicle Loan 2,25,00,000
Education Loan 5,16,00,000
Personal Loan 6,25,00,000
Total 52,33,00,000
= 94, 43, 30,264.11
CREDIT RISK MANAGEMENT IN BANK OF INDIA
93
-
As per the calculation, the total NPA ratio of financial year 2015 - 2016 is 1.04%, so the
Credit Risk Management of Bank of IndiaBorivali West Branch is well maintained.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
94
4.4 COMPETITORS DETAILS
Main competitors of Bank of India are ICICI Bank in private sector banks and Syndicate
Bank and Corporation Bank In public sector.
POSITION OF BANK OF INDIA IN LENDING (PRIVATE SECTOR BANK) IN THE
YEAR 2016 :-
BANK LENDING IN Cr
State Bank of India 390
ICICI bank 250
HDFC 150
BANK OF India 300
CREDIT RISK MANAGEMENT IN BANK OF INDIA
95
STATE BANK OF India
ICICI BANK
HDFC BANK
BANK OF India
LENDING IN Cr
POSITION OF BANK OF INDIA IN LENDING (PUBLIC SECTOR BANK) IN THE
YEAR 2016 :
BAN
K
LENDING IN
Cr
State Bank of India 380
Syndicate Bank 36
0
Bank of India 33
0
Corporation Bank 35
CREDIT RISK MANAGEMENT IN BANK OF INDIA
96
0
STATE BANK OF India
SYNDICATE BANK
BANK OF India
CORPORATION BANK
LENDING IN Cr
4.5 INTERPRETATION:
Considering the above data we can say that year on year the amount of advances lent
by Bank of India has increased which indicates that the bank’s business is really
commendable and the Credit Policy it has maintained is absolutely good.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
97
Whereas other banks do not have such good business BOI is ahead in terms of its
business when compared to both Public Sector and Private Sector banks, this implies
that BOI has incorporated sound business policies in its bank
BOI‟s direct agriculture advances as compared to other banks is 10.5% of the Net
Bank’s Credit, which shows that Bank has not lent enough credit to direct agriculture
sector.
In case of indirect agriculture advances, BOI is granting 3.1% of Net Banks Credit,
which is less as compared to Canara Bank, Syndicate Bank and Corporation Bank.
BOI has to entertain indirect sectors of agriculture so that it can have more number of
borrowers for the Bank.
BOI has advanced 13.6% of Net Banks Credit to total agriculture and 8.9% to weaker
section and 37% to priority sector, which is less as compared with other Bank.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
98
CHAPTER 5
CONCLUSION
5.1 FINDINGS
Project findings reveal that BOI is sanctioning less Credit to agriculture, as compared with its
key competitor’s viz., Canara Bank, Corporation Bank, Syndicate Bank
Recovery of Credit:
CREDIT RISK MANAGEMENT IN BANK OF INDIA
99
BOI recovery of Credit during the year 2015 is 84.2% Compared to other Banks BOI’s
recovery policy is very good, hence this reduces NPA
Total Advances:As compared total advances of BOI is increased year by year.
Bank of India is granting credit in all sectors in an Equated Monthly Installments so that
anybody can borrow money easily
Project findings reveal that Bank of India is lending more credit or sanctioning more loans as
compared to other Banks.
Bank of India is expanding its Credit in the following focus areas:
BOI Term Deposits
BOI Recurring Deposits
BOI Housing Loan
BOI Car Loan
BOI Educational Loan
BOI Personal Loan …etc.
In case of indirect agriculture advances, BOI is granting 3.1% of Net Banks Credit, which is
less as compared to Canara Bank, Syndicate Bank and Corporation Bank.
BOI‟s direct agriculture advances as compared to other banks is 10.5% of the Net Bank’s
Credit, which shows that Bank has not lent enough credit to direct agriculture sector.
Credit risk management process of BOI used is very effective as compared with other banks.
5.2 RECOMMENDATIONS
The Bank should keep on revising its Credit Policy which will help Bank’s effort to
correct the course of the policies
CREDIT RISK MANAGEMENT IN BANK OF INDIA
100
The Chairman and Managing Director/Executive Director should make modifications
to the procedural guidelines required for implementation of the Credit Policy as they
may become necessary from time to time on account of organizational needs.
Banks has to grant the loans for the establishment of business at a moderate rate of
interest. Because of this, the people can repay the loan amount to bank regularly and
promptly.
Bank should not issue entire amount of loan to agriculture sector at a time, it should
release the loan in installments. If the climatic conditions are good then they have to
release remaining amount.
BOI has to reduce the Interest Rate.
BOI has to entertain indirect sectors of agriculture so that it can have more number of
borrowers for the Bank.
5.3 CONCLUSION:
Project undertaken has helped a lot in gaining knowledge of the “Credit Policy and Credit
Risk Management” in Nationalized Bank with special reference to Bank of India. Credit
CREDIT RISK MANAGEMENT IN BANK OF INDIA
101
Policy and Credit Risk Policy of the Bank has become very vital in the smooth operation of
the banking activities. Credit Policy of the Bank provides the framework to determine (a)
whether or not to extend credit to a customer and (b) how much credit to extend. The Project
work has certainly enriched the knowledge about the effective management of “Credit
Policy” and “Credit Risk Management” in banking sector.
“Credit Policy” and “Credit Risk Management” is a vast subject and it is very difficult to
cover all the aspects within a short period. However, every effort has been made to cover
most of the important aspects, which have a direct bearing on improving the financial
performance of Banking Industry
To sum up, it would not be out of way to mention here that the Bank of India has given
special inputs on “Credit Policy” and “Credit Risk Management”. In pursuance of the
instructions and guidelines issued by the Reserve Bank of India, the Bank of India is granting
and expanding credit to all sectors.
The concerted efforts put in by the Management and Staff of Bank of India has helped the
Bank in achieving remarkable progress in almost all the important parameters.
5.4 BIBLIOGRAPHY
BOOKS REFERRED:
1. Macmilan, Risk Management, Macmilan Publishers India Ltd.
CREDIT RISK MANAGEMENT IN BANK OF INDIA
102
2. Kanhaiya singh and vinay dutta, Commercial Bank Management
3. M.Y.Khan and P.K.Jain, Management Accounting (Third Edition), Tata McGraw
Hill.
4. Busy Bankers Volume 1 & 2 , Sandipani 2017
.
WEB SITES
1. www.BOI.co.in
2. www.icicidirect.com
3. pavithra file ppt mba
4. www.rbi.org
5. www.indiainfoline.com
6. www.google.com
BANKS INTERNAL RECOREDS:
1. Annual Reports ofBank of India
2. Bank of India Manuals