FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL

Bank / FIs Model

RISK MANAGEMENT DEPARTMENT, BARODA CORPORATE CENTRE Page 1 of 13

FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
MODEL STRUCTURE Computation Method Weighted Scores

Computation Level Overall Score

MODULE Name Industry Risk Business Risk Financial Risk Management Risk

Weight

CREDIT RISK RATING PARAMETERS MODULE I (Assessment Provided by Corporate Level) Industry Risk Extent of Competition Industry Risk MODULE II Business Risk Resource Profile Size of Deposit Base (Deflator) Deposit Growth Business Risk 1. Market Position Diversity in Deposit Base Asset Quality Growth in Advances (Deflator) Gross NPAs/Gross Advances Advances Size (Deflator) Cost of Deposit Business Risk 2. Operating Efficiency Systems and Monitoring Perceived Service Quality Diversity of Income Sources MODULE III Financial Risk Net worth Size (Deflator) Capital Tier I Capital Net worth/Net NPA Capital Adequacy Ratio Earnings Profit After Tax (Deflator) Regulatory Environment State of the Economy

RISK MANAGEMENT DEPARTMENT, BARODA CORPORATE CENTRE Page 2 of 13

FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
Return on Assets Net Profit Margin Funding Flexibility Liquidity Risk MODULE IV Management Risk Track Record of Performance Change Management Skills Management Risk Corporate Governance Vision/Strategy of Top Management Ownership / Shareholding Pattern / Management Continuity MODULE I INDUSTRY RISK EVALUATION Industry risk assessment focuses on the overall external risk of which the bank being analyzed is a constituent firm. Company specific factors are not covered at this stage. The factors considered are: Extent of Competition Industry Risk Regulatory Environment State of the Economy 1.Extent of Competition This factor has to be assessed with regard to the competitive position of Banks in the business of lending. Banks have a distinct set of differential in terms of Margins, Cost of funds, business segment etc vis--vis other players in the lending business such as SFC, NBFCs and other financial institutions. Marks 0 2 4 6 8 10 Attributes Totally Unfavourable Significantly Unfavourable Neutral Favourable Significantly Favourable Extremely Favourable Ability to Raise Capital / Subordinate Debt

RISK MANAGEMENT DEPARTMENT, BARODA CORPORATE CENTRE Page 3 of 13

FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
2. Regulatory Environment This parameter involves taking a view on whether government policy over a 3-year time horizon would affect the Banks in a favourable or unfavourable manner. The indicative issues relating to government policies, which may be factored in the scoring under this parameter may include Government Stance on interest rates, regulatory issues relating to credit disbursement (credit policy), monetary policy matters of the RBI, announcements in the Union budget etc. Marks 0 2 4 6 8 10 Attributes Totally Unfavourable Significantly Unfavourable Neutral Favourable Significantly Favourable Extremely Favourable

3. State of the economy This parameter involves taking a view on the current state of the economy of the country. The factors to be taken into account are GDP growth, credit pick up, Exports growth, imports growth, savings rate, infrastructure growth, fiscal position of the centre etc. The assessment has to factor in the above factors and any other factors, which may influence the health of economy of the country. Marks 0 2 4 6 8 10 Attributes Totally Unfavourable Significantly Unfavourable Neutral Favourable Significantly Favourable Extremely Favourable

RISK MANAGEMENT DEPARTMENT, BARODA CORPORATE CENTRE Page 4 of 13

FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
MODULE II BUSINESS RISK EVALUATION Resource Profile Size of Deposit Base Deposit Growth Business Risk 1. Market Position Diversity in Deposit Base Asset Quality Growth in Advances Gross NPAs/Gross Advances Advances Size Cost of Deposit Business Risk 2. Operating Efficiency Systems and Monitoring Perceived Service Quality Diversity of Income Sources 1. Market Position Resource Profile

1.Size of Deposit Base Deposits as at the end of the latest available audited financial year. This parameter acts as a deflator. Lower the deposit base higher is the deflator.
Attributes
LESS THAN 20000 Mn BETWEEN 20000 Mn TO 115000 Mn BETWEEN 115000 Mn TO 210000 Mn BETWEEN 210000 Mn TO 305000 Mn BETWEEN 305000 Mn TO 400000 Mn GREATER THAN 400000 Mn

Deflator

0.50 0.60 0.70 0.80 0.90 1.00

2. Deposit Growth The growth has to be computed as a percentage increase in Deposits over the immediate preceding financial year.
Marks 8 7 Attributes

>35% 35%-30.8%

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FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
6 5 4 3 2 1

30.8%-26.6% 26.6%-22.5% 22.5%-18.3% 18.3%-14.2% 14.2%-10% <10%

3. Diversity in Deposit Base The diversity of the deposit base in terms number of small deposits, the geographical spread and the optimal rural/urban mix lends stability to the resource position of the bank. The number of branches lends diversity to the deposit base. Thus a bank with a large number of branches dispersed all over India and with an optimum rural/urban mix should be viewed favourably.
Marks 0 2 4 6 8 10 Asset Quality 1. Growth in Advances Attributes
Very Poor Poor Diversification equal industry levels Diversification marginally above industry levels Moderately Diversified Very Highly Diversified

The growth has to be computed as a percentage increase in Loans and Advances over the immediate preceding financial year.
Attributes Deflator

GREATER THAN 30% BETWEEN 10% TO 30% LESS THAN 10%

2. Gross NPAs/Gross Advances

0.80 0.90 1.00

It is a ratio of Gross NPAs to Gross Advances as at the end of the latest audited results.
Marks 8 7 Attributes

< 4% 4% - 6.25%

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FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
6 5 4 3 2 1 3. Advances Size

6.25% - 8% 8% - 10% 10% - 11.75% 11.75% - 14.25% 14.25% - 18.75% >18.75%

Advances Size is to be as the Net Loans and advances as at the end of the latest available audited financial year.
Attributes
LESS THAN 10000 Mn BETWEEN 10000 Mn TO 70000 Mn BETWEEN 70000 Mn TO 140000 Mn BETWEEN 140000 Mn TO 200000 Mn GREATER THAN 200000 Mn

Deflator
0.8 0.85 0.9 0.95 1

2. Operating Efficiency 1. Cost of Deposit Cost of Deposit is to be computed as Interest expended on Deposits/ Average Deposits.
Marks 8 7 6 5 4 3 2 1 Attributes

<6% 6% - 6.7% 6.7% - 7.3% 7.3% - 8% 8% - 8.7% 8.7% - 9.3% 9.3% - 10% > 10%

2. Systems and Monitoring Credit appraisal systems and risk monitoring systems for management of credit risks and market risks are important for sound functioning of the bank.
Marks 0 Attributes
Very Poor

RISK MANAGEMENT DEPARTMENT, BARODA CORPORATE CENTRE Page 7 of 13

FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
2 4 6 8 10
Poor Average Good Very Good Excellent

3.Perceived Service Quality Perceived Service Quality has to be assessed in terms of the general perception of the bank amongst customers-both borrowers and lenders.
Marks 0 2 4 6 8 10 Attributes
Very Poor Poor Average Good Very Good Excellent

2. Diversity of Income Sources Diversity of income sources is an important input in assessment of stability of earnings. Diversity of fund- based earnings is achieved through focusing on different borrower segments like industries, trade and retail. Banks also diversify their income streams through non-interest or fee based income like guarantees, cash management facility, service charges from retail customers and trading income.
Marks 0 2 4 6 8 10 Attributes
Poor Marginally Below Average Diversification equal industry levels Diversification marginally above industry levels Moderately Diversified Highly diversified income streams

RISK MANAGEMENT DEPARTMENT, BARODA CORPORATE CENTRE Page 8 of 13

FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
MODULE III FINANCIAL RISK EVALUATION Net worth Size 1. Capital Tier I Capital Net worth/Net NPA Capital Adequacy Ratio Profit After Tax 2. Earnings 3. Funding Flexibility Return on Assets Net Profit Margin Recapitalization Flexibility

1. Capital 1. Net worth Size Net worth = Equity share capital + reserves - revaluation reserve - loss brought forward intangible assets. This parameter acts as a deflator. Attributes
LESS THAN 2000 Mn BETWEEN 2000 Mn TO 6500 Mn BETWEEN 6500 Mn TO 11000 Mn BETWEEN 11000 Mn TO 15500 Mn BETWEEN 15500 Mn TO 20000 Mn GREATER THAN 20000 Mn

Deflator
0.5 0.6 0.7 0.8 0.9 1

1. Tier I Capital Tier I Capital (%) as disclosed in the latest audited financial results.

Marks 1 2 3 4 5 6 7 8

Attributes < 5% 5% - 6.5% 6.5% - 8% 8% - 9.5% 9.5% - 11% 11% - 12.5% 12.5% - 14% > 14%

2. Net worth / Net NPA Tangible Net worth/Net NPA Where, Tangible Net worth = Equity share capital + Reserves & Surplus - Revaluation Reserve This ratio has to be computed based on the latest available audited financial results

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FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL Marks 1 2 3 4 5 6 7 8 Attributes < 0.5 0.5 - 1.25 1.25 - 2 2 - 2.75 2.75 - 3.5 3.5 - 4.25 4.25 - 5 >5

3. Capital Adequacy Ratio Capital Adequacy Ratio is to be entered as disclosed in the latest audited financial results.

Marks 1 2 3 4 5 6 7 8

Attributes
< 8% 8% - 9.2 % 9.2% - 10.3% 10.3% - 11.5% 11.5% - 12.6% 12.6% - 13.8% 13.8% - 15% > 15%

2. Earning 1 Profit After Tax Profit After Tax is as disclosed in the latest audited results. This parameter acts as a deflator. Attributes
LESS THAN 100 Mn BETWEEN 100 Mn TO 1400 Mn BETWEEN 1400 Mn TO 2700 Mn BETWEEN 2700 Mn TO 4000 Mn GREATER THAN 4000 Mn

Deflator
0.8 0.85 0.9 0.95 1

2 Return on Assets Return on Assets is to be Computed as Profit after Tax / Average Total Assets

Marks 1 2 3 4 5 6

Attributes
<0 0 - 0.25 0.25 - 0.5 0.5 - 0.75 0.75 - 1 1 - 1.25

RISK MANAGEMENT DEPARTMENT, BARODA CORPORATE CENTRE Page 10 of 13

FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL 7 8
1.25 - 1.5 > 1.5

3 Net Profit Margin Net Profit Margin = Profit after tax / Total income net of interest charges.

Marks 1 2 3 4 5 6 7 8

Attributes
< 0.2 0.2 - 3.6 3.6 - 7.3 7.3 - 8.5 8.5 - 10 10 - 13 13 - 23.3 > 23.3

3. Funding Flexibility Ability to Raise Capital / Subordinate Debt This risk entity seeks to assign a score on the ability of the Bank to raise funds through market borrowings and issuances. In general public sector banks have limited scope for equity issuances on account of regulatory issues. However some public sector banks have demonstrated high degree of recapitalization/market borrowing flexibility through GDR issuances, which may be viewed favourably. This factor is not designed to include recapitalization assistance offered by RBI in adverse circumstances. Marks 0 2 4 6 8 10 Attributes
Lowest Ability Well below average Ability Slightly below average Ability Slightly above average Ability Well above average Ability Most Superior Ability

MODULE IV MANAGEMENT RISK EVALUATION Track Record of Performance Change in Management Skills Management Risk Vision/ Strategy of Top Management Corporate Governance Ownership / Shareholding Pattern / Management Continuity

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FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
1. Track Record of Performance Track record of performance has to be assessed in terms of the performance of the bank in adverse economic conditions and its demonstrated ability to navigate through such conditions Marks 0 2 4 6 8 10 Attributes
Very Poor Poor Average Good Very Good Excellent

2. Change in Management Skills Change Management Skills refer to the management's ability to manage credit and market risks in the scenario of deregulation of financial markets. Marks 0 2 4 6 8 10 Attributes
Management has highly under performed in the scenario of de regulation of the financial markets. Has no capability to handle credit and market risk Management has under performed in the scenario of de regulation of the financial markets. Has been successful in handling credit and market risk only very few occassions Management has slightly under performed in the scenario of de regulation of the financial markets. Has trackled credit risk and market risk within industry averages. Management has performed moderately well in the scenario of de regulation of the financial markets. Has trackled credit risk and market risk moderately well Management has a good track record at managing credit and market risk. Has performed well in the scenario of de regulation of financial markets Management has an extremely good track record at managing credit and market risk. Has performed extremely well in the scenario of de regulation of the financial markets

3. Vision/ Strategy of Top Management A bank management's goals and strategies are evaluated to take a view on the management. The factors to be taken into account are the management's philosophy with regard to asset growth and maintenance of capital, provisioning and liquidity levels. Marks 0 Attributes
Very Poor

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FOR INTERNAL USE AT BANK OF BARODA ONLY Bank / Financial Institutions (FI) MODEL
2 4 6 8 10
Poor Average Good Very Good Excellent

4. Corporate Governance This entity has to be evaluated in terms of Sound disclosure; management and accounting practices lend credibility to the performance of the Bank and is an important factor for risk assessment. Marks 0 2 4 6 8 10 Attributes
The capability of the firm with respect to wealth creation for all stakeholders while adopting sound corporate governance practices is the lowest. The capability of the firm with respect to wealth creation for all stakeholders while adopting sound corporate governance practices is inadequate. The capability of the firm with respect to wealth creation for all stakeholders while adopting sound corporate governance practices is adequate. The capability of the firm with respect to wealth creation for all stakeholders while adopting sound corporate governance practices is moderate. The capability of the firm with respect to wealth creation for all stakeholders while adopting sound corporate governance practices is strong. The capability of the firm with respect to wealth creation for all stakeholders while adopting sound corporate governance practices is the highest.

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