Ijrcm 3 Evol 1 Issue 2 Art 6

8/12/2019 Ijrcm 3 Evol 1 Issue 2 Art 6

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VOLUME NO.1(2011),ISSUE NO.2(JUNE) ISSN2231-4245

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CCCCONTENTSONTENTSONTENTSONTENTS

Sr. No. TITLE & NAME OF THE AUTHOR (S) Page No.

1% INTERNATIONAL FINANCIAL REPORTING STANDARD ADOPTION, IMPLICATION ON MANAGEMENT ACCOUNTING AND TAXATION INNIGERIAN ECONOMY

FOLAJIMI FESTUS ADEGBIE

1

2% MODERN PORTFIOLIO THEORY (MPT) AND FINANCIAL ECONOMICS: A THEORY OF LESSER TURF?DR. ANDREY I. ARTEMENKOV

6

3% THE IMPACT OF STOCK MARKET OPERATIONS ON THE NIGERIA ECONOMY:A TIME SERIES ANALYSIS (1!1"2##!)DR. OFURUM CLIFFORD OBIYO & TORBIRA, LEZAASI LENEE

13

$% PERFORMANCE APPRAISAL SYSTEM ON COMPANY PAY ROLL EMPLOY, SENIOR, MIDDLE % LO&ER MANAGEMENT (A STUDY &ITHREFERENCE TO INTERNATIONAL TO'ACO COMPANY LTD, GHAIA'AD)

DR. RAGHVENDRA DWIVEDI & KUSH KUMAR

1!

*% CREDIT POLICY AND ITS EFFECT ON LI+UIDITY: A STUDY OF SELECTED MANUFACTURING COMPANIES IN NIGERIASTEPHEN A. OJEKA

2*

6% CREDIT RISK MANAGEMENT IN STATE 'ANK OF INDIA " A STUDY ON PERCEPTION OF S'I MANAGERS IN -ISAKHAPATNAM ONEDR. P. VENI & P. SREE DEVI

31

.% THE ARCHAEOLOGY OF RECESSION: DILEMMA 'ET&EEN CI-ILIATION AND CULTURE / T&O DIFFERENT APPROACHES OF &ESTAND EAST &HILE COM'ATING GREAT DEPRESSION

DR. V. L. DHARURKAR & DR. MEENA CHANDAVARKAR

3!

!% TRANSFORMING A RETAIL CENTRE INTO A 'RAND THROUGH PROFESSIONAL MALL MANAGEMENTDR. N. H. MULLICK & DR. M. ALTAF KHAN

$2

% IMPACT OF EXCHANGE RATE -OLATILITY ON RE-ENUES: A CASE STUDY OF SELECTED IT COMPANIES FROM 2##* "2##K. B. NALINA & DR. B. SHIVARAJ

$.

1#% DETERMINING &ORKING CAPITAL SOL-ENCY LE-EL AND ITS EFFECT ON PROFITA'ILITY IN SELECTED INDIAN MANUFACTURINGFIRMS

KARAMJEET SINGH & FIREW CHEKOL ASRESS

*2

11% FUTURE NUTRITION % FOOD OF INDIA / THE A+UA"CULTURE: AN EN-IRONMENTAL MANAGEMENT % CULINARY PARADIGMPERSPECTI-E STUDY FOR A SUSTAINA'LE NATIONAL STRATEGY

DR. S. P. RATH, PROF. BISWAJIT DAS, PROF. SATISH JAYARAM & CHEF SUPRANA SAHA

*.

12% A STUDY OF NON"FUND 'ASED ACTI-ITES OF MPFC " &ITH SPECIAL REFRENCE TO CAUSES OF FAILURE AND PRO'LEMSDR. UTTAM JAGTAP & MANOHAR KAPSE

6*

13% CRM IN 'ANKING: PERSPECTI-ES AND INSIGHTS FROM INDIAN RURAL CUSTOMERSARUN KUMAR, DEEPALI SINGH & P. ACHARYA

6

1$% DETERMINANTS OF INCOME GENERATION OF &OMEN ENTREPRENEURS THROUGH SHGSREVATHI PANDIAN

.!

1*% AGRICULTURAL CREDIT: IMPACT ASSESSMENTDR. RAMESH. O. OLEKAR

!1

16% MICRO FINANCE AND SELF" HELP GROUPS / AN EXPLORATORY STUDY OF SHI-AMOGA DISTRICTMAHESHA. V & DR. S. B. AKASH

!.

1.% INFORMAL SMALL SCALE 'RICK"KILN ENTERPRISES IN GUL'ARGA UR'AN AREA / AN ECONOMIC ANALYSISSHARANAPPA SAIDAPUR

1

1!% EXTENT OF UNEMPLOYMENT AMONG THE TRI'AL AND NON"TRI'AL HOUSEHOLDS IN THE RURAL AREAS OF HIMACHAL PRADESH:A MULTI"DIMENSIONAL APPROACH

DR. SARBJEET SINGH

!

1%&OMEN SELF HELP GROUPS IN THE UPLIFTMENT OF TSUNAMI -ICTIMS IN KANYAKUMARI DISTRICT

DR. C. SIVA MURUGAN & S. SHAKESPEARE ISREAL 1#62#% FOREIGN 'ANKS IN INDIA / EMERGING LEADER IN 'ANKING SECTOR

DR. C. PARAMASIVAN11#

21% AN EMPIRICAL E-ALUATION OF FINANCIAL HEALTH OF FERTILIER INDUSTRY IN INDIASARBAPRIYA RAY

11$

22% A STUDY ON EMPLOYEE A'SENTEEISM IN INDIAN INDUSTRY: AN O-ER-IE&R. SURESH BABU & DR. D. VENKATRAMARAJU

11

23% LONG MEMORY MODELLING OF RUPEE"DOLLAR EXCHANGE RATE RETURNS: A RO'UST ANALYSISPUNEET KUMAR

12$

2$% THE US ECONOMY IN THE POST CRISIS SCENARIO / HOLDING LITTLE CAUSE FOR CHEERC. BARATHI & S. PRAVEEN KUMAR

131

2*% IMPLEMENTATION OF * S IN 'ANKSYADUVEER YADAV, GAURAV YADAV & SWATI CHAUHAN

13*

RE+UEST FOR FEED'ACK 1$


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INTERNATIONAL JOURNAL OF RESEARCH IN COMMERCE, ECONOMICS % MANAGEMENTA Monthly Double-Blind Peer Reviewed Refereed Open Access International e-Journal - Included in the International Serial Directories

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CHIEF PATRONCHIEF PATRONCHIEF PATRONCHIEF PATRONPROF K K AGGAR&AL

)hancellor" 2in#aya3s 4niversity" Delhi

!ounder 5ice-)hancellor" uru obind Sin#h Indraprastha 4niversity" Delhi

67% Pro 5ice-)hancellor" uru Ja0bheshwar 4niversity" +isar

PATRONPATRONPATRONPATRONSH RAM 'HAJAN AGGAR&AL

67% State Minister for +o0e 8 9ouris0" overn0ent of +aryana

5ice-President" Dadri 6ducation Society" )har:hi Dadri

President" )hinar Synte7 2td% ;9e7tile Mills


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PROF NA&A' ALI KHANDepart0ent of )o00erce" Ali#arh Musli0 4niversity" Ali#arh" 4%P%

PROF S P TI&ARIDepart0ent of 6cono0ics 8 Rural Develop0ent" Dr% Ra0 Manohar 2ohia Avadh 4niversity" !ai*abad

DR ASHOK KUMAR CHAUHANReader" Depart0ent of 6cono0ics" =uru:shetra 4niversity" =uru:shetra

DR SAM'HA-NA!aculty" I%I%9%M%" Delhi

DR MOHENDER KUMAR GUPTAAssociate Professor" P% J% 2% $% overn0ent )olle#e" !aridabad

DR -I-EK CHA&LAAssociate Professor" =uru:shetra 4niversity" =uru:shetra

DR SHI-AKUMAR DEENEAsst% Professor" overn0ent !% % )olle#e )hit#uppa" Bidar" =arnata:a

ASSOCIATE EDITORSASSOCIATE EDITORSASSOCIATE EDITORSASSOCIATE EDITORSPROF A'HAY 'ANSAL

+ead" Depart0ent of Infor0ation 9echnolo#y" A0ity School of 6n#ineerin# 8 9echnolo#y" A0ity 4niversity" $oida

PAR-EEN KHURANAAssociate Professor" Mu:and 2al $ational )olle#e" /a0una $a#ar

SHASHI KHURANAAssociate Professor" S% M% S% =halsa 2ubana irls )olle#e" Barara" A0bala

SUNIL KUMAR KAR&ASRA5ice-Principal" Defence )olle#e of 6ducation" 9ohana" !atehabad

DR -IKAS CHOUDHARYAsst% Professor" $%I%9% ;4niversity


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CALL FOR MANUSCRIPTSCALL FOR MANUSCRIPTSCALL FOR MANUSCRIPTSCALL FOR MANUSCRIPTS>e invite unpublished novel" ori#inal" e0pirical and hi#h ?uality research wor: pertainin#

to recent develop0ents 8 practices in the area of )o0puter" Business" !inance" Mar:etin#"+u0an Resource Mana#e0ent" eneral Mana#e0ent" Ban:in#" Insurance" )orporate

overnance and e0er#in# paradi#0s in allied sub1ects% 9he above 0entioned trac:s are

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F% KEY&ORDS:Abstract 0ust be followed by list of :eywords" sub1ect to the 0a7i0u0 of five% 9hese should be arran#ed in alphabetic order separated

by co00as and full stops at the end%

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&&% E+UATIONS: 9hese should be consecutively nu0bered in parentheses" hori*ontally centered with e?uation nu0ber placed at the ri#ht%

&% REFERENCES:9he list of all references should be alphabetically arran#ed% It 0ust be sin#le spaced" and at the end of the 0anuscript% 9he author ;s 87 R7;ri#ht ;&F%" +uber" J%)% and )oo:" R%2% ;&HG4 4;048 0

=u0ar S% ;''F


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&

CREDIT RISK MANAGEMENT IN STATE 'ANK OF INDIA " A STUDY ON PERCEPTION OF S'I MANAGERS IN

-ISAKHAPATNAM ONE

DR P -ENI

PROFESSOR

DEPARTMENT OF COMMERCE AND MANAGEMENT

ANDHRA UNI-ERSITY-ISAKHAPATNAM / *3# ##3

P SREE DE-I

LECTURER IN MANAGEMENT

DRA-IDIAN UNI-ERSITY

KUPPAM, CHITTOOR" *1. $2*

A'STRACTCred! r"# $%%'e$e! " (! % )(**+!e+"e-* r(d/0!. I! " % )1(-e+!$e2 %d )(r'%3%!(+1de2 */0!(. C($$(+"e"e d0!%!e" !%! e(-e re"("4-e *(r

!%r'e!" /der 4/"e""+'r(1! %re -- "/!ed !( %ddre"" )r"#2 ere! !( 0red! %d !" $%%'e$e!. Cred! r"# $%%'e$e! "(/-d !ere*(re 4e "e%r%!ed *(r$

%d "/**0e!-5 4e deede! (* !e 4/"e"" -e". R"# M%%'e$e! 0% 4e de*ed %" "5"!e$%!0 de!*0%!( %d %%-5"" (* !e 6%r(/" -("" e7("/re"

*%0ed 45 % *r$8d6d/%- %d !e 4e"! $e!(d" (* !re%!' !e de!*ed -("" e7("/re" 0(""!e! 1! !e *r$"28d6d/%-"2 (49e0!6e". Te 0(0e (*%r(r%!e "!r%!e'e" *(r 0(!r(- (* 0red! r"# 45 d6d/%- 4%#" deed" ( !er r(r!e" %d r"#+%e!!e". I! e0($%""e" de"'' (-0e" *(r e6er5

$%9(r %"e0! (* 0red! %d$"!r%!( !( e"/re !%! 0red! de-(5$e! %d !e %00($%5' r"#+$%%'e$e! r(0e""e" %re 0(!r(--ed 1! !e #(1

r"#8re!/r %r%$e!er". He0e !e re"e! "!/d5 *(0/"ed ( !e 0red! %r(6%- r(0e"" SBI, $%%'er2" %1%ree"" !(1%rd" 0red! r"# $%%'e$e! %d r"#

0(!r(- "!r%!e'e". Te $%9(r re"e%r0 *d'" %re 4%"ed ( !e r$%r5 d%!%. Te d%!e %" 4ee 0(--e0!ed 45 /"' e-%4(r%!e :/e"!(%re" *(r 4%# $%%'er"

1(r#' S!%!e B%# (* Id% (* V"%#%%!%$ 3(e. Te re"e%r0er de!*e" 0red! " !e re%- %0!6!5 !%! "(/-d 4e $%%'ed !( 'eer%!e r(*!%4-!5 45

#ee' !e !ree 0%rd%- r0-e" (* 4%#' $d ;L:/d!5, S(-6e05 %d Pr(*!%4-!5


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METHODOLOGY9he present study is based on both pri0ary and secondary data%

9he pri0ary data for the study are collected by usin# elaborate ?uestionnaires for ban: 0ana#ers wor:in# in State Ban: of India of 5isa:hapatna0 *one% 9he

data on ris: 0ana#e0ent perception and practices relatin# to the credit ris: 0ana#e0ent" ris: control strate#ies and credit approval process were obtained

throu#h responses to ?uestionnaires and in personal interviews with senior credit" treasury e7ecutives and ban: 0ana#ers of State Ban: of India% 9he secondary

data has been collected throu#h RBI bulletins" SBI 0onthly 0a#a*ines" various research articles etc%

9he study has ta:en into consideration of ban: 0ana#ers in State Ban: of India of 5isa:hapatna0 *one% 9he study covered the various Mandalas in

5isa:hapatna0 *one% 9he sa0ple is drawn fro0 the ban:s which are spread over the *one% 9he total sa0ple of (' respondents was selected the respondent

0ana#ers by usin# convenient rando0 sa0plin# techni?ue%

CREDIT APPRO-AL PROCESS IN S'IState Ban: of India should :eep in place an approved and docu0ented analytical fra0ewor: that helps credit officers in

Assessin# relative ris:s to a units3 cash flow%

Jud#in# whether a unit is able to #enerate sufficient cash flows fro0 internal operations to service the debt%

Measurin# the sufficiency of the credit , 0iti#ators3 in arrestin# deterioration in credit , ?uality and approvin# credit% Secondly" such a docu0ent helps SBI in

0aintainin# unifor0ity and consistency of standards in #rantin# credit across the or#ani*ation%

9he approved docu0ent should address issues li:e-

Identification of borrower%

Identification of associates , #roupsL co00on ownershipL fa0ily tiesL stron# connectin# lin:s%

+istorical analysis of the unit , balance sheet" profit and loss accountL cash flow and trendsL assess0ent of 0ana#erial co0petence , pro0oter3s

bac:#round@trac: record@econo0ic and social status@ability to absorb unanticipated financial costs@technical co0petence@propensity to :eep up the

pro0ises@repay the loans@transparency in operations etc%

)urrent position of the unit , i0pact of ris: associated with non-financial infor0ation na0ely internal factors , li:e scale of econo0ies" technolo#y

adopted" inco0e-elasticities" superior resources" product differentiation" and e7ternal factors , li:e #overn0ent policies" do0estic and internationalco0petition" technolo#y develop0ent" shift in consu0er behaviour etc%" on the unit3s co0petitive position in the #iven 0ar:et and in turn the reliability of

its pro1ected cash flowsL stress bein# on factors that will drive future financial perfor0ance and hence analysis preferably on K#one-concernE linesL

valuation of assets in balance sheet at 0ar:et price under distress sale conditions and acceptable short-falls there under%

!uture position of the unit , co0petitiveness" products" 0ana#e0ent depth" forecasts and cash flowsL analysis on the lines of K#oin#-concernLE SBI3s ability

to fund the loan vis--vis its capital ade?uacy%

Prescription of bench0ar: financial ratios% 67ceptions under bench0ar: ratios 0ay also be defined%

6sti0atin# credit-re?uire0ents and dispensation 0ode%

Securities , third party #uarantees@#uarantee of pro0otersL financial securitiesL in case of ter0 loans-char#e on fi7ed assetsL infrastructure pro1ects ,

char#e on borrowers ri#hts and future cash flows throu#h appropriate covenantsL collaterals as a certain percenta#e of facility%

5aluation 0ethod of fi7ed securities proposed%

Docu0entation , re?uired covenants to cover the proposed securitiesL le#al status of the borrowers%

2endin# under consortiu0 arran#e0ents , independent assess0ent of ris:s@to fall in line with the leader3s assess0ent and reco00endations%

Pricin# of loans credit ratin#@assessin# ris:-return relationshipL profitability of overall relationshipL factorin# all the i0bedded costs into price%

Sanctionin# of hi#h value loans-credit-co00ittees@#rid concept to pool all the available wisdo0 in to credit decisions%

Sanctionin# of ad hoc@te0porary additional li0its periodL interestL other precautions%Once credit-#rantin# process is defined and put in operation" top-0ana#e0ent should ensure that loan proposals co0in# for sanction are provided with

sufficient infor0ation that results in a sound credit decision% It should result in a clear shift fro0 a Kbusiness-is-safe-and-secured syndro0eE to Kris: is identified"

0easured" priced and is acceptable%E

9hus" it is often noticed in or#ani*ations that in absence of clear cut instructions" people often tend to overloo: even i0portant issues under the presu0ption

that others are ta:in# care of% 9o obviate it" a well-drafted 0echanis0 of 0onitorin# loan accounts with a clear de0arcation of roles and responsibilities of

branches and ad0inistrative offices on the followin# lines%

PERCEPTION ON ROLE OF CREDIT RISK MANAGEMENTIn the le7icon of Ban:ers of the previous decades" inter0ediation occurred when ban:s too: in funds fro0 depositors and then lent the funds to businesses and

individuals" holdin# such loans in their boo:s until the loans 0atured" were rolled over or went belly up% )redit ris: was the 0a1or ris: incurred by the ban:s

since interest rate ris: could be 0ana#ed by 0a:in# sure the contractual interest rates on the loans vary with the cost of fund% Over the past &. years" however"

traditional inter0ediation has chan#ed dra0atically% A variety of products" includin# loan securiti*ation" and the #reater ris: e7posures to which the borrowers

are sub1ected" have transfor0ed the levels of credit ris: for the ban:s and increased the need to 0ana#e the ris: in a 0ore sophisticated 0anner% )redit ris: is

0ost si0ply defined as the potential that a ban: borrower or counterparty will fail to 0eet its obli#ations in accordance with the a#reed ter0s% 9he #oal of

credit ris: 0ana#e0ent is to 0a7i0i*e a ban:3s ris: ad1usted rate of return by 0aintainin# credit ris: e7posure within acceptable para0eters% Ban:s need to0ana#e credit ris: in individual loans or transaction as well as credit ris: inherent in the portfolio% 9hey should also consider the relationship between credit ris:

and other ris:s% 9he effective 0ana#e0ent of credit ris: is a critical co0ponent of a co0prehensive approach to ris: 0ana#e0ent and essential to the lon#-ter0

success of any ban:in# or#ani*ation%

>ith rapid econo0ic chan#es and the openin# up of the Indian econo0y" the ran#e of industries and services as well as the levels of co0petition" the threat of

obsolescence of technolo#y@product and the cost structure of the econo0y" is under#oin# e7tensive transfor0ation% Because of this" the financial ris: to

individual business" industries and even individuals has increased si#nificantly% Both the nu0bers of start-ups and ban:ruptcies are increasin# rapidly% In this

environ0ent" the credit ris: of traditional lenders li:e ban:s has increased #reatly% At the sa0e ti0e the intense co0petition is reducin# the spread between

inco0e and cost% 9he level of non-perfor0in# assets of ban:s has increased beyond acceptable levels% 9he introduction of new products li:e securiti*ed assets" in

the 0ar:et" has created a new di0ension of credit ris:% 4nder the circu0stances" Indian ban:s need to underta:e% )o0prehensive review of their processes for

identification of credit ris:" credit assess0ent and scorin#" credit ad0inistration and capital a llocations to 0eet re#ulatory nor0s%

In the 0ana#e0ent of credit ris: #enerally a scientific ?uantitative 0odel is not available as a basis or the ratin# syste0 in 0ost ban:s% 9he ratin# syste0s do not

truly reflect the credit ris: because they incorporate wei#hta#es for various control and 0onitorin# factors" which do not necessarily convey a credit ris:% 6ven

where ris: para0eters are included" so0e of the :ey financial para0eters li:e return on capital e0ployed" turnover" efficiency etc%" which reflect ris:" are

o0itted for the ratin# purposes" eventhou#h so0e of these factors are considered while assessin# the credit need% !re?uently" conflictin# outco0es are thrown

up in #radin# based on the internal ratin#s of the ban:s and the Inco0e Reco#nition and Asset )lassification nor0s specified by Reserve Ban: of India% 9hus"ta:in# into account all" the factors suitable and appropriate #round rules and para0eters are proposed for a credit ris: ratin# 0odel for Indian ban:s%


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TA'LE1 THE IMPLEMENTATION OF CREDIT RISK ASSESSMENT IN S'I

Y0; N8 87 R8 P; $# 1####

FIGURE: 3

50%

2.5%

47.5% Quarterly

Half-Yearly

Annually

A#ainst this conceptual understandin# the respondents fro0 the sa0ple or#ani*ation for the study were contacted to #ive their perception on the period of

review of provisions% As per the opinion of respondents it is understood that there is hi#hest nu0ber of respondents ;'< with percenta#e effectiveness of .'


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was observed for ?uarterly review" the ne7t hi#her nu0ber of respondents ;&< with percenta#e effectiveness of (G%. was observed for annual review and only

one respondent opined for half-yearly review with a percenta#e of %.% 9he response is interpreted as the period of review of provisions is for ?uarterly and

annual in SBI to facilitate easy assess0ent of $PAs%

In the 0ana#e0ent of credit ris:" Ban:s should establish overall credit li0its at the level of individual borrowers@counter-parties" and #roups of connected

counter-parties@borrowers" #roups of borrowers in one industry or type of activity% 6stablish0ent of e7posure li0its on individual borrowers" a pro0oter #roup

or set of associate concerns and on e7posure to an industry or econo0ic sector is an i0portant part of credit ris: 0ana#e0ent process% 9hese li0its can be

related to the si*e of capital of the lendin# ban:% !or instance" it can stipulated that e7posure to a sin#le co0pany or a borrower should not e7ceed . per cent

of the Ban:3s capital" e7posure to a sin#le #roup should not e7ceed .' per cent of the Ban:3s capital and e7posure to a sin#le industry should not e7ceed &' per

cent of the Ban:3s total advances%

TA'LE$ LIMITS LAID RELATING TO CONCENTRATION OF RISK &ITH SPECIFIC GROUPS OF 'ORRO&ERS

R8 N8 87 R8 P; $# 1####

FIGURE: $

92.5%

7.5%

Yes No

A#ainst this understandin# to elicit the respondents opinion fro0 the sa0ple or#ani*ation on li0its laid relatin# to concentration of ris: with specific #roups of

borrowers are ascertained as that" there is hi#hest nu0ber of respondents ;G< with percenta#e effectiveness of %. was observed with positive response and

the re0ainin# respondents with a percenta#e of G%. are opined with ne#ative response% 9he response is analy*ed as the effective li0its laid relatin# to

concentration of ris: with specific #roups of borrowers in SBI" which has 0ade the borrowers restricted in their borrowin# capacity%

>ith the #rowin# trend of credit flow" the 0ana#e0ent of credit ris: has beco0e co0plicated to convert ratin#s for different ris: factors into identifiable prices"

ban:s have to develop a concept of ris: free return% Ris: is nor0ally defined as a variability of the rate of return% 9he ris: ad1usted price of credit for a unit can

be(

r IQnQd

>here I ris: free rate of return

n ad1ust0ent for industrial ris: or fir0 ris:s%

d ad1ust0ent for 0ana#e0ent ris:%

!or lar#e advances the decision of ratin# and pricin# of credit should ideally be ta:en by a #roup of people who would individually rate the proposal and

thereafter a co0bination would #ive the fair and unbiased price of ris: for a proposal% 9he individual ratin# of each 0e0ber would depend on his perception%

TA'LE* CREDIT PRICING RELATING TO LE-EL OF RISK

R8 N8 87 R8 P; $# 1####

FIGURE: *

2.5%

97.5%

Yes

No

!ro0 this the present study has been directed to focus on credit pricin# relatin# to level of ris:% 9able%. interestin#ly describes that there is hi#hest nu0ber of

respondents ;< with a percenta#e effectiveness of G%. was observed with positive response" whereas only one respondent with the percenta#e of %. was

opined as ne#ative response% 9herefore" the response is interpreted as the effective relationship of credit pricin# to level of ris: in SBI" which has ta:en initiative

by SBI" to have a fresh loo: at the pricin# 0echanis0 is a step in the ri#ht direction%

In the 0ana#e0ent of credit ris: there has to be a clearly defined set of processes which are in con1unction with a well defined policy% 9his policy is deter0ined

and approved by a credit ris: 0ana#e0ent board constituted by the top 0ana#e0ent of the or#ani*ation% 9he e7pected results of syste0atic 0ana#e0ent of

credit ris: will be possible for an or#ani*ation when it follows the procedure% 9he results will be 0ore effective and i0ple0entable under any conte7t when a

well-defined policy holds water% One such 0ost i0portant policy docu0ent to be prepared by a financial institution li:e SBI is on loans of various types% It 0ust

be clearly understood that the effectiveness of wor:in# of ban:in# institutions will be e7clusively on their perfor0ance in deposits and advances% +ence" it is

i0portant to concentrate on analy*in# certain issues related to these factors so as to arrive at 0eanin#ful understandin# of credit ris: 0ana#e0ent in any

or#ani*ation%

9he present study has been thou#htfully directed to include focus on ascertainin# respondent responses on the loan policy% 9able%F describes that al0ost &''per cent of respondents opined that sa0ple or#ani*ation followed 0eticulously their procedure for a well-defined loan policy docu0ent% It is observed fro0 the

data that none of the respondents was unaware of the initiative by SBI in this re#ard% +ence" it can be interpreted that the de#ree of transparency at all levels of

hierarchy is positively ensured in the or#ani*ation% Awareness and involve0ent of e0ployees at all levels is a hi#hli#htin# feature in the sa0ple or#ani*ation%

Ban:s 0ust receive sufficient infor0ation to enable a co0prehensive assess0ent of the true ris: profile of the borrower% 9his should include


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.

9he purpose of the credit

9he sources of the repay0ent

9he nature and a##re#ate a0ount of ris: of the borrower%

9he nature of collateral and its sensitivity to 0ar:et develop0ents and enforceability%

9he borrowers past repay0ent history" e7istin# liabilities or obli#ations" current capacity to repay and future cash flow pro1ections%

!or business loans" the borrower3s business e7pertise" the status of the industry or sector and the borrower3s position within that sector%

!air assess0ent based 0ar:et reports of the inte#rity of the owners@0ana#e0ent of the enterprise" or of the borrower in case of individual loans% +ence"

the ris: profile of credit portfolio 0onitored re#ularly%

TA'LE6 ROLE OF CREDIT RISK MANAGEMENT IN STATE 'ANK OF INDIA (N $#)

SIN8 S05 P;


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F

FIGURE: .

52.5%

47.5%Yes

No

!ro0 this conceptual understandin# the respondents fro0 the sa0ple or#ani*ation for the study were contacted to #ive their perception on the ris: wei#hts are

si0ilar for the years% 9herefore" there is hi#her nu0ber of respondents ;&< with percenta#e effectiveness of .%. was observed with positive response and

sli#htly lower nu0ber of respondents ;&< with percenta#e of 0inute chan#e (G%. was observed with ne#ative response% 9hus" the response is e7plained as the

ris: wei#hts 0ay be sa0e to so0e e7tent for all the years" this has #iven an opportunity to SBI to 0easure the a0ount of ris: basin# on the wei#hts assi#ned%

Ris: wei#htin# of ban:s should be de-lin:ed fro0 that of the soverei#n I which they are incorporated as this syste0 penali*es ban:s with better ?uality asset

portfolio incorporated in low rated countries" while benefitin# wea:er financial institutions in hi#hly rated countries% Instead" preferential ris: wei#hts in the

ran#e of ' per cent to .' per cent on a #rade scale could be assi#ned on the basis of ris: assess0ent by do0estic ratin# a#encies%

TA'LE1# RESPONDENTS OPINION A'OUT ALL THE 'ANKS FOLLO&S SAME RISK &EIGHTS

R8 N8 87 R8 P; $# 1####

FIGURE: !

15%

2.5%

82.5%

Yes

No

No idea

A#ainst this conceptual understandin#" respondents have opined that there is hi#hest nu0ber of respondents ;< with percenta#e effectiveness of H%. was

e7a0ined with positive response" whereas F respondents with &. per cent was observed that they do not have any idea and only one respondent with %. per

cent was opined with ne#ative response% +ence" the response is interpreted as all the ban:s follow sa0e ris: wei#hts" which 0ade SBI to assess the ris: ?uic:lyfor all the branches%

9he 0id office is particularly critical because it would perfor0 the ris: 0ana#e0ent functions which 0ay include settin# of ris: 0odelin# and 0onitorin#

para0eters" real ti0e 0onitorin# of ris: para0eters" reportin# of e7ceptions" 0onitorin# reali*ed and un-reali*ed profits and losses" cash flows and accruals" and

scrutini*in# cost of carry to 0ini0i*e the ris:%

TA'LE11 THE CONCEPT OF MID OFFICE FOR RISK MANAGEMENT HAS 'EEN INTRODUCED

R8 N8 87 R8 P; $# 1####

FIGURE

5% 2.5%

92.5%

Yes

No

No idea

A#ainst this it is understood as per the perception of respondents that there is hi#hest nu0ber of respondents ;G< with percenta#e effectiveness of %. was

observed with positive response" whereas respondents with . per cent responded ne#atively and only one respondent with %. per cent do not have any idea

about the concept% 9herefore" the response is analy*ed as the i0ple0entation of the 0id office is for ris: 0ana#e0ent in SBI to 0onitor and control all the

activities of ris:%

!inancial derivatives are i0portant ris: 0ana#e0ent tools with tan#ible benefits fro0 their use% +owever" li:e all tools it is i0portant that the user understands

the tools and uses it to 0eet specific ris: 0ana#e0ent ob1ectives based on an analysis and understandin# of the ris:s% >hile the ris:s are 0ore co0ple7 they arein no way different fro0 those associated traditional instru0ents such as credit ris:s" 0ar:et ris:s and operatin# ris:s etc% !inancial derivatives serve the useful

purpose of 0ana#in# ris:s selectively and even in unbundlin# ris:s fro0 traditional instru0ents and activities% 9hey only need to be understood as their

co0position" stren#ths and li0itations are well :nown% 9hus" the lar#e ban:s and corporations are 0a1or players in the derivatives 0ar:et" it is the s0aller ban:s

and fir0s with #reater vulnerability to ris:s who need to protect the0selves usin# derivative products because of their s0aller capital base%


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G

TA'LE12 THE KIND OF DERI-ATI-ES ARE USED TO MANAGE THE CREDIT RISK

K4 87 D;404 N8 87 R8 P; $# 1####

FIGURE1#

0%

0%

0%

47.5%50%

2.5%

Options

Forwards

Future contracts

Swaps

All of the above

None of the above

!ro0 this conceptual understandin# the respondents fro0 the sa0ple or#ani*ation for the study were contacted to #ive their perception on the :ind of

derivatives were used to 0ana#e the credit ris: in SBI% As per the opinion of respondents it is understood that there are hi#hest nu0ber of respondents ;'< withpercenta#e of .' was observed without followin# derivatives in their ris: assess0ent" whereas there is a sli#htly lower nu0ber of respondents ;&< with

percenta#e of (G%. are able to follow all :inds of derivatives in their ris: assess0ent and only one respondent with %. per cent is aware of usin# option :ind of

derivative in their ris: assess0ent% 9hus" the response is analy*ed as that not followin# at 0a7i0u0 level the various :inds of derivatives and at 0ini0u0 level

could be followin# derivatives approach in SBI to 0easure and 0onitor various :inds of ris:s%

4lti0ately" it is concluded that the perfor0ance of State Ban: of India at the level of *onal office" head office and branch level is very satisfactory in 0ana#in#"

0onitorin#" controllin# and assessin# the ris:%

SUGGESTIONS)redit is the real activity that should be 0ana#ed to #enerate profitability by :eepin# the three cardinal principles of ban:in# in 0ind K2i?uidity" Solvency and

ProfitabilityE% >ith the thinnin# of spreads in the dere#ulated and liberali*ed econo0y" ris: 0ana#e0ent has beco0e all the 0ore crucial% So proper 0echanis0

should be put in place for anticipation and identification of ris:s" to#ether with a suitable 0echanis0 to deal with such ris:s in an efficient and pro-active

0anner%

9o be successful" )redit Ris: Mana#e0ent de0ands that every credit 0ana#er should #et a#itated with ?uestions li:e , K+ave all the ris:s identifiedE K+ave the

odds chan#edE K+ave so0e ris:s vanished and new ones ta:en their placeE etc%" that 0ay pave way for a proactive shufflin# of the credit portfolio% 9his

beco0es feasible if only every one beco0es ris:-conscious3% It is obvious that ris:-consciousness3 enable the or#ani*ations to raise ri#ht ?uestions at ri#ht ti0e

resultin# in ri#ht actions%

Ma1ority of the respondents stron#ly felt that the syste0 followed in the ban:s need a review in ter0 of si0plifyin# various for0s used and procedures followed

for sanctionin# loan% So0e of the respondents advice their ban:s to adopt the new 0odels in their credit flow based on para0eters%

)redit defaults can be avoided and can be covered by developin# the credit derivatives 0ar:et and tradin# of these instru0ents can be per0itted sub1ect to

certain rules and re#ulations%

It is su##ested that in credit #rantin# application" appraisal" sanction" disburse0ent" control activities are strictly observed% Diversion of funds to be chec:ed and

need based assess0ent to be arrived to eli0inate ele0ent of ris: in the ban:%

9he applications of borrowers which are sent by branches to head offices credit cell depart0ent such as RA)P) and SM6))) should be observed :eenly without

arisin# any ris:%

Ban: 0ust operate within sound well-defined credit #rantin# criteria% 9hese criteria should indicate the ban: tar#et 0ar:et and a thorou#h understandin# of the

borrower as well as the purpose and structure of credit and its source of repay0ent%

It is su##ested that the ban: should establish overall credit li0its at the level of individual borrowers@counterparties" and #roups of connected

borrowers@counterparties in one industry%

REFERENCE&% )e0 =aracada# and Michael > 9aylor" K9oward a $ew lobal Ban:in# Standard 9he Basel )o00ittee3s ProposalsE" ''" I)!AI Boo:s%

% Murthy %R%=%" K)redit Ris: Mana#e0ent in a Mar:et Driven 6cono0y 9he Acid 9est for Ban:sE" Deep and Deep Publications Pvt% 2td%" $ew Delhi" ''.%

% Sar:ar A%=%" KApplication and I0plications of $ew Prudential $or0s for Ban:sE" Deep and Deep Publications Pvt% 2td%" $ew Delhi" ''.%

(% Asho: Baner1ee" K9he )ost of )redit , Re-e7a0inedE" Deep and Deep Publications Pvt% 2td%" $ew Delhi" ''.%

.% =enneth J% 2e Stran#e" KRis: Mana#e0ent and Ris: !inancin# AlternativesE" Deep and Deep Publications Pvt% 2td%" $ew Delhi" ''.%


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