it is the credit risk facing and management model by indian commercial banks at present scenario

1. Credit risk management of
commercial banks in India
By:
Siva prasad sharma
1NZ15MBA62

2. What is credit
In general credit is the trust which allows a party or a
client to provide sum of money or resources or gods and
services before payment that will be made in the future.
Simple financial term credit is a commercial lending of
loan and advance for the financial reward.

3. what is risk?
Risk is the potential of gaining or loosing something of
value.
 Values can be gained or be loss form given action or
inaction, foreseen or unforeseen.
What is credit risk?
It is change in net asset value due to change in perceived
ability of client

4. Risk comes form commercial lending
 customer asks for money,
 loan officer make assessment towards the loan proposal of
the customer
 bank gives money ,
customer pays money back with interest and thus everyone
is happy,

5. When credit risk arises
Borrower’s failure to repay advance or failure to meet
credit agreed terms and conditions
Expecting the future cash flow to pay the current
obligation
Unwillingness to meet the commitments lending, trading
and other financial transaction.

6. Recent example credit risk of the banks
9000 crore

7. STATE BANK OF
INDIA
KINGFISHER AIRLINES LTD
(PREV
VIJAY MALLYA (DR),
UNITED BREWERIES
(HOLDINGS) LIMITED
120139.99 ( lakh)
KOTAK MAHINDRA
BANK
BETA NAPHTHOL
DEEPAK K BAWEJA, SATISH D
DESHPANDE, KEWAK K BAWEJA,
PREMNATH PANDIT, SATYAPAL
PAHWA, SURENDRA
SANMUKHANI
95197.00
PUNJAB NATIONAL
BANK
WINSOME DIAMONDS &
JEWELLERY LTD.
JATIN MEHTA, R
RAVICHANDRAN, RAMESH
PARIKH, JAI KUMAR KAPOOR
(IND), MADAN KHURJEKAR, DILIP
TIKALE, MRS. URVASHI SAXENA
90037.06
PUNJAB NATIONAL
BANK
FOREVER PRECIOUS JEWELLERY
& DIAMONDS LTD.
JATIN MEHTA, PRANAV RAMESH
DALAL, HARI MOHAN NAMDEV,
VINOD KUMAR JAIN, BHAILAL
KANTILAL PATEL, HARISH
MEHTA (IND), JAIKUMAR
MADANLAL KAPOOR (IND),
NIMESH PATEL, MADAN
KHURJEKAR
74798.36
KOTAK MAHINDRA
BANK
RAZA TEXTILES LIMITED V K SHRIVASTAV 69459.51
KOTAK MAHINDRA
BANK
RANK INDUSTRIES LIMITED.
D V RAMESH, K SRINIVASA RAO,
S JAYADEV
55131.13
CENTRAL BANK OF
INDIA
Winsome Diamonds & Jewellery
Ltd
Ramesh I Parikh, R Ravichandran,
Jatin Rajnikant Mehta Guarantor,
Formerly Co Know as Suraj
Diamonds&Jwell, Bombay
Diamonds Company Pvt Ltd,
Kohinoor Diamonds Company
Pvt Ltd Gtee, Forever Diamonds
Pvt Ltd Guarantor
54926.00

8. Recent trends
 state-owned banks’ gross non-performing assets (NPAs) rose 6.27% to
Rs.3.04 trillion in the September quarter from Rs.2.86 trillion in the year
earlier.
 The rise for the private banks has been 5.98%. Overall, gross NPAs of listed
banks in the September quarter rose 6.24% to Rs.3.37 trillion from Rs.3.17
trillion in the year earlier.
 Incidentally, both sets of banks, the march quarter2016 gross and net NPAs
were much higher than in the preceding June quarter 2015.
 Indian banking sector, where there are 43 publicly traded banks of which 27
are public sector. The analysis in report pointed to public sector banks
having higher default risk than private banks, particularly since 2010.

9. Non performing asset as on FY 2015
Once the borrower has failed to make interest or principal payments for
90 days the loan is considered to be a non-performing asset

10. bad loans written off between 2004 and 2015 amount
to more than Rs 2.11 lakh crore. More than half such
loans (Rs 1,14,182 crore) have been waived off
between 2013 and 2015.
Only two banks, State Bank of Saurashtra and State
Bank of Indore, have shown zero bad debts in the past
five years.
Bad loans of public-sector banks grew at a rate of 4
per cent between 2004 and 2012, in financial years
2013 to 2015, they rose at almost 60 per cent
It disclosed that bad debts have declined only four
times since 2004. The last time was in 2011

11. How can bank reduce credit risk?

12. trustworthy
soundincomeandfinancialhealth
Goodcollateralbackup
Three pillar of lending

13. Banks should choose client trustworthy
 client should have sound income and financial health
 Client should have good collateral back up.
How can mitigate the credit risk

14. Model for credit risk practices by banks
Credit score rating :
Altman’s z score model:
Credit metrics model:
Value at risk model:

15. Credit score rating
Credit rating score is a three digit number
It start form keeping eyes on your very first credit
transaction
And it used by lenders to determine your credit worthiness
for a mortgage, loan, or credit card
analyzing by traced and tracked on the payment history,
credit utilization, cash transactions, tax issues, credit score
inquires

16. How it rate the trustworthiness
Excellent credit: credit scores above 800
Very good credit: credit scores between 750 and 800
Good credit: credit scores between 700 and 750
Fair credit: credit scores between 650 and 700
Bad credit: credit scores between 600 and 650
Vary bad credit: credit scores below 600

17. Altman’s z score model
It deals with combine quantifiable financial indicators with
a small number of variables in an attempt to predict whether
a firm will fail
It calculated Z score
Z score = A1 (working capital/ total assets) + A2 ( retained
earing/ total assets)+ A3 ( EBIT/ total assets) + V4 (
market value of equity/ book value of total liabilities) + A5
( sales/ total assets)
A1to A5 are the model constants

18. Decision on the base Z score
Above Z3 – excellent
Z2 to Z3 – safe
Z1.8 to Z2 – doubtful performance
Below 1.8 expected to become bankrupt

19. Value at risk model
measures the potential loss in value of a risky asset or
portfolio over a defined period for a given confidence
interval.
It measure probability of a loan portfolio value reducing
by an estimated amount over a given time horizon.

20. Is risk can mitigate by past
financial heath?
proactive looking
continuous monitor the lending portfolio using value
at risk model.
Quarterly re- analysis of income and financial health.
 analysis of installment payment of client.
 re valuation of collateral yearly basis.
Not at all because banks lend for future

21. Review of Literature:
 Various researchers have studied on the credit risk management analysis of the
commercial banks and studied reasons behind bank problems and formulates the several
conclusion.
 Swaranjeet Arora professor of PIMR in (march2013) reviewed the credit risk analysis in
Indian commercial banks an empirical investigation about credit risk analysis system,
credit worthiness and collateral requirement are the important factor of credit risk.
 Choppari naresh and borala rajeshwar rao of Osmania university ( January 2015)
reviewed potential source of risk including liquidity risk, credit risk, interest rate risk,
market risk, foreign exchange risk and political risk and conclude bank dictates the credit
risk strategy that spell out target market risk acceptance/avoidance levels, risk tolerance
limits diversification and monitoring and controlling mechanism.
 David H. Pyle professor of banking and finance Hass business school, university of
California in (July 1997) conclude why risk management is needed and outline some of
the theoretical underpinnings of contemporary bank risk management with an emphasis
on market and credit risks.
 Ms. Asha Singh a research scholar merwar university reviewed her journal of finance
service and management research (July 2013) about component of risk, objective of risk
management and RBI ( the central bank of India) expectations in risk management.

22. Conclusion:
 Commercial lending is the straight forward job.
 Commercial lending carry some sought of risk
 Analysis of the client is carefully on
Is client is trustworthy or not ?
Is client has sufficient income and sound financial health ?
Is credit back up with good collateral or not?
 Mostly uses model of risk mapping is credit score rating
 KYC model
Risk managing practices is newly but try to effectively implement by
commercial bank in India.

23. Bibliography:
Swarabjeet arora, (2013)” credit risk analysis of the indian commercial bank an empricial investigation.
Diana cibulskiene, reda rubuskaite,(2012) credit risk models of commercial banks and their importance
Ms.asha singh ( july 2013) credit risk management in indian commercial banks.
Patil jayakar bhasker (jan 2014) credit risk management in indian banks
Pavid h pyle ( july 1997) bank risk management
porala rajeshwar rao, (jan2015)credit risk practices of indian commercial banks
Thirupati kanchu and m. manoj kumar (2013) risk management in banking sectors an empirical study.
Dr.Ravi inder singh( ) explanatory variables of credit risk an study of indian banks industry.
Hamid sepehrdoust and Adel berjisian (2013) credit risk management of commercial banks in Iran
Online sources and books:
http://economictimes.indiatimes.com/industry/banking/finance
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Khan, M. Y. and Jain P. K. (1993), "Financial Management Text and Problem", New Delhi: Tata McGraw- Hill Publishing Company Limited.
Flink J. B. and Donald C. (1964), "Investments: Analysis and Management", New work: McGraw- Hill Inc.
State bank of India.( 2015), credit risk assessment guidelines final