Credit Risk

A REPORT

ON

“CREDIT RISK MANAGEMENT IN BANKS”

BY

ANISH KR. PATNI

Enrol No. 06BS 0441

A report submitted in partial fulfillment of

The requirement of

MBA Program

Submitted To:

Dr. P.R.KULKARNI

TABLE OF CONTENTS

ABSTRACT 4

INTRODUCTION 5

Components of Credit Risk 6

Credit Risk Management Techniques/Instrument 7

Credit Approval Process 9

Establishing an appropriate credit risk environment 11

Major sources of Credit Problems 13

Credit Risk Management…………………………………………………………………………........15

Prerequisites for efficient Credit Risk Management 17

RBI Guidelines on exposure norms 18

Principles for the Assessment of Banks’ Management of Credit Risk 21

Adoption of Credit Risk Models 24

The Risk-Rating Process 30

Implementation of Credit Risk in Indian Bank 33

Conclusion 35

References 37

ABSTRACT

The intense competition which banks have come to face, both as a consequence of growth of non-banking financial institutions as well as securitization has created the fear of high risk and has increased the attention towards risk management. The new capital rules are compelling banks to readjust. The principle behind capital adequacy norms is to ensure that banks attain sound financial health and depositors’ interests are protected. It also aims at incorporating capital weights into management decisions and prompt bank managements to think about the relationship between the risk and the capital in a more consistent and systematic manner.

The greatest challenge, which the banks are currently confronting, relates to the proper management of risks. The most critical task before banks managements today is to put in place sound principles and framework for risk management and control. This is also of significance to regulators and supervisors and call for a review of the accounting standards,...