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Assess & assure credit risk and manage it in such a way that risk(losses) are minimised & return is optimised.

To achieve target cash flows followed by risk based return by managing a credit portfolio.

Install a system & control measures for periodic reviews.

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Credit management is a process of managing credits using following steps:-

Formulation of credit policy Credit initiation Credit evaluation & risk assesment Credit monitoring & control

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It should be flexible to meet various situations.

Should contain segmentation of the credit portfolio.

Should consider legal & regulatory enviroment.

Should clearly specify certain parameters like maximum amount of loan, deposits & capital,etc.

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Target market planning is the most important aspect of credit initiation.

Identifying business potential, defining desirable opportunities .

Define risk acceptance criteria(RAC).

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The 3’s of the credit Character Capacity Collateral Risk assessment Business risk Management risk Product line Critical sucessful factors

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Periodics reviews Interim reviews Quarterly accounts Classification of bad debts Rehabiliation of bad debts

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Credit risk management is predicated on the existence of risk & uncertainty to leverage the earnings from lending to a borrower.

Credit risk arises whenever lender is exposed to loss from burrower, counterparty, who fails to honour their debt obligation as they have agreed & contracted.

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Risk Management : Objectives

Survival of organisation / BankEfficiency in operations ,profit protection Identifying and achieving acceptable levels

of Risk, Earning stabilityUninterrupted operationsContinued growthPreservation of reputation

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“Banking is an art of striking a balance

between RISK and REVENUE”.

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Facets of Risk

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100100

4025Management

108Industry

2520Business

2547Financial

For Term Loan

For Working Capital

Weightage

Capital Adequacy Issues BASEL – I (1988)1.8% on Risk weighted Assets2.RBI’s Bench Mark – 9%

BASEL – II - Risk Sensitivity of Capital Requirement

Minimum Capital requirements for loans (Shift from regulatory capital to economic capital)

Supervisory Review (Review of Risk Management processes)

Market Discipline (Core Principle – Mandatory disclosure; –Supplementary Principle/Institution specific)

Minimum capital requirements to be determined by

Standardised Approach Internal Rating based Approach

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Capital Adequacy Ratio: Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting the time liabilities and other risks such as credit risk, operational risk, etc.

Gross Debt Service Ratio: A debt service measure that financial lenders use as a rule of thumb to give a preliminary assessment about whether a potential borrower is already in too much debt. Receiving a ratio of less than 30% means that the potential borrower has an acceptable level of debt.

Customer Credit: This is credit history of the respective customer in the bank. While customer approaches the bank, the bank needs to check the required details or the past track performance of the customer.

It is global financial services Headquarter in London U.S 8000 offices in 80 countries Primary listing on London stock exchange Secondary listing: Hong Kong stock

exchange,NYSE,

Formulating high level credit policies Issuing lending guidelines to HSBC Controlling exposure to certain industries Reporting to senior executives on loan

portfolio Reviewing efficiency and effectiveness of

credit approval process. Regular audits of credit process by internal

audit.

Non performing loans

Cross border exposure

Restructuring of loan

Attention to charge off

Special exposure to telecommunication sector

Credit rating of companies Review of industry sector Portfolio monitoring :1. Measure portfolio risk2. Credit risk information system Monitor credit policies of RBI

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