New CRA 2008

New Credit Risk Assessment New Credit Risk Assessment Model 2008 Based on Model 2008 Based on

Advanced Rating of Basel – IIAdvanced Rating of Basel – II

GenesisGenesis ……… ……… New models in conformity with Basel II

guidelines Basel II applicability for Indian Banks :

RBI has issued Final Guidelines in April 2007.

As per these guidelines, banks are required to progress from Standardized to Advanced Rating Approaches / Models

Implementation of new CRA models would facilitate transition from Standardized to IRB (Internal Rating Based) approach for Credit Risk.

The new models have been implemented in our Bank since 01.10.2008

Overview – New CRA 2008Overview – New CRA 2008 Applicable to all accounts (except personal

segment) with Aggregate Exposure (FBL + NFBL) of Rs. 25 lacs and above.

C&I, SSI & AGL segments including Trade and Services (i.e. all exposures of Rs 25 lacs and above except Personal segment)

Conventional Industries – Liberalised CRA applicable up to Rs.500 Lacs(For rice mills, cotton mills, dall mills) ; for other conventional industries up to Rs.2cr liberalised CRA and above Rs.2 crores to Rs.5 crores simplified model under New CRA 2008 & Regular Model above Rs.500 Lacs

Simplified Model Rs. 25 Lacs and above, upto Rs. 500 Lacs

Regular Model Above Rs. 500 Lacs

Overview of ModelsOverview of Models

Exposure Level

(FB + NFB)

Non – Trading Sector

(C&I,SSI, AGR)

Trading Sector

(Trade & Services)

1 Over Rs. 500 Lacs

Regular Model

Regular Model

2 Rs . 25 Lacs upto Rs. 500

Lacs

Simplified Model

Simplified Model

No CRA Rating for advances below Rs.25 lacs (except PER segment)

Exceptions to New CRA ModelsExceptions to New CRA Models

PER Advances (Separate Scoring Model for PER Advances (Separate Scoring Model for advances of Rs.10 Lacs and Above)advances of Rs.10 Lacs and Above)NBFC Advances (Existing Exclusive CRA Model for NBFC Advances (Existing Exclusive CRA Model for NBFCs)NBFCs)Conventional Industries (Conventional Industries (Liberalized CRA applicable up to Rs.500 Lacs (For rice mills, cotton mills, dall mills) ; for other conventional industries up to Rs.2cr liberalized CRA and above Rs.2 crores to Rs.5 crores simplified model under New CRA 2008 & Regular Model above Rs.500 Lacs)

Mortgage Loan for Traders (CRA Exempted upto Mortgage Loan for Traders (CRA Exempted upto Rs. 500 Lacs)Rs. 500 Lacs)

ON MODELSON MODELS

..

EXI STI N G Co. N EW Co.

B O RR OW ER RATI NGSB-1 to SB-16

SI M PLI FI ED M O DELE xp os u re ( F B L + N F B L)

o f R s. 25 la cs to R s . 5 c r.



FACI LI TY R ATI NGFR-1 to FR-16

R EG U LAR M O DELE xp os u re ( F B L + N F B L)

A b o ve R s . 5 cr.

N O N - TR ADI N G SECTOR(C& I , SSI & AG L Segm ents)



SI M PLI FI ED M O DELE xp os u re ( F B L + N F B L)R s . 25 lacs to R s . 5 cr.



FACI LI TY R ATI NGFR-1 to FR-16

R EG U LAR M O DELE xp os u re ( F B L + N F B L)

A b o ve R s . 5 cr.

TR ADI N G SECTOR( I ncluding Services)

N EW CR A M O DELS - 200 7

MAIN CHANGES FROM EARLIER MODELS MAIN CHANGES FROM EARLIER MODELS

Rating Scale Rating Scale expanded to 16 grades from the present 8 grades (SB-1 to SB-16)

Mapping to existing CRA Impact Ratings are likely to go down . Thus mapping to earlier ratings is to be explained (to borrower and to operating functionaries)

Separate Facility rating for each of the facilities (viz CC, TL, LC, BG etc) apart from overall borrower rating ONLY FOR REGULAR MODELS (i.e., above Rs.500 Lacs)

Facility Rating Facility Rating also 16 Grades

S.No.

Borrower Rating

Range of

Scores

Risk Level Comfort Level

1 SB1 94-100 Virtually Zero risk Virtually Absolute

safety

2 SB2 90-93 Lowest Risk Highest safety

3 SB3 86-89 Lower Risk Higher safety

4 SB4 81-85 Low Risk High safety

5 SB5 76-80 Moderate Risk with Adequate Cushion Adequate safety

6 SB6 70-75 Moderate Risk

Moderate Safety

7 SB7 64-69

8 SB8 57-63 Average Risk Above Safety Threshold9 SB9 50-56

10 SB10 45-49 Acceptable Risk (Risk Tolerance Threshold)

Safety Threshold

11 SB11 40-44 Borderline risk Inadequate safety

12 SB12 35-39 High Risk Low safety

13 SB13 30-34 Higher Risk Lower safety

14 SB14 25-29 Substantial risk Lowest safety

15 SB15 <24 Pre-Default Risk (extremely vulnerable to default)

Nil

16 SB16 - Default Grade

S. No. New CRA Model Existing CRA Model

Score Grade Grade Score

1 94-100 SB1 SB1 >= 90

2 90-93 SB2

3 86-89 SB3 SB2

>=754 81-85 SB4

5 76-80 SB5

6 70-75 SB6 SB3

>=657 64-69 SB7

8 57-63 SB8 SB4 >=50

9 50-56 SB9

10 45-49 SB10 SB5 >=45

11 40-44 SB11 SB6 >35

12 35-39 SB12

13 30-34 SB13 SB7 >=25

14 25-29 SB14

15 < 24 SB15 SB8 <25

16 - SB16

SN

Facility

Grades

Scores

LGD LEVEL(Recovery Level)

RISK LEVEL

COMFORTLEVEL

1 FR1 94-100

Virtually Zero LGD Virtually Zero Risk

Virtually Absolute Safety

2 FR2 87-93 Lowest LGD (Highest Recovery)

Lowest Risk Highest Safety

3 FR3 80-86 Lower LGD (Higher Recovery)

Lower Risk Higher Safety

4 FR4 73-79 Very Low LGD (High Recovery)

Low Risk High Safety

5 FR5 66-72 Low LGD (Adequate Recovery)

Moderate Risk with

Adequate Cushion

Adequate Safety

6 FR6 59-65 Moderate LGD (Moderate recovery)

Moderate Risk Moderate Safety7 FR7 52-588 FR8 45-51 Average LGD (Average

Recovery) Average

RiskAbove Safety

Threshold9 FR9 38-44

10

FR10

31-37 LGD Tolerance Threshold

(Recovery Tolerance Threshold)

Acceptable Risk

(Risk Tolerance Threshold)

Safety Threshold

11 FR11 24-30 High LGD (Low recovery) High Risk Low Safety12 FR12 17-23 Higher LGD (Lower

Recovery)Higher Risk Lower Safety

13 FR13 11-16 Substantial LGD(Small recovery)

Substantial Risk Lowest Safety14 FR14 5-1015 FR15 1-4 Highest LGD

(Minimal/zero recoveryHighest Risk

NIL16 FR16 0

WHAT HAS NOT CHANGED/MINOR CHANGES WHAT HAS NOT CHANGED/MINOR CHANGES Broadly the same Risk Parameters i.e., Financial

Risks ; Business and Industry Risks and Management Risks

Weightage increased for Financial Risk Parameters in both Simplified and Regular Models (70% and 65% respectively as against earlier weightage of 47%)

Lower weightage for financials for new units retained

Hurdle Rate is continued but it has changed (SB-10 for borrower rating and FR-10 for facility rating)

Borrower Rating Min agg Marks for hurdle grade, SB-10 is 45/100 (50/100 earlier) Facility Rating Minimum aggregate Marks for hurdle grade FR-10 i.e., 31/100

Hurdle scores for each of the parameters retained Qualitative factors (Contingent liabilities etc)

negative score of –10 retained with minor changes (negative scoring based on impact on TNW)

S. No.

Risk Category Maximum Score

Regular Model Simplified Model

Existing Company

New Company

Existing Company

New Company

(i) Financial Risk (FR) 65 25(65 x 0.39)

70 35(70/2)

(ii) Qualitative Factors (-‘ve) (-10) (-10) (-10) (-10)

(iii) Business & Industry Risk (BR & IR) /Business Risk (for Trading Sector)

20 30(20 x 1.5)

20 40(20 x 2)

(iv) Management Risk (MR) 15 45( 15 x 3)

10 25( 10 x 2.5)

(v) Qualitative Parameter (External Rating)

(+5) (+5) (+5) (+ 5)

Total 100 100 100 100

(vi) Borrower Rating based on the above Score

(vii) Country Risk (CR)

(viii) Final Borrower Rating after CR

(ix) Financial Statement Quality Excellent/Good/Satisfactory/Poor

(x) Risk Score/Rating Transition Matrix

Comments on Trend in Rating

Weightage (Non Trading Sector)

Activity Status Basis of Risk Assessment

Newly incorporated unit where the production/commercial production is yet to begin

Projected Financials

Newly incorporated unit where the audited financials relate to less than 12 months of commercial production.

Projected Financials

Newly incorporated unit where the audited financials reflect minimum 12 months of working after the start of commercial production.

Audited Financials

Basis of financials for New UnitsBasis of financials for New Units

For Rating purpose a new unit refers to a newly incorporated firm or company which may continue to be regarded as new for a period

Of three years after the start of commercial production

Risk Types Regular Model Simplified Model

Existing Company

New Company

ExistingCompany

NewCompany

Financial Risk (FR) 25/65 10/25 30/70 15/35

Business & Industry Risk (B&IR) [Business

Risk (BR) for trade]

12/20 16/30 10/20 20/40

Management Risk (MR) 8/15 22/45 5/10 13/25

Aggregate hurdle Score

45/100 48/100 45/100 48/100

Overall Hurdle Grade# SB10 SB10 SB10 SB10

Hurdle ScoresHurdle Scores

FINANCIAL RATIOS CHANGES FINANCIAL RATIOS CHANGES

SIMPLIFIED MODEL Broadly the same ratios as in previous model with

minor variations Relevant Ratios and their variations Future prospects : Marks for five ratios on the

projections made in proposal (max 20) and negative marks for non-achievement of the projections made in last renewal. (max –10)

Table for calculation of future prospects Table for Non-performance penalties REGULAR MODEL Apart from same ratios as above, some new ratios

included as detailed in next slide (only change no ind comparison for PAT/Operating Income)

Additional parameters : Scores for Financial flexibility & Average YOY growth in sales in last two quarters

VariationsVariationsRATIO DEFINITION CHANGES IN CRA SIMPLIFIED

TOL/TNW Total Outside Liabilities (TOL) / Tangible Net Worth (TNW)

Apart from the latest ratio, marks for -moving average (comparison of latest with last 3 years ) &-Industry Ratio (comparison with industry average)

CURRENT RATIO

Current Assets/Current Liabilities

Apart from the latest ratio, marks for -moving average (comparison of latest with last 3 years ) &-Industry Ratio (comparison with industry average)

ROCE PBDIT (Profit before Interest, Depreciation and Tax)/Total Assets

Apart from the latest ratio, marks for -moving average (comparison of latest with last 3 years )

PBDIT/INTEREST

PBDIT/Total Interest (incl unsecured loans)


PAT/Operating INCOME

PAT (Profit After Tax)/(Net Sales – Other Income)

Apart from the latest ratio, marks for -moving average (comparison of latest with last 3 years ) &-Industry Ratio (comparison with industry average)Minor variant of erstwhile PAT/Net Sales

Gross DSCR and/or(Inv/Net Sales + Rec/Gross Sales)

Gross Average DSCR of all loansAND/OR[(Inventory/Net Sales) +Receivables/Gross Sales) ]

For Gross Av DSCR, Marks only for latest ratio.For (Inv/NS+ Rec/GS) apart from the latest ratio, marks for-moving average (comparison of latest with last 3 years ) &-Industry Ratio (comparison with industry average) In case of only TL Gross Av DSCRIn case of only WC Inv/NS + Rec/GSIn case of both Average of both

Table for Future Projections Table for Future Projections S.No

Financial Ratios &Latest vs Projected Position

Comparison : Projected Ratio : better or at par or worse as compared to the latest ratio -Marks

Marks for (-)ve variance if any, from Table-II

Marksunder FP =MarksUnder (Q-R)

Weight (Wt.)

Weighted Score:(S x T)

(P) (Q) (R) (S) (T) (U)

Ratios Latest (a)

Projected (b)

Better

(2)At Par (1.0)

Worse (0)

(i) TOL/ TNW

2

(ii) ROCE 2

(iii) PBDIT/INTT.

2

(iv) PAT/Op. Income

2

(v) Current Ratio

2

Total Score (Out of 20) To be put under (Future Prospects-Projected Ratios) in the Financial Risk.

Penalties for non-performance Penalties for non-performance Ratios Variance in Performance based on last year’s figures

Lastyear’s(Proj)

Last Year’s(Act)

Negative Variance (V) & Negative Marks (M)

V M V M V M V M V M

0% to 5%

06% to

10%0.2

11% to

20%0.5

21% to 30%

0.8>30%

1.0

1. TOL/ TNW

2. ROCE

3. PBDIT/ INTT.

4. PAT/Operating Income

5. Current Ratio

NEW FINANCIAL RATIOS : REGULAR MODEL NEW FINANCIAL RATIOS : REGULAR MODEL

• New Ratios : Retained Profit/Total Assets :

{(PAT- Dividend/Drawings)/Total Assets} Net Cash Accruals/Total Debt :

{(PAT-Dividend+Depreciation)/Total Outside Liab (TOL)}

Regular Model : Financial Ratios

• Additional Parameters Regular ModelAverage Yr to Yr Growth in Net Sales in last

two quartersCalculation based on growth in sales in last

two quarters, over corresponding quarters in previous year

Marks based on following MethodologyAnother Parameter : Financial Flexibility

addedMarks based on units ability to raise funds,

value statements given in CRA circular

Financial RatiosFinancial Ratios

RATIO DEFINITION CHANGES IN CRA REGULAR

ALL RATIOS AS PER SIMPLIFIED MODEL + NEW RATIOS IN REGULAR MODEL

NEW RATIOS IN REGULAR MODEL

Retained PROFIT/TA

(PAT-Dividend/Drawings)/Total Assets


NET CASH Accruals/TOTAL DEBT

[(PAT-Dividend) + Depreciation]/TOL (Total Outside Liabilities)


Methodology for ScoringMethodology for Scoring

Average Year to Year Growth in Net Sales in Last Two Quarters (%) Methodology for Scoring

1) Take last two quarters preceding the date of risk assessment in the current year and the corresponding quarters in the previous year;

2) Calculate % growth in the last one quarter this year over the corresponding quarter of last year – this value is, say x%;

3) Repeat this process for another quarter this year over the corresponding quarter of last year- this value is say y%;

4) The average of the two numbers , i. e, (x% + y%)/2 would give the Average Year-to-Year Growth in Net Sales in last two quarters.

Value StatementsValue StatementsValue Statements (one or more than one Value Statements may be applicable : Past record/ability in raising funds through internal

sources (like sale of assets-not contributing to production) ;

Past record/ability in raising additional resources through external sources (relationship with bankers, liquidity back-ups & the like);

Past record in raising funds from capital markets; Past record of flexibility to defer its capital expenditure

in case of weakening financial positionFactors influencing Financial Flexibility Absence of litigations Appropriate Insurance Coverage Covenants & restrictions flowing from the existing loan

agreements; Continuity & contingency plans; Access to Capital Markets; Over reliance on Bank borrowings; Adverse maturity schedule for long term debt; Inability to access debt market

NEW CONCEPTS IN CRA 2008 NEW CONCEPTS IN CRA 2008

•Group Risk (Both Simp & Reg models)

Marks for Group Risk introduced Impact on the financials/reputation of

borrower Company on account of activities of associate/sister/group Company

To be judged based on impact on TNW of borrowing Company

SBIs approach to Group Company (Credit Manual)

Impact thereof on CRA

•Forex Risk (Both Simp & Reg models)

Marks based on hedging policies of forex risk

Earlier value statements, now marks

NEW CONCEPTS IN CRA 2008 (Cont)NEW CONCEPTS IN CRA 2008 (Cont)External Rating

Parameter is available in both Simplified & Regular models

Prime Ratings score highest 5 marks as bonus over and above the maximum marks

Solicited ratings from recognized External Credit Rating Agencies (ECRA)

ECRA : Domestic CRISIL, ICRA, CARE, FITCHECRA : International FITCH, MOODY’s, S&P Mapping of ECRA scores In case two or more ratings , second best

rating to be taken for CRA.Under standardized approach, the risk weight

will be lowest (20%) for best rating by ECRA (for capital adequacy)

External Credit Rating AgencyExternal Credit Rating Agency

LongTerm Ratin

g

Short Term RatingStandardis

ed Approach

Risk Weight

Additional Score Under New CRA

ModelsCARE CRISIL

FITCH

ICRA

AAA PR1+ P1+ F1+ A1+ 20% 5

AA PR1 P1 F1 A1 30% 3.5

A PR2 P2 F2 A2 50% 2

BBB PR3 P3 F3 A3 100% 1

BB & below

PR4 & PR5

P4 & P5

B, C, D

A4/A5

150% 0

NEW CONCEPTS IN CRA 2008 (Cont) NEW CONCEPTS IN CRA 2008 (Cont)

Country Risk (Both Simp & Reg models) Applicable only for units with 25% or more cash

flows/assets originating outside India. Term used is servicing of obligations, so it

translates to units with Exports/Multi Currency Balance Sheets.

Basically an assessment of political or economic risk of that (outside) country.

Country Risk Ratings are circulated periodically by IBD Head Office (the last Rating was based on SBI, FD, Kolkatta, vide their circular 70/2007-08 dated 27.07.07.

Downgradation in borrower ratings from “Medium Risk under Caution countries” onwards.

High Risk and caution, Best Possible rating SB-11 onwards, irrespective of higher borrower rating Country . xls

NEW CONCEPTS IN CRA 2008 (Cont) NEW CONCEPTS IN CRA 2008 (Cont)

•Fin Statement Quality (Both R & S models)

No marks, but to be commented upon at endA qualitative comment on quality, adequacy

and reliability of financial statements

•Risk Transition Matrix (Both R & S models)

Matrix to be given for all at the end of the rating

No marks but only to be commented in case of upgradation/deterioration in rating by more than one step

Upgradation in rating only on account of higher score in parameters other than Financial risk to be examined

Aggregate Score and Financial score to be indicated in the matrix

GENERAL GUIDELINES GENERAL GUIDELINES Entry barriers : Minimum Score of “2” under

Integrity parameter under Management Risk. Further full compliance of Environment Regulations mandatory. (Earlier Minimum scores of Track Record and Managerial competence & commitment removed and not outlined in circular)

While aggregating score, at the final borrower Rating Level 0.5 or more to be rounded off to the next number

For units engaged in both “Industrial” and “Trading” activities, rating to be done on predominant activity financed by the Bank.

For Industry Comparison, CRISINFAC or CMIE or any other published source to be taken

Wherever a parameter is not applicable/available, score to be normalized.

Business & Industry Risk/Management Risk scores driven by value statements

GENERAL GUIDELINES (Contd) GENERAL GUIDELINES (Contd)

Borrower rating is to be done annually and facility rating

alongwith borrower rating or as and when a fresh facility is

sanctioned Pricing scale for New CRA ratings will be circularized

separately Definition of PAT/Operating Income changed (Operating

Income now defined as Sales – Other Income) Score upto 0.44 to be ignored. Score of 0.5 or more to be

rounded off to the next number In case of non applicability of any parameter, the marks

scored will be excluding that parameter and also the total

marks (normalising is to be done) New CRA Rating is in co-relation to Basel-II concepts

General Guidelines General Guidelines Multiple activity - predominant activity (>60%)Industry Comparison – If data is not available score should be normalised. If parameter marks are 4 then total score with out giving any marks to that parameter are 71, then it would be accounted as 71/out of 96 Borrower Rating would not be assessed each time a new facility is sanctioned to the unit within the yearCommon securities for different facilities can be taken for any one facility or can be apportioned for different limits by the credit analystSharing of securities for the facilities should not lead to duplicating one security to other limits

Tips on Models• When any Ratio is better than the best band,

the score in the moving averages will be 2 (full marks, irrespective of downward movement in the current year)

• The Above Rule does not apply to industry comparison

• The 3 Years average is based on the latest audited year and 2 previous years preceding the latest audited year

• Rounding off has to be done only at the final stage of rating not parameter wise

• When the parameter has a width band of marks (eg. Page-67 - 8-10), the analyst has the discretion to accord the marks of the width by adopting uniform approach

Co-relation with Basel - II

Term Terminology Definition

PD Probability of Default

The probability/risk/chance of a borrower defaulting on the payment of the credit obligations.

LGD Loss Given Default

The loss suffered in the event of a default of an exposure.

EAD Exposure at Default

The amount that is exposed to the default risk.

EL Expected Loss Part of the credit loss that happens in the normal course of business due to default of exposures and the banks have to either make provisions for it or price it in the loans.

UL Unexpected Loss Part of credit loss that cannot be estimated or priced into the product and hence the banks have to provide capital for it by risk-weighting their assets.

Facility Rating

CCTL

LCCorporate

Loan

BG

Facility RatingFacility Rating would reflect the degree of severity of loss in the event of default on the obligationFacility Rating Grade will thus translate to a LGD Scale, indicating loss percentageThe present Facility Rating Grades / Scales are empirically designed to reflect LGD levelsAll facilities are expected to meet the Facility Hurdle Rate of FR-10. Reasons for not crossing this Hurdle Rate would need to be commented upon by the Credit AnalystFacility Rating is part of Regular Model

Snap shot of Facility RatingSnap shot of Facility Rating Sl. Parameter Max.

Score

(a) Risk Drivers for Loss Given Default (LGD)

(i) Current Ratio [Working Capital/ Non-Fund Based Facility (except Capex)] Or Project Debt/Equity [Term Loan/Non-Fund Based Facility (for Capex)]

6

(ii) Nature of Charge 4

(iii) Industry /(Trade- for Trading Sector) # (Not applicable for Trade & AGL) 6

(iv) Geography # (Not applicable for Trade & AGL) 2

(v) Unit Characteristics (a) Leverage/ Enforcement of Collateral-4(b) Safety, Value & Existence of Assets-4

8

(vi) Macro-Economic Conditions (a) GDP Growth Rate: Impact of Business Cycle - 2(b) Insolvency Legislation in the Jurisdiction-1(c) Impact of Systemic/Legal Factors on Recovery-1(d) Time Period for Recovery-1

5

(vii) Total Security (Primary + Collateral) 60

(b) Risk Drivers for Exposure at Default (EAD)

(i) Nature of Commitment (Revolving/Non-Revolving)

1

(ii) Credit Quality of Borrower (Marks linked to Borrower Rating Score of the Unit)

5

(iii) Tenor of Facility 3

Total Score 100

Facility Rating based on the above Score FR - ?

Regular Model – Facility RatingRegular Model – Facility RatingA Borrowing Company may be availing either one or more of Fund Based (FB) Facilities such as Working Capital (WC) /Term Loan (TL) or / and Non-Fund Based (NFB) Facilities like, Letters of Credit (L C) / Bank Guarantee (BG)All the facilities are to be rated separately viz., if a Borrowing Company has both WC & TL & two Bank Guarantee Facilities & three different L/C Facilities; in total, the Company would have 1 Borrower Rating & 7 Facility Ratings (i.e., 1+1+2 + 3 = 7)The pricing of loans, in future, will be linked to Facility Rating after building up adequate Loss Given Default (LGD) database For the present, pricing will continue to be linked to Borrower Rating only

FACILITY RATING All facilities (FB as well as NFB) are to be rated

separately. Facility rating is applicable only for regular model,

i.e. exposure > Rs 5 crores For the present pricing would continue to be linked

to borrower rating only and not facility rating “LGD” based on CRMD averages ranging from 92%

to 70% for all securities except zero for Eligible Financial collateral and Govt of India Guarantees

Hair Cuts have been included by increasing the exposure at default and reducing the security to the extent of Recovery Rate

In FR, 60% weightage given to Security Basel II does not differentiate between primary and collateral, collateral would mean primary plus collateral

6% weightage for Current Ratio (for WC & its NFB) OR Project Debt Equity (for Term loan and its related NFB)

Remaining 34% Weightage for other Basel II related factors

Loss Given DefaultLoss Given Default

S. No Collateral type LGD (%)

(i) Equitable mortgage / land 70

(ii) Stocks and Receivables 80

(iii) Fixed Assets 85

(iv) Other Current Assets 92

(v) Residual 80

Average 81

Eligible Financial Collaterals (8)Eligible Financial Collaterals (8)

1 Cash

2 Term Deposits

3 Gold

4 State & Central Govt. Securities

5 NSCs / KVIPs

6 Life Insurance Policies (Surrender Value only)

7 Debt Securities Rated by approved Rating Agencies – (Less Risk Rated)

8 Certain Units of Mutual Fund

Hair Cut on the Exposures & SecuritiesHair Cut on the Exposures & Securities Exposure at Default (EAD) for funded Exposure at Default (EAD) for funded facility is taken at 100% of the facility is taken at 100% of the outstandings and 75% of the un availed outstandings and 75% of the un availed LimitsLimitsExposure at Default (EAD) for non-Exposure at Default (EAD) for non-funded facility is taken at 100% of Limits funded facility is taken at 100% of Limits (irrespective of availment) (irrespective of availment) Hair Cut on Security is done discounting Hair Cut on Security is done discounting it at Past experience of the Bank it at Past experience of the Bank (historical), i.e., RR (Recovery Rate)(historical), i.e., RR (Recovery Rate)Hair Cut on Exposure is done by Hair Cut on Exposure is done by premiuming the EAD (Exposure at premiuming the EAD (Exposure at Default)Default)

Hair Cut on the Exposures & SecuritiesHair Cut on the Exposures & Securities S.No.

Particulars of Security

LGD( %)

RR (%)=(100-b)

Value ofColl.

EffectiveColl.cover

= (c x d)

Exp. At

Default(EAD)

Coll. to Exp.Ratio (e/f)`

Score under Collateral

(a) (b) (c) (d) (e) (f) (g) (h)

01 Eligible Financial Collateral *

0% 100% (g) x 60

02 Equitable Mortgage/Land

70% 30% (g/1.4) x 60

03 Stocks & Receivables

80% 20% 600 120 100 120/100

=1.20

(g/1.4) x 601.20/1.4x60

= 51

04 Fixed Assets 85% 15% (g/1.4) x 60

05 Other CAs 92% 8% (g/1.4) x 60

06 Residual 80% 20% (g/1.4) x 60

07 Guarantees * (g/1.4) x 60

OVERVIEW OF ALL MODELS • Trading model is also to be used for services• In Trading Model Business and Industry Risk

Parameters are combined into “Business Risk” with suitable changes in value statements

• The other major difference is change in benchmarks for scoring of financial ratios

• Facility rating is also with same Weightages for Trade model with the difference being that 6 marks for Industry Characteristics and 2 marks for Geography are not given and score out of 92 is normalised.

• Weightages and benchmark ratios for all four borrower models

• Overview of all four borrower models

Tips on Models

• Paripasu charge under consortium is treated as first specific charge only

• Second charge on any asset is treated as no charge

• While apportioning securities (other than EFCs) do not allocate more than 140% of the EAD to ensure passing on nature of charge marks to other facilities

• The Total Security marks are 60. In few cases the formula in annexure may lead to more than 60 marks, which are to be reduced to 60 only

New CRA 2008

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