Risk Management of Sbi

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RISK MANAGEMENT

Presented by:

Arpit Gupta

Anindya Majumdar

Deepak Jaiswal

Tanay Pandey


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State Bank of India-Brief History

Largest and oldest bank of India

Key numbers for fiscal year ending March, 2011:

Sales: $32,570.0M

One year growth: 9.6%

Net income: $2,462.9M

Income growth: (7.7%)

Non-banking subsidiaries

Apart from its five associate banks, SBI also has the following non-

banking subsidiaries:

SBI Capital Markets LtdSBI Funds Management Pvt Ltd

SBI Factors & Commercial Services Pvt Ltd

SBI Cards & Payments Services Pvt. Ltd. (SBICPSL)

SBI DFHI Ltd

SBI Life Insurance Co. Ltd.SBI General Insurance


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State bank Of India is expanding its Credit in the following

focus areas-

1. SBI term deposits2. SBI housing loan

3. SBI car loan

4. SBI recurring deposits

5. SBI educational loan

6. SBI personal loan

SBI play important role in economic development of a

country, like:-

1. Mobilise the small savings of the people and make them

availablefor productive purposes.

2.Promotes the habit of savings among the people offering

attractive

rates of interests on their deposits.


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OPERATIONAL RISK MANAGEMENT

Operational risk is the risk of loss resulting from

inadequate or failed internal processes, peopleand systems or from external events. This includes

legal risk but excludes strategic and reputational

risk. It is the risk remaining after determining

financing and systematic risk.Operational Risk Management is a continualcyclic process which includes risk assessment, risk

decision making, and implementation of risk

controls, which results in acceptance, mitigation, or

avoidance of risk.


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ORM

Principles of ORM:Accept risk when benefits outweigh the cost.

Accept no unnecessary risk.

Anticipate and manage risk by planning. Make risk decisions at the right level.

Levels of ORM:

In Depth Risk Management

Deliberate risk management Time Critical risk management


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OPERATIONAL RISKS FACED

Infrastructure and technology failures coveringcomputer systems, power, telecommunications, dataand physical records.

Human errors or failures through lack of resources,skills, training, policies, procedures, delegations,code of conduct, and poor management.

Dependencies on third party key service providerssuch as the central and / or commercial banks,

telecom and internet providers, and other outsourcedoperations, or resource failures from such incidentsas a pandemic.


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WHAT IS RISK

It is the potential that events expected or unexpected , may have an

adverse effect on a financial institutions capital and earning .


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KEY BANKING RISK

Credit Risk Market Risk

Liquidity Risk

Forex Risk

Interest Risk


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CREDIT RISK

Credit risk is the potential loss due to the

nonperformance of a financial contract, or financial

aspects of nonperformance in any contract.

Counter party risk

Bonds issued by corporations are more likely

to be defaulted on, since companies often

go bankrupt .


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CREDIT RISK BASICS

A credit risk is the risk of loss that may occur from

the failure of the counter party to make payments.

Reduction in the ability of counter-party to makepayments.

Credit risk may be on account of :-

Default Risk

Obligor cannot service debt obligations.

Spread Risk

Because of change in the credit quality of the obligor.


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BROAD PRINCIPLES OF CREDIT RISK

MANAGEMENT IN BANKS.

Basel committee on banking supervision hasissued broad guidelines for best practices incredit management.

Establishing an appropriate credit riskenvironment .

Operating under a sound credit grantingprocess .

Ensuring adequate controls over credit risk.

Role of bank supervisors in ensuring that bankshave a effective system in place to identifymeasure monitor and control credit risk.


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CONTRIBUTORS TO CREDIT RISK

Credit Corporate assets .

Retail assets.

Trading book and Banking book.

Inter bank transactions.Settlements.


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LENDING POLICIES OF SBI

1. Home Loan Interest Rates.

Base Rates :- 9.75%

Loan upto Rs. 30 Lacs @ 10% p.a.

Loan above Rs. 30 lacs @ 10.15% p.a.


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2.EDUCATION LOAN INTEREST

RATES

FOR LOANS UPTO RS.4 LACS

3.50% ABOVE BASE RATE, CURRENTLY 13.25% P.A.

ABOVE RS.4 LACS AND UPTO RS.7.50 LACS3.25% ABOVE BASE RATE, CURRENTLY 13.00% P.A.

ABOVE RS.7.50 LACS

2.00% ABOVE BASE RATE, CURRENTLY 11.75% P.A.


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3. SBI-CAR LOAN

Loan Against-Shares/ Debentures /Bonds

Equity Plus Scheme

6.50% above Base Rate, currently 16.25% p.a.

Tenure Rate of Interest

For all tenure 0.75% above Base Rate, i.e.

10.50% p.a.

For all tenures (For NRI) 0.75% above Base Rate, i.e.

10.50% p.a

Up to 3 years 8.25% above Base Rate i.e.18.00% p.a.


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COMPOSITION OF RETAIL BANKING

LOANS- 2012

7%

13%

26%

54%

Educion Loans

Auto Loans

others

home Loans


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GROWTH IN LENDING FOR Q1-2012

21.3

39.93

3.57

20.37

Jun-12

Educaion LoansAuto Loans

Others

Home Loans


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LIQUIDITY RISK

Liquidity Risk arises from funding of longterm assets by short term liabilities,

thereby making the liabilities subject to

rollover or refinancing risk.

It refers to the inability of the bank to

obtain funds to meet cash flow obligation.

There are three dimensions of liquidity risk*Funding Risk

*Time Risk

*Call Risk


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INDICATORS

Internal indicators Higher rate of interest on

deposits.

Deteriorating asset quality.

Large contingent liability.

Net deposit drain

Increased cost of borrowings.

Excessive concentrations on

certain assets and funding

sources.

Market indicators Credit rating downgrades.

Gradual but persistent fall in the

share price of the bank.

Reduction in available credit linesfrom correspondent banks.

Increasing trend of deposit

withdrawals.


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LIQUIDITY RISK MANAGEMENT

The liquidity risk management is vital for smooth functioning

of the bank. It must reflect the daily strategy and long term

liquidity plans, and have as its major components:

* The measurement of liquidity positions* Monitoring liquidity

* Contingency planning.It involves making a structure for managing liquidity risk,

setting up tolerance limit and making proper plans formeasuring and managing liquidity risk. There are some

ratios which helps in judging the liquidity positions of a bank.


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RATIOS

Loan to total deposit

Time deposit to total deposit

Liquid assets to total assets

2007 2008 2009 2010 2011

55.14 68.84 77.46 77.55 73.11

2007 2008 2009 2010 2011

58.72 52.45 51.52 53.04 58.36

2007 2008 2009 2010 2011

8.55 9.02 9.17 9.35 10.83


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CONTD.

Deposit to total assets

Prime assets to total assets

2007 2008 2009 2010 2011

76.87 74.48 74.94 73.88 75.97

2007 2008 2009 2010 20114.79 4.51 6.06 7.66 8.53


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Non performance loans to loans

Risk adjusted margin

Total loan loss provisions to loans

2007 2008 2009 2010 2011

6.15 3.97 2.96 3.08 2.87

2007 2008 2009 2010 2011

4.32 4.63 3.60 3.29 3.22

2007 2008 2009 2010 2011

0.59 0.60 0.42 0.48 0.46


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SBIS LIQUIDITY RISK MANAGEMENT

Risk Management committee of the board

(RMCB) oversees the policy and strategy

for integrated risk management relating to

various risk exposures including marketliquidity risk.

The Bank monitors its liquidity position

through a structural liquidity gap analysiscarried out fortnightly in accordance with

RBI guidelines on asset liability

management.


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CONTD.

RBI has asked banks to manage their asset-

liability structure such that the negative

liquidity gap in the periods of 1-14 and 15-28

days does not exceed 20% of cash outflow inthese same periods.

Prepare the statement of structural liquidity

on a daily basis . The statement of structuralliquidity is reported to RBI once a month.


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BASEL II NORMS

The SBI and its associate will require around

Rs.1 lakh crore of capital over the next five

years to meet basel III norms.

CAR of SBI was less than 9% in 2011.

Capital adequacy ratio mandates setting

aside a certain percentage of capital for

every rupee lent. Last year ,infusion of Rs.8000 crore was

made.


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Banking is an art of

striking a balance betweenrisk and revenue

[Swiss Banking Corporations Credit Manual]


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Thank You.

Risk Management of Sbi

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