CAIIB ABM Unit 32 - Risk Management and Credit Rating

Credit Risk Monitoring

1. Operational risk : frauds/disruption of business due to natural calamities
2. Market risk : adverse market movement of interest rates, exchange rates
3. Credit risk : unwilling /inability to repay
4. External factors : exchange/intt rate changes, govt policies, political risks
5. Internal factors : overexposure to sector, low quality appraisal, monitoring,
6. Lack of efficient recovery machinery

Risk mitigation

1. Macro level : review/fixing internal limits for commitments, loan/compr/ rehab policies
2. Micro level : appraisal standards, sanctioning powers, credit ratings, scores,
3. Credit rating : risk measured : decision to lend, pricing, portfolio evaluation
4. Credit rating : management, securities available, financial aspects, business/project risks
5. Credit default : inability/unwillingness to meet commitments of repayment of interest /principal, BG/LC, trading settlements
6. NPAs : Sub-standard, Doubtful, Loss

Wilful Default

1. Default even though the borrower has capacity to repay
2. Diversion of funds / siphoning of funds
3. Disposal of securities
4. Options available for stressed assets:
5. Exit, rescheduling/restructuring, rehabilitation, compromise, legal action, write off

CDR Mechanism

1. CDR Mechanism: for consortium/multiple banking, outstanding more than Rs.10 cr
2. CDR standing forum: formulates policy
3. CDR core group carved out of forum to assist standing forum in decisions relating to policy
4. CDR empowered group decides the cases