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Submitted by:
KAILASH SINGH BISHT
EN.NO.: _______________
BATCH – 2017-2020
1|Page
Faculty of Management and Business Studies
Shri Guru Ram Rai University
Dehradun
CANDIDATE’S DECLARATION
I, KAILASH SINGH BISHT hereby declare that the Summer Training Report, entitled
Studies, Shri Guru Ram Rai University, and it has not formed the basis for the award of any
Degree/Fellowship or other similar title to any candidate of any University/Institution.
This is to certify that the statement made by the candidate is true to the best of my knowledge and belief.
Signature of Guide
Countersigned
Dean
2|Page
ACKNOWLEDGEMENT
I wish to extend my sincere gratitude to my project guide DR. SONIYA GAMBHIR , Asst. Professor,
Department of Management and Mr. DEEPAK SAHANI, HOD, Management department for their
valuable guidance and encouragement which has been absolutely helpful in successful completion of this
project. I am also grateful to my parents and friends for their timely aid without which I wouldn’t have
finished my project successfully. I extend my thanks to all my well wishers and all those who have
contributed directly and indirectly for the completion of this work.
And last but not the least, I thank God Almighty for his blessings without which the completion of this
project would not have been possible.
Submitted By:
BBA (FINANCE)
3|Page
DECLARATION
I KAILASH SINGH BISHT do hereby declare that this project work entitled
I also declare that this report has not been submitted by me fully or partially for the award of any degree,
diploma, title, recognition or any other fellowship of any other university before.
Place: Dehradun
Date:
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INDEX
TABLE OF CONTENTS
5|Page
Organization Structure
4. CHAPTER 3: 29-31
RESEARCH DESIGN & METHODOLOGY
Objective
Literature Review
Scope of the Study
Methodology
Limitations
5. CHAPTER 4: 32-58
STUDY AND ANALYSIS OF DATA
The Terms
Standard Approach
Proposed Risk weight table
Competitors Details
6. CHAPTER 5: 59-62
SUMMARY & CONCLUSION
Findings
Conclusion
Recommendation
7. BIBLOGRAPHY 63-64
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LIST OF TABLES
LIST OF CHARTS
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ACKNOWLEDGEMENT
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CHAPTER-1
BANKING INDUSTRY
OVERVIEW
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INDUSTRY OVERVIEW :-
History:
Banking in India has its origin as carry as the Vedic period. It is believed that the transition from
money lending to banking must have occurred even before Manu, the great Hindu jurist, who has
devoted a section of his work to deposits and advances and laid down rules relating to the
interest. During the mogal period, the indigenous bankers played a very important role in lending
money and financing foreign trade and commerce. During the days of East India Company, it
was to turn of the agency houses top carry on the banking business. The general bank of India
was the first joint stock bank to be established in the year 1786.The others which followed were
the Bank of Hindustan and the Bengal Bank. The Bank of Hindustan is reported to have
continued till 1906, while the other two failed in the meantime. In the first half of the 19 th
Century the East India Company established three banks; The Bank of Bengal in 1809, The Bank
of Bombay in 1840 and The Bank of Madras in 1843.These three banks also known as
presidency banks and were independent units and functioned well. These three banks were
amalgamated in 1920 and The Imperial Bank of India was established on the 27 th Jan 1921, with
the passing of the SBI Act in 1955, the undertaking of The Imperial Bank of India was taken over
by the newly constituted SBI. The Reserve Bank which is the Central Bank was created in 1935
by passing of RBI Act 1934, in the wake of swadeshi movement, a number of banks with Indian
Management were established in the country namely Punjab National Bank Ltd, Bank of India
Ltd, Canara Bank Ltd, Indian Bank Ltd, The Bank of Baroda Ltd, The Central Bank of India
Ltd .On July 19th 1969, 14 Major Banks of the country were nationalized and in 15 th April 1980
six more commercial private sector banks were also taken over by the government. The Indian
Banking industry, which is governed by the Banking Regulation Act of India 1949, can be
broadly classified into two major categories, non-scheduled banks and scheduled banks.
Scheduled Banks comprise commercial banks and the co-operative banks.
The first phase of financial reforms resulted in the nationalization of 14 major banks in 1969 and
resulted in a shift from class banking to mass banking. This in turn resulted in the significant
growth in the geographical coverage of banks. Every bank had to earmark a min percentage of
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their loan portfolio to sectors identified as “priority sectors” the manufacturing sector also grew
during the 1970’s in protected environments and the banking sector was a critical source. The
next wave of reforms saw the nationalization of 6 more commercial banks in 1980 since then the
number of scheduled commercial banks increased four- fold and the number of bank branches
increased to eight fold.
After the second phase of financial sector reforms and liberalization of the sector in the early
nineties. The PSB’s found it extremely difficult to complete with the new private sector banks
and the foreign banks. The new private sector first made their appearance after the guidelines
permitting them were issued in January 1993.
Banking in our country is already witnessing the sea changes as the banking sector seeks new
technology and its applications. The best port is that the benefits are beginning to reach the
masses. Earlier this domain was the preserve of very few organizations. Foreign banks with
heavy investments in technology started giving some “Out of the world” customer services. But,
such services were available only to selected few- the very large account holders. Then came the
liberalization and with it a multitude of private banks, a large segment of the urban population
now requires minimal time and space for its banking needs.
Automated teller machines or popularly known as ATM are the three alphabets that have changed
the concept of banking like nothing before. Instead of tellers handling your own cash, today there
are efficient machines that don’t talk but just dispense cash. Under the Reserve Bank of India Act
1934, banks are classified as scheduled banks and non-scheduled banks. The scheduled banks are
those, which are entered in the Second Schedule of RBI Act, 1934.
Such banks are those, which have paid- up capital and reserves of an aggregate value of not less
then Rs.5 lacs and which satisfy RBI that their affairs are carried out in the interest of their
depositors. All commercial banks Indian and Foreign, regional rural banks and state co-operative
banks are Scheduled banks. Non Scheduled banks are those, which have not been included in the
Second Schedule of the RBI Act, 1934.
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The organized banking system in India can be broadly classified into three categories: (i)
Commercial Banks (ii) Regional Rural Banks and (iii) Co-operative banks. The Reserve Bank of
India is the supreme monetary and banking authority in the country and has the responsibility to
control the banking system in the country. It keeps the reserves of all commercial banks and
hence is known as the “Reserve Bank”.
Banks mobilise the small savings of the people and make them available for productive
purposes.
Promotes the habit of savings among the people thereby offering attractive rates of interests
on their deposits.
Provides safety and security to the surplus money of the depositors and as well provides a
convenient and economical method of payment.
Banks provide convenient means of transfer of fund from one place to another.
Helps the movement of capital from regions where it is not very useful to regions where it
can be more useful.
Banks advances exposure in trade and commerce, industry and agriculture by knowing their
financial requirements and prospects.
Bank acts as an intermediary between the depositors and the investors. Bank also acts as
mediator between exporter and importer who does foreign trades.
Thus Indian banking has come from a long way from being a sleepy business institution to a
highly pro-active and dynamic entity. This transformation has been largely brought about by the
large dose of liberalization and economic reforms that allowed banks to explore new business
opportunities rather than generating revenues from conventional streams (i.e. borrowing and
lending). The banking in India is highly fragmented with 30 banking units contributing to almost
50% of deposits and 60% of advances.
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The Structure of Indian Banking:
The Indian banking industry has Reserve Bank of India as its Regulatory Authority. This is a mix
of the Public sector, Private sector, Co-operative banks and foreign banks. The private sector
banks are again split into old banks and new banks.
Scheduled Banks
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Chart Showing Three Different Sectors of Banks
i) Public Sector Banks
State Bank of India (SBI) is the largest bank in India. If one measures by the number of branch
offices and employees, SBI is the largest bank in the world. Established in 1806as Bank of
Bengal it is the oldest commercial bank in the Indian subcontinent. SBI provides various
domestic, international and NRI products and services, through its vast network in India and
overseas. With an asset base of $126 billion and its reach, it is a regional banking behemoth. The
government nationalized the bank in1955, with the Reserve bank of India taking a 60%
ownership stake. In recent years the bank has focused on two priorities, 1), reducing its huge
staff through Golden handshakes chimes known as the Voluntary Retirement Scheme, which saw
many of its best and brightests defect to the private sector, and 2), computerizing its operations.
The State Bank of India traaces its roots to the first decade of19th century, when the Bank of
culcutta, later renamed the Bank of bengal, was established on 2 jun 1806. The government
amalgamated Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay and
the bank of Madras, and named the reorganized banking entity the Imperial Bank of India. All
14 | P a g e
these Presidency banks were incorporated as companies, and were the result of the royal charters.
The Imperial Bank of India continued to remain a joint stock company. Until the establishment
of a central bank in India the Imperial Bank and its early predecessors served as the nation's
central bank printing currency.
The State Bank of India Act 1955, enacted by the parliament of India, authorized the Reserve
Bank of India, which is the central Banking Organization of India, to acquire a controlling
interest in the Imperial Bank of India, which was renamed the State Bank of India on30th April
1955.
In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It
is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating
and various other rankings. According to the Forbes 2000 listing it tops all Indian companies.
Nationalized banks
This group consists of private sector banks that were nationalized. The Government of India
nationalized 14 private banks in 1969 and another 6 in the year 1980. In early 1993, there were
28 nationalized banks i.e., SBI and its 7 subsidiaries plus 20 nationalized banks. In 1993, the loss
making new bank of India was merged with profit making Punjab National Bank. Hence, now
only 27 nationalized banks exist in India.
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Sector Banks Sector Banks
These banks were started as profit orient companies after the RBI opened the banking sector to
the private sector. These banks are mostly technology driven and better managed than other
banks.
Foreign banks
These are the banks that were registered outside India and had originated in a foreign country.
The major participants of the Indian financial system are the commercial banks, the financial
institutions (FIs), encompassing term-lending institutions, investment institutions, specialized
financial institutions and the state-level development banks, Non-Bank Financial Companies
(NBFCs) and other market intermediaries such as the stock brokers and money-lenders. The
commercial banks and certain variants of NBFCs are among the oldest of the market
participants. The FIs, on the other hand, are relatively new entities in the financial market place.
In the recent times when the service industry is attaining greater importance compared to
manufacturing industry, banking has evolved as a prime sector providing financial services to
growing needs of the economy.
Banking industry has undergone a paradigm shift from providing ordinary banking services in
the past to providing such complicated and crucial services like, merchant banking, housing
finance, bill discounting etc. This sector has become more active with the entry of new players
like private and foreign banks. It has also evolved as a prime builder of the economy by
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understanding the needs of the same and encouraging the development by way of giving loans,
providing infrastructure facilities and financing activities for the promotion of entrepreneurs and
other business establishments.
For a fast developing economy like ours, presence of a sound financial system to mobilize and
allocate savings of the public towards productive activities is necessary. Commercial banks play
a crucial role in this regard.
The Banking sector in recent years has incorporated new products in their businesses, which are
helpful for growth. The banks have started to provide fee-based services like, treasury
operations, managing derivatives, options and futures, acting as bankers to the industry during
the public offering, providing consultancy services, acting as an intermediary between two-
business entities etc. At the same time, the banks are reaching out to other end of customer
requirements like, insurance premium payment, tax payment etc. It has changed itself from
transaction type of banking into relationship banking, where you find friendly and quick service
suited to your needs. This is possible with understanding the customer needs their value to the
bank, etc. This is possible with the help of well organized staff, computer based network for
speedy transactions, products like credit card, debit card, health card, ATM etc. These are the
present trend of services. The customers at present ask for convenience of banking transactions,
like 24 hours banking, where they want to utilize the services whenever there is a need. The
relationship banking plays a major and important role in growth, because the customers now
have enough number of opportunities, and they choose according to their satisfaction of
responses and recognition they get. So the banks have to play cautiously, else they may lose out
the place in the market due to competition, where slightest of opportunities are captured fast.
Another major role played by banks is in transnational business, transactions and networking.
Many leading Indian banks have spread out their network to other countries, which help in
currency transfer and earn exchange over it.
These banks play a major role in commercial import and export business, between parties of two
countries. This foreign presence also helps in bringing in the international standards of
operations and ideas. The liberalization policy of 1991 has allowed many foreign banks to enter
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the Indian market and establish their business. This has helped large amount of foreign capital
inflow & increase our Foreign exchange reserve.
Another emerging change happening all over the banking industry is consolidation through
mergers and acquisitions. This helps the banks in strengthening their empire and expanding their
network of business in terms of volume and effectiveness.
The Indian banking system has passed through three distinct phases from the time of inception.
The first was being the era of character banking, where you were recognized as a credible
depositor or borrower of the system. This era come to an end in the sixties. The second phase
was the social banking. Nowhere in the democratic developed world, was banking or the service
industry nationalized. But this was practiced in India. Those were the days when bankers has no
clue whatsoever as to how to determine the scale of finance to industry. The third era of banking
which is in existence today is called the era of Prudential Banking. The main focus of this phase
is on prudential norms accepted internationally.
Banking in India
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Merchantile Bank Ltd., United Western Bank, UTI Bank, YES
Bank.
CHAPTER-2
INTRODUCTION
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INTRODUCTION:-
Credit risk is defined as the potential that a bank borrower or counterparty will fail to meet its
obligations in accordance with agreed terms, or in other words it is defined as the risk that a
firm’s customer and the parties to which it has lent money will fail to make promised payments
is known as credit risk.
The exposure to the credit risks large in case of financial institutions, such commercial banks
when firms borrow money they in turn expose lenders to credit risk, the risk that the firm will
default on its promised payments. As a consequence, borrowing exposes the firm owners to the
risk that firm will be unable to pay its debt and thus be forced to bankruptcy.
The most obvious risk derivatives participants’ face is credit risk. Credit risk is the risk to
earnings or capital of an obligor’s failure to meet the terms of any contract the bank or otherwise
to perform as agreed. For both purchasers and sellers of protection, credit derivatives should be
fully incorporated within credit risk management process. Bank management should integrate
credit derivatives activity in their credit underwriting and administration policies, and their
exposure measurement, limit setting, and risk rating/classification processes. They should also
consider credit derivatives activity in their assessment of the adequacy of the allowance for loan
and lease losses (ALLL) and their evaluation of concentrations of credit.
There a number of credit risks for both sellers and buyers of credit protection, each of which
raises separate risk management issues. For banks and financial institutions selling credit
protection the primary source of credit is the reference asset or entity.
For banks and financial institutions selling credit protection through a credit derivative,
management should complete a financial analysis of both reference obligor(s) and the
counterparty (in both default swaps and TRSs), establish separate credit limits for each, and
assign appropriate risk rating. The analysis of the reference obligor should include the same level
of scrutiny that a traditional commercial borrower would receive. Documentation in the credit
file should support the purpose of the transaction and credit worthiness of the reference obligor.
Documentation should be sufficient to support the reference obligor. Documentation should be
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sufficient to support the reference obligor’s risk rating. It is especially important for banks and
financial institutions to use rigorous due diligence procedure in originating credit exposure via
credit derivative. Banks and financial institutions should not allow the ease with which they can
originate credit
Exposure in the capital markets via derivatives to lead to lax underwriting standards, or to
assume exposures indirectly that they would not originate directly.
For banks and financial institutions purchasing credit protection through a credit derivative,
management should review the creditworthiness of the counterparty, establish a credit limit, and
assign a risk rating. The credit analysis of the counterparty should be consistent with that
conducted for other borrowers or trading counterparties. Management should continue to monitor
the credit quality of the underlying credits hedged. Although the credit derivatives may provide
default protection, in many instances the bank will retain the underlying credits after settlement
or maturity of the credit derivatives. In the event the credit quality deteriorates, as legal owner of
the asset, management must take actions necessary to improve the credit.
Banks and financial institutions should measure credit exposures arising from credit derivatives
transactions and aggregate with other credit exposures to reference entities and counterparties.
These transactions can create highly customized exposures and the level of risk/protection can
vary significantly between transactions. Measurement should document and support their
exposures measurement methodology and underlying assumptions.
The cost of protection, however, should reflect the probability of benefiting from this basis risk.
More generally, unless all the terms of the credit derivatives match those of the underlying
exposure, some basis risk will exist, creating an exposure for the terms and conditions of
protection agreements to ensure that the contract provides the protection desired, and that the
hedger has identified sources of basis risk.
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Theoretical Background of Credit Risk management:-
Credit:-
The word ‘credit’ comes from the Latin word ‘credere’, meaning ‘trust’. When sellers transfer
his wealth to a buyer who has agreed to pay later, there is a clear implication of trust that the
payment will be made at the agreed date. The credit period and the amount of credit depend upon
the degree of trust.
Credit is an essential marketing tool. It bears a cost, the cost of the seller having to borrow until
the customers payment arrives. Ideally, that cost is the price but, as most customers pay later than
agreed, the extra unplanned cost erodes the planned net profit.
Risk:-
Risk is defined as uncertain resulting in adverse out come, adverse in relation to planned
objective or expectation. It is very difficult o find a risk free investment. An important input to
risk management is risk assessment. Many public bodies such as advisory committees concerned
with risk management.
Market risk
Credit Risk
Operational risk
Risk analysis and allocation is central to the design of any project finance, risk management is of
paramount concern. Thus quantifying risk along with profit projections is usually the first step in
gauging the feasibility of the project. Once risk have been identified they can be allocated to
participants and appropriate mechanisms put in place.
Credit Risk:-
The most obvious risk derivatives participants’ face is credit risk. Credit risk is the risk to
earnings or capital of an obligor’s failure to meet the terms of any contract the bank or otherwise
to perform as agreed. For both purchasers and sellers of protection, credit derivatives should be
fully incorporated within credit risk management process. Bank management should integrate
22 | P a g e
credit derivatives activity in their credit underwriting and administration policies, and their
exposure measurement, limit setting, and risk rating/classification processes. They should also
consider credit derivatives activity in their assessment of the adequacy of the allowance for loan
and lease losses (ALLL) and their evaluation of concentrations of credit.
This group comprises of the State Bank of India and its seven subsidiaries viz., State Bank of
Patiala, State Bank of Hyderabad, State Bank of Travancore, State Bank of Bikaner and Jaipur,
State Bank of Mysore, State Bank of Saurashtra, State Bank of India
State Bank of India (SBI) is the largest bank in India. If one measures by the number of branch
offices and employees, SBI is the largest bank in the world. Established in 1806as Bank of
Bengal it is the oldest commercial bank in the Indian subcontinent. SBI provides various
domestic, international and NRI products and services, through its vast network in India and
overseas. With an asset base of $126 billion and its reach, it is a regional banking behemoth. The
government nationalized the bank in1955, with the Reserve bank of India taking a 60%
ownership stake. In recent years the bank has focused on two priorities, 1), reducing its huge
23 | P a g e
staff through Golden handshake schemes known as the Voluntary Retirement Scheme, which saw
many of its best and brightest defects to the private sector, and 2), computerizing its operations.
The State Bank of India traces its roots to the first decade of 19th century, when the Bank of
Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The government
amalgamated Bank of Bengal and two other Presidency banks, namely, the Bank of Bombay and
the bank of Madras, and named the reorganized banking entity the Imperial Bank of India. All
these Presidency banks were incorporated as companies, and were the result of the royal charters.
The Imperial Bank of India continued to remain a joint stock company. Until the establishment
of a central bank in India the Imperial Bank and its early predecessors served as the nation's
central bank printing currency.
The State Bank of India Act 1955, enacted by the parliament of India, authorized the Reserve
Bank of India, which is the central Banking Organization of India, to acquire a controlling
interest in the Imperial Bank of India, which was renamed the State Bank of India on30th April
1955.
In recent years, the bank has sought to expand its overseas operations by buying foreign banks. It
is the only Indian bank to feature in the top 100 world banks in the Fortune Global 500 rating
and various other rankings. According to the Forbes 2000 listing it tops all Indian companies.
Not only many financial institution in the world today can claim the antiquity and majesty of the
State Bank Of India founded nearly two centuries ago with primarily intent of imparting stability
to the money market, the bank from its inception mobilized funds for supporting both the public
credit of the companies governments in the three presidencies of British India and the private
credit of the European and India merchants from about 1860s when the Indian economy book a
significant leap forward under the impulse of quickened world communications and ingenious
method of industrial and agricultural production the Bank became intimately in valued in the
financing of practically and mining activity of the Sub- Continent Although large European and
Indian merchants and manufacturers were undoubtedly thee principal beneficiaries, the small
24 | P a g e
man never ignored loans as low as Rs.100 were disbursed in agricultural districts against glad
ornaments. Added to these the bank till the creation of the Reserve Bank in 1935 carried out
numerous Central – Banking functions.
Adaptation world and the needs of the hour has been one of the strengths of the Bank, in the post
depression exe. For instance – when business opportunities become extremely restricted, rules
laid down in the book of instructions were relined to ensure that good business did not go post.
Yet seldom did the bank contravene its value as depart from sound banking principles to retain as
expand its business. An innovative array of office, unknown to the world then, was devised in the
form of branches, sub branches, treasury pay office, pay office, sub pay office and out students to
exploit the opportunities of an expanding economy. New business strategy was also evaded way
back in 1937 to render the best banking service through prompt and courteous attention to
customers.
Financial status consistent maintenance of the lofty traditions if banking an observation of a high
standard of integrity in its operations helped the bank gains a pre- eminent status. No wonders
the administration for the bank was universal as key functionaries of India successive finance
minister of independent India Resource Bank of governors and representatives of chamber of
commercial showered economics on it.
Modern day management techniques were also very much evident in the good old days years
before corporate governance had become a puzzled the banks bound functioned with a high
degree of responsibility and concerns for the shareholders. Unbroken records of profits and a
fairly high rate of profit and fairly high rate of dividend all through ensured satisfaction,
prudential management and asset liability management not only protected the interests of the
Bank but also ensured that the obligations to customers were not met. The traditions of the past
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continued to be upheld even to this day as the State Bank years itself to meet the emerging
challenges of the millennium.
ABOUT LOGO:-
T
HE
PLACE
TO
SHARE
THE
NEWS ...……
Togetherness is the theme of this corporate loge of SBI where the world of banking services meet
the ever changing customers needs and establishes a link that is like a circle, it indicates
complete services towards customers. The logo also denotes a bank that it has prepared to do
anything to go to any lengths, for customers.
The blue pointer represent the philosophy of the bank that is always looking for the growth and
newer, more challenging, more promising direction. The key hole indicates safety and security.
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Vision Statement:-
Values:-
ORGANISATION STRUCTURE:-
MANAGING DIRECTOR
Zonal officers
Functional Heads
Regional officers
CHAPTER-3
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RESEARCH DESIGN
& METHODOLOGY
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OBJECTIVES:-
1. To Study the complete structure and history of State Bank Of India.
2. To know the different methods available for credit rating and understanding the credit
rating procedure used in State Bank of India.
3. To gain insights into the credit risk management activities of the State Bank of India.
4. To know the RBI Guidelines regarding credit rating and risk analysis.
5. Studying the credit policy adopted Comparative analyses of Public sector and private
sector.
LITRATURE REVIEW
Background Of Project Topic:-
Credit risk is defined as the potential that a bank borrower or counterparty will fail to meet its
obligations in accordance with agreed terms, or in other words it is defined as the risk that a
firm’s customer and the parties to which it has lent money will fail to make promised payments
is known as credit risk.The exposure to the credit risks large in case of financial institutions, such
commercial banks when firms borrow money they in turn expose lenders to credit risk, the risk
that the firm will default on its promised payments. As a consequence, borrowing exposes the
firm owners to the risk that firm will be unable to pay its debt and thus be forced to bankruptcy.
The project helps in understanding the clear meaning of credit Risk Management in State Bank
of India. It explains about the credit risk scoring and Rating of the Bank. And also Study of
comparative study of Credit Policy with that of its competitor helps in understanding the fair
credit policy of the Bank and Credit Recovery management of the Banks and also its key
competitors.
30 | P a g e
SCOPE OF STUDY:-
To Study the Credit risk management of banks credit money as well as customers money.
METHODOLOGY:-
Database:- A study will be based on the data which are to be collected from the bank
officials as well as from bank website.
-Primary data
-Secondary data.
For my project I used both the data primary as well as secondary but
secondary data is used more in my report.
For my project, primary data collection method will be collected through personal interview
by direct contact method. The method which was adopted to collect the information is ‘Personal
Interview’ method.
I decided on secondary data collection method was used by referring to various websites,
books, magazines, journals and daily newspapers for collection information regarding project
under study.
LIMITATIONS:-
1. The time constraint was a limiting factor, as more in depth analysis could not be carried.
2. Some of the information is of confidential in nature that could not be divulged for the
study.
3. Employees were not co operative.
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CHAPTER-4
STUDY AND
ANALYSIS OF DATA
THE TERMS
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Credit Risk is inability or unwillingness of customer or counter party to meet commitments è
Default/ Willful default
Treatment of advances
Major Categories:
Governments
Banks
Corporate
Retail
Two Approaches
Internal Ratings Based Approach (in future – to be notified by RBI later) –not to be
covered now
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Standardised Approach
The standardized approach is conceptually the same as the present accord, but is more
risk sensitive. The bank allocates risk to each of its assets and off balance sheet positions and
produces a sum of risk weighted asset values. A risk weight of 100% means that an exposure is
included in the calculation of risk weighted assets value, which translates into a capital charge
equal to 9% of that value. Individual risk weight currently depends on the broad category of
borrower (i.e sovereign, banks or corporate). Under the new accord the risk weights are to be
refined by reference rating provided by an external credit assessment institution (such as rating
agency) that meets strict demands.
Credit Risk
Foundation Advanced
IRB IRB
34 | P a g e
PROPOSED RISK WEIGHT TABLE
Central Bank)
Claims on Banks
Corporate 20%
Option 2b = Risk Weight based on assessment of individual banks with claims of original
maturity of less than 6 months.
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Simple approach similar to Basel I
Risk weight for each balance sheet & off balance sheet item. That is, FB & NFB, both.
Risk weight for Corporate - according to external rating by agencies approved by RBI
and registered with SEBI
Risk weight for unutilized limits = (Limit- outstanding) >0 è Importance of reporting
limit data correctly (If a limit of Rs.10 lacs is reported in Limit field as Rs.100 lacs, even
with full utilisation of actual limit, Rs. 90 lacs will be shown as unutilised limit, and
capital allocated against such fictitious data at prescribed rates).
Risk weights:
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NPAs with provisions <20% è 150%
Credit Conversion Factors (CCFs) to be applied on off balance sheet items [NFB] &
unutilised limits before applying risk weights.
From 1.4.2009, unrated exposure more than Rs 10 crores will attract a Risk Weight of 150%
For 2008-2009 (wef 1.4.2008), unrated exposure more than Rs 50 crores will attract a Risk
Weight of 150%
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Standardized Approach – Short Term
Cash
Gold
Life Policies
38 | P a g e
Size = EL
Size of
of Expected
Expected Loss
Loss “Expected
“Expected Loss“
Loss“
=
1.
1. What
What is
is the
the probability
probability Probability
Probability of
of Default
Default PD
of
of aa =
(Frequency)
(Frequency)
default
default (NPA)?
(NPA)? X
2.
2. How
How much
much will
will be
be the
the likely
likely EaD
Exposure
Exposure at
at Default
Default =
exposure
exposure in
in the
the case
case the
the advance
advance X
becomes = LGD
becomes NPA?
NPA?
3.
3. How
How much
much of
of that
that exposure
exposure
Loss Given Default
is
is the
the bank
bank going
going to
to lose?
lose?
For Exposures with a contractual maturity of less than or equal to one year (except
Cash Credit, Overdraft and other Revolving Credits) Short-term Ratings given by
ECAIs will be applicable.
For Domestic Cash Credit, Overdraft and other Revolving Credits irrespective of the
period and Term Loan exposures of over 1 year, Long Term Ratings given by ECAIs
will be applicable.
For Overseas exposures, irrespective of the contractual maturity, Long Term Ratings
given by IRAs will be applicable.
Rating assigned to one particular entity within a corporate group cannot be used to
risk weight other entities within the same group.
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COMPETITORS DETAILS
In Dharwad Main competitors of State Bank of India are ICICI Bank in private sector
banks and Syndicate Bank and Corporation Bank In public sector.
BANK LENDING IN Cr
ICICI bank 15
HDFC 5
UTI 25
Chart 1:-
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Table 2:- (PUBLIC SECTOR BANKS )
BANK LENDING IN Cr
Syndicate Bank 26
Canara Bank 23
Corporation Bank 25
Chart 2:-
In total lending, State Bank Of India is in first place relatively in Public Sector Banks.
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Where guarantees are direct, explicit, irrevocable and unconditional banks may take
account of such credit protection in calculating capital requirements.
A range of guarantors are recognized. As under the 1988 Accord, a substitution approach
will be applied. Thus only guarantees issued by entities with a lower risk weight than the
counterparty will lead to reduced capital charges since the protected portion of the
counterparty exposure is assigned the risk weight of the guarantor, whereas the uncovered
portion retains the risk weight of the underlying counterparty.
Detailed operational requirements for guarantees eligible for being treated as a CRM are
as under:
Operational requirements for guarantees:
In addition to the legal certainty requirements in paragraphs 7.2 above, in order for a guarantee to
be recognized, the following conditions must be satisfied:
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(i) On the qualifying default/non-payment of the counterparty, the bank is able in a
timely manner to pursue the guarantor for any monies outstanding under the
documentation governing the transaction. The guarantor may make one lump sum
payment of all monies under such documentation to the bank, or the guarantor may
assume the future payment obligations of the counterparty covered by the guarantee.
The bank must have the right to receive any such payments from the guarantor
without first having to take legal actions in order to pursue the counterparty for
payment.
(ii) The guarantee is an explicitly documented obligation assumed by the guarantor.
(iii) Except as noted in the following sentence, the guarantee covers all types of
payments the underlying obligor is expected to make under the documentation
governing the transaction, for example notional amount, margin payments etc. Where
a guarantee covers payment of principal only, interests and other uncovered
payments.
Qualitative Disclosures
(a) The general qualitative disclosure requirement (paragraph 10.13 ) with respect to credit
risk, including:
Quantitative Disclosures
(b) Total gross credit risk exposures24, Fund based and Non-fund based separately.
(c) Geographic distribution of exposures25, Fund based and Non-fund based separately
Overseas
Domestic
(d) Industry26 type distribution of exposures, fund based and non-fund based separately
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Substandard
Doubtful 1
Doubtful 2
Doubtful 3
Loss
(h) Net NPAs
Opening balance
Additions
Reductions
Closing balance
(k) Movement of provisions for NPAs
Opening balance
Provisions made during the period
Write-off
Write-back of excess provisions
Closing balance
(l) Amount of Non-Performing Investments
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Closing balance
Chart 3:-
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Table 4:- For the year 2004:
Chart 4:-
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Table 5:- For the year 2005:
Chart 5:-
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Table 6:- For the year 2006:
Chart 6:-
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Table 7:- For the year 2007:
Chart 7:-
Interpretation:
Considering the above data we can say that year on year the amount of advances lent by State
Bank of India has increased which indicates that the bank’s business is really commendable and
the Credit Policy it has maintained is absolutely good. Whereas other banks do not have such
good business SBI is ahead in terms of its business when compared to both Public Sector and
Private Sector banks, this implies that SBI has incorporated sound business policies in its bank.
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COMPARISON STUDY ON CREDIT RECOVERY MANAGEMENT
Chart 8:-
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Table 9:- For the year 2005:
Chart 9:-
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Table 10:- For the year 2006:
Chart 10:-
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Table 11:- For the year 2007:
Chart 11:-
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PRIORITY SECTOR ADVANCES OF BANKS
Chart 12:-
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PRIORITY SECTOR ADVANCES OF PUBLIC SECTOR BANKS IN
PERCENTAGES ARE AS FOLLOWS:
Table 13:-
Total
Direct Indirect Total Weaker
Priority
Agriculture Agriculture Agriculture Section
Sector
Advances Advances Advances Advances
S.No Name of the Bank
Advances
Chart 13:-
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Interpretations:
SBI’s direct agriculture advances as compared to other banks is 10.5% of the Net Bank’s
Credit, which shows that Bank has not lent enough credit to direct agriculture sector.
In case of indirect agriculture advances, SBI is granting 3.1% of Net Banks Credit, which
is less as compared to Canara Bank, Syndicate Bank and Corporation Bank. SBI has to
entertain indirect sectors of agriculture so that it can have more number of borrowers for
the Bank.
SBI has advanced 13.6% of Net Banks Credit to total agriculture and 8.9% to weaker
section and 37% to priority sector, which is less as compared with other Bank.
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CHAPTER-5
SUMMARY AND
CONCLUSION
Findings:-
Project findings reveal that SBI is sanctioning less Credit to agriculture, as compared
with its key competitor’s viz., Canara Bank, Corporation Bank, Syndicate Bank
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Recovery of Credit: SBI recovery of Credit during the year 2006 is 62.4% Compared to
other Banks SBI ‘s recovery policy is very good, hence this reduces NPA
Total Advances: As compared total advances of SBI is increased year by year.
State Bank Of India is granting credit in all sectors in an Equated Monthly Installments
so that any body can borrow money easily
Project findings reveal that State Bank Of India is lending more credit or sanctioning
more loans as compared to other Banks.
State bank Of India is expanding its Credit in the following focus areas:
1. SBI Term Deposits
2. SBI Recurring Deposits
3. SBI Housing Loan
4. SBI Car Loan
5. SBI Educational Loan
6. SBI Personal Loan …etc.
In case of indirect agriculture advances, SBI is granting 3.1% of Net Banks Credit, which
is less as compared to Canara Bank, Syndicate Bank and Corporation Bank. SBI has to
entertain indirect sectors of agriculture so that it can have more number of borrowers for
the Bank.
SBI’s direct agriculture advances as compared to other banks is 10.5% of the Net Bank’s
Credit, which shows that Bank has not lent enough credit to direct agriculture sector.
Credit risk management process of SBI used is very effective as compared with other
banks.
Conclusion:-
The project undertaken has helped a lot in gaining knowledge of the “Credit Policy and Credit
Risk Management” in Nationalized Bank with special reference to State Bank Of India. Credit
Policy and Credit Risk Policy of the Bank has become very vital in the smooth operation of the
banking activities. Credit Policy of the Bank provides the framework to determine (a) whether or
not to extend credit to a customer and (b) how much credit to extend. The Project work has
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certainly enriched the knowledge about the effective management of “Credit Policy” and “Credit
Risk Management” in banking sector.
“Credit Policy” and “Credit Risk Management” is a vast subject and it is very difficult to
cover all the aspects within a short period. However, every effort has been made to cover
most of the important aspects, which have a direct bearing on improving the financial
performance of Banking Industry
To sum up, it would not be out of way to mention here that the State Bank Of India has
given special inputs on “Credit Policy” and “Credit Risk Management”. In pursuance of
the instructions and guidelines issued by the Reserve Bank of India, the State bank Of
India is granting and expanding credit to all sectors.
The concerted efforts put in by the Management and Staff of State Bank Of India has
helped the Bank in achieving remarkable progress in almost all the important parameters.
The Bank is marching ahead in the direction of achieving the Number-1 position in the
Banking Indus
The Bank should keep on revising its Credit Policy which will help Bank’s effort to
correct the course of the policies
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The Chairman and Managing Director/Executive Director should make modifications to
the procedural guidelines required for implementation of the Credit Policy as they may
become necessary from time to time on account of organizational needs.
Banks has to grant the loans for the establishment of business at a moderate rate of
interest. Because of this, the people can repay the loan amount to bank regularly and
promptly.
Bank should not issue entire amount of loan to agriculture sector at a time, it should
release the loan in installments. If the climatic conditions are good then they have to
release remaining amount.
SBI has to reduce the Interest Rate.
SBI has to entertain indirect sectors of agriculture so that it can have more number of
borrowers for the Bank.
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BIBLIOGRAPHY
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BOOKS REFERRED:
1. M.Y.Khan and P.K.Jain, Management Accounting (Third Edition), Tata McGraw Hill.
2. M.Y.Khan and P.K.Jain, Financial Management (Fourth Edition), Tata McGraw Hill.
3. D.M.Mittal, Money, Banking, International Trade and Public Finance (Eleventh Edition),
Himalaya Publishing House.
WEB SITES
1. www.sbi.co.in
2. www.icicidirect.com
3. www.rbi.org
4. www.indiainfoline.com
5. www.google.com
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