Credit Management SBI

Embed Size (px)

DESCRIPTION

Credit Management SBI

Text of Credit Management SBI

A COMPREHENSIVE PROJECT REPORT ON Credit Risk Management of SBI

Submitted to, Gujarat Technological University

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ASMINISTRATION

UNDER THE GUIDANCE OF Faculty Guide PROF. DEVAL NIRMAL

MBA SEMESTER III/IV

DR. J.K. PATEL INSTITUTE OF MANAGEMENT

MBA PROGRAMME Affiliated to Gujarat Technological University Ahmedabad APRIL, 2012

DeclarationWe hereby declare that our comprehensive Project entitled CREDIT RISK MANAGEMENT submitted in partial fulfilment of the Practical application is original and is not substantially the same as one which has already been submitted in part or in full for any such similar qualification to the University to the best of our knowledge.

Date: Place:

Name of the Student:

ACKNOWLEDGEMENT

The research journey is a long and challenging one. It is not a journey that can be travelled alone and we need to say thank you to some very important fellow travellers.

I would like to thank Prof.Deval Nirmal, Associate Professor (Dr. J.K Patel Institute of Management) for his valuable guidance, help and cooperation throughout our project. He shared his amass knowledge and valuable information with us for compiling the project.

I would also like to thank our Project Mentor Prof.Dipak Gaywala who intelligently guided us along the way. Their clear focus and knowledge enabled us to navigate the empirical potholes, and keep us on track theoretically. Special thanks to our HOD Dr. PGK Murthy.

We also wholeheartedly thank our friends and colleagues, and who despite of their own work and commitments supported us & encouraged us to undertake the journey in the first place and in the second place for emotional support offered. Thank you all for encouraging us in our tough times and when the success appeared clumsy.

There are some very special people, who ended up on the journey simply by virtue of their relationship to us and we need to thank them in particular. To Family members, for always encourage us throughout this project and for supporting us always to get through with our work. We also thank them for being a welcome and much loved source of distraction and for constantly reminding us about what really matters.

TABLE OF CONTENTS

Chapter Number

Topic EXECUTIVE SUMMARY

Page Number 1 2 4 6 14 33 45 46 47 48

1 2 3

LITERATURE REVIEW OBJECTIVES OF THE STUDY INTRODUCTION COMPANY PROFILE

4

DATA ANALYSIS & FINDINGS FINDINGS RECOMMENDATIONS CONCLUSION BIBLIOGRAPHY

EXECUTIVE SUMMARY

Credit risk is always treated as the major risk inherent in a banks banking and trading activities. And if not well managed, this kind of risk may drag a bank into great trouble or even bankruptcy, which can be proved by various bank failure cases. For banks, managing credit risk is not a simple task since comprehensive considerations and practices are needed for identifying, measuring, controlling and minimizing credit risk.

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 firms 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.

DR. J.K. PATEL INSTITUTE OF MANAGEMENT, VADODARA

CH-1 LITERATURE REVIEW

DR. J.K. PATEL INSTITUTE OF MANAGEMENT, VADODARA

LITERATURE REVIEW According to Duffie and Singleton (2003), credit risk can be defined as the risk of default or of reductions in market value caused by changes in the credit quality of issuers or counterparties. Generally speaking, it is common in every business. Horcher (2005) suggests that when an organization has accumulated large losses, owes many other counterparties or when its creditors or counterparties have financial difficulties or have failed, credit failure is more likely. According to the Basel (1999), credit risk is defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed term. And the Monetary Authority of Singapore (2006) has defined it to be the risk arising from the uncertainty of an obligors ability to perform its contractual obligations, where the term obligor refers to any party that has either direct or indirect obligations under the contract. Regarding the importance of this kind of financial risk, Kaminsky and Reinhart, as cited by Jackson and Perraudin (1999), think of it to be the largest element of risk in the books of most banks and if not managed in a proper way, can weaken individual banks or even cause many episodes of financial instability by impacting the whole banking system. Thus to the banking sector, credit risk is definitely an inherent and crucial part.

CH-2 OBJECTIVES OF THE STUDY

DR. J.K. PATEL INSTITUTE OF MANAGEMENT, VADODARA

OBJECTIVES OF STUDY The main objective of study is gaining knowledge about the Risk Management. To study the complete structure and history of the State Bank of India. To gain the insight into the credit risk management activities of State Bank of India. To know the RBI guidelines regarding credit rating and risk analysis. Studying the credit policy adopted comparative analyses of public sector bank and private sector bank.

CH-3 INTRODUCTION

DR. J.K. PATEL INSTITUTE OF MANAGEMENT, VADODARA

INTRODUCTION TO THE INDIAN BANKING SYSTEM 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 dont 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 than Rs.5 lakhs 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 cooperative banks are Scheduled banks. Non-scheduled banks are those, which have not been included in the Second Schedule of the RBI Act, 1934.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.

EMERGING SCENARIO IN THE BANKING SECTOR 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. SBI Group: The Bank of Bengal, which later became the State Bank of India. State Bank of India with its seven associate banks commands the largest banking resources in India. Nationalisation: The next significant milestone in Indian Banking happened in late 1960s when the then Indira Gandhi government nationalized on 19th July 1949, 14 major commercial Indian banks followed by nationalisation of 6 more commercial Indian banks in 1980.The stated

reason for the nationalisation was more control of credit delivery. After this, until 1990s, the nationalised banks grew at a leisurely pace of around 4% also called as the Hindu growth of the Indian economy. After the amalgamation of New Bank of India with Punjab National Bank, currently there are 19 nationalised banks in India. LiberalizationIn the early 1990s the then Narasimha rao government embarked a policy of liberalization