Dissertation Synopsis Presentation onCredit Risk Management of Loan Portfolios by Indian Banks using Altmans Z-Score Model.

Presented by: Roshan Kumar(10DF012)

Objective of the Study To study about the various techniques used to measure the credit risk. To study how banks assess the creditworthiness of their borrowers and how can they identify the potential defaulters so as to improve their credit evaluation.

To examine the framework of credit risk management of Scheduled Commercial Banks in India

CREDIT RISK Credit risk is the uncertainty in the value of a

portfolio due to the fact that the counterparties to the contracts may be unable to meet their financial obligations.

Literature Review Rajagopal (cited by bodla and verma, 2009) made an

attempt to overview the banks risk management and suggested a model for pricing the products based on credit risk assessment of the borrower Altmans Z is one of the best known, statistically derived predictive models used to forecast a firms impending bankruptcy (Moyer, 2005).

Edward I. Altman Z-Score The Altman z-score is a measure of a

company's financial strength that uses a weighted sum of several factors Although many measures of financial strength

exist the z-score is different to most in that it combines multiple factors, and has been proved to be successful as a predictor of bankruptcy.

Z-Score modelZ = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + .999X5 where: X1 is working capital total assets X2 is retained earnings (profit) total assets X3 is EBIT total assets X4 is market value of equity book value of debt X5 is sales total assets Zones of Discrimination: Z > 2.99 -Safe Zone 1.8 < Z < 2.99 -Grey Zone Z < 1.80 -Distress Zone

References: Altman, E (2000). Predicting financial distress of

companies: Revisiting the z-score and zeta models. Bodla B S and Verma R (2009),Credit Risk Management Framework at Banks in India http://www.rbi.org.in http://www.defaultrisk.com http://www.crisil.com Bank Credit management - G.Vijayaragavan Financial Risk Management - Vivek and Asthana

Thank you