ADVANCED BANK MANAGEMENT ​( ABM) 

Unit - 32: Risk Management and Credit Rating

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 Credit risk : unwilling /inability to repay
3. External factors : exchange/intt rate changes, govt policies, political risks
4. Internal factors : overexposure to sector, low quality appraisal, monitoring,
5. 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.
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