TITLE OF THE PROJECT

“Credit Risk Management in State Bank

Of India”

BACKGROUND OF PROJECT TOPIC:

Credit risk 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.

IMPORTANCE OF THE PROJECT:

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.

OBJECTIVES OF PROJECT:

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.
METHODOLOGY:

DATA COLLECTION METHOD

To fulfill the objectives of my study, I have taken into considerations secondary data.

Secondary data

The data is collected from the Magazines, Annual reports, Internet, Text books. The various
sources that were used for the collection of secondary data are

I. Internal files & materials

II. Websites – Various sites like
III. www.indiainfoline.com
IV. www.sbi.co.in
V. www.investopedia.com
VI. www.wikepedia.com and other site.

As on 31 March 2017, Government of India held around 61.23% equity shares in SBI. The Life
Insurance Corporation of India, itself state-owned, is the largest non-promoter shareholder in the
company with 8.82% shareholding.

Shareholders Shareholding

Promoters: Government of India 61.23%

FIIs/GDRs/OCBs/NRIs 11.17%

Banks & Insurance Companies 10.00%

Mutual Funds & UTI 8.29%

Others 9.31%

Total 100.0%

FINDINGS:
  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 anybody 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.

RECOMMEDATION:

First meeting of the Subsidiary Body on Implementation, 2 - 6 May 2016 - Montreal, Canada

1. Progress in the implementation of the Convention and the Strategic Plan for Biodiversity
2011-2020 and towards the achievement of the Aichi Biodiversity Targets.
2. Review of progress towards Aichi Biodiversity Target 16 on the Nagoya Protocol
3. Capacity-building, technical and scientific cooperation, technology transfer and the
clearing-house mechanism
4. Resource mobilization
5. Options to enhance synergies among the biodiversity-related conventions
6. Options to enhance synergies among the biodiversity-related conventions

Banking industry overview

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 19TH
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 27TH Jan 1921, with the passing of the SBI Act in1955, 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 15TH
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
in1969 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 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 6more 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.
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 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 than Rs.5 lac s 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.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 corporate center of SBI is located in Mumbai. In order to cater to different functions, there
are several other establishments in and outside Mumbai, apart from the corporate center. The
bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major
cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater
to its customers throughout India.

ATM Services SBI provides easy access to money to its customers through more than 8500
ATMs in India. The Bank also facilitates the free transaction of money at the ATMs of State
Bank Group, which includes the ATMs of State Bank of India as well as the Associate Banks –
State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, etc. You may
also transact money through SBI Commercial and International Bank Ltd by using the State
Bank ATM-cum-Debit (Cash Plus) card.

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.

DIFFERENT SECTORS OF BANKS:

(i) Public Sector Banks

ii) Private Sector Banks

 1. SBI & ASSOCIATES

Subsidiaries

The State Bank Group includes a network of seven banking subsidiaries and several non-banking
subsidiaries. Through the establishments, it offers various services including merchant banking
services, fund management, factoring services, primary dealership in government securities,
credit cards and insurance.

The seven banking subsidiaries are

1. State Bank of Bikaner and Jaipur (SBBJ)

2. State Bank of Hyderabad (SBH)
3. State Bank of India (SBI)
4. State Bank of Indore (SBIR)
5. State Bank of Mysore (SBM)
6. State Bank Of Patiala (SBP)
7. State Bank Of Travancore (SBT)

Non-Banking Subsidiaries

They are non banking subsidiaries under SBI comprising 6 organs

 SBI cards and Payments services Ltd.

Credit card issuer under SBI joining with GE Capitals.

 SBI Pension Funds Pvt.Ltd.

 SBI Capital Markets Ltd. (SBICAP)

Financial advisory and investment services company under SBI. It has five subsidiaries. They
are,

1. SBICAP Securities Ltd.

2. SBICAP Trustees Co Ltd.
3. SBICAP Ventures Ltd.
4. SBICAP (UK) Ltd.
5. SBICAP (Singapore) Ltd.

 SBI Funds Management Pvt Ltd

Asset management company under SBI.

 SBI Global Factors Ltd.

Forfeiting servicing company under SBI.

 SBI DFHI Ltd

Dealing with government security bills and treasury bills etc.

Joint Ventures
They are other Joint venture companies with vast purposes.

 SBI Life Insurance Company Ltd (SBI Life)

Joint venture of SBI ( 74% share) and PNB Paribas Cardifo( 26%)

 SBI General Insurance Company Ltd.

General Insurance Company under SBI joining with Insurance Australia Group (IAG).
  SBI SG Global Securities services Pvt Ltd.

SSBI-SG Global Securities Services Pvt Ltd (SBISGGSS) , is a joint venture between State Bank
of India (SBI) and Society General Securities Services (SGSS).

This Joint venture has been set up to offer high quality Custody Services, Fund Accounting &
Fund Administration, Risk Analysis & Performance Measurement and Registrar & Transfer
Agency Services to domestic investors.

FOREIGN SUBSIDAIRIES :

They are foreign subsidiary banks registered under the Brand name of SBI and are registered in
their respective countries.

They are, SBI (Canada), SBI (California), SBI (Botswana), SBI (Mauritius), SBI Singapore,
Nepal SBI Bank Ltd, Commercial Indo Bank LLC (Russia), Bank of Bhutan Ltd, Bank SBI
Indonesia etc.

OTHER INITIATIVES:

SBI has also been tying up with many financial services industries. The last among them is with
Reliance to start payment Bank.

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.

REGIONAL RURAL BANKS:

These were established by the RBI in the year 1975 of banking commission. It was established to
operate exclusively in rural areas to provide credit and other facilities to small and marginal
farmers, agricultural laborers, artisans and small entrepreneurs.

Private Sector Banks:

 Private Sector Banks

Old private Sector Bank New private Sector

Banks

Old Private Sector Banks

This group consists of the banks that were establishes by the privy sectors, committee
organizations or by group of professionals for the cause of economic betterment in their
operations. Initially, their operations were concentrated in a few regional areas. However, their
branches slowly spread throughout the nation as they grow.

New private 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.
Banking Sector has been one of the most promising and profit driven financial sector for over a
decade in India. During the financial and economic crisis that was felt globally by the
superpowers of banking and finance, Indian banking and economy scenario was stable and
working just fine. The financial sector in India has registered an overall growth of 15% in the last
few years and has shown tremendous performance globally. The Reserve Bank of India could be
highly credited for playing such a dynamic role to make this happen. The measures it took on
time saved the Indian economy to crash and fall onto its face when the whole world was
crunching under global recession. The reforms in the monetary policies and macro-economic
policies by the RBI influenced the Indian economy to its core. Growth of the banking system and
its reach was also responsible for the overall economic growth in the country. With the ever
increasing number of customers getting attached with public sector banks through various
schemes and policies, the industry has transformed completely. Inclusion of latest technology in
banks and introducing core banking has connected the banks to the entire country in one string.

SCOPEOF ECONOMIC GROWTH THROUGH BANKING SECTOR DEVELOPMENT

Economic Growth of any country depends upon the growth of income and spending capacity of
its population. In a hugely populated country like India, it has always been a tough task to
manage and maintain the economic growth by the subsequent governments.

There is a wide open market for the financial sector in the country which needs to get tapped by
the bodies. This is exactly the scenario with the banking sector at this very hour. Banks have
penetrated through the rural and sub-urban areas of the country, joining people from all over the
districts and villages to banking. The age old traditions for asking money from Zamindars ,
Joetdars is slowly becoming a thing of the past as more and more farmers are joining with the
banks of the country to avail the benefits that they have been given by the government through
various schemes and policies drafted out specially to address their plea. The key to growth of the
economic sector is to tap this potential market of rural people and bring them to the iota of
banking, which the public sector banks in the country have seemed to do well for the last few
years. With the growth in banking sector, there is a consequent growth felt in other sectors as
well. The trickle down theory of economics works in this model, the banks being at the top.
Banks promote saving and increases the capital formation of the country. In return it offers credit
and loan for the needy, who are ready to initiate their own ventures and business. It promotes the
production and employment of the region in which these banks are lending loans to its people.
This production and employments result in income generation and consumption of other
products from the market. Consequently that improves the spending and saving power amongst
the people, keeping the circle intact and improving the economy of the country.
NEW APPROACH TO ATTRACT CUSTOMERS TO BANKING

There are new and improved approaches taken by the RBI itself to motivate and incorporate
more and more people to the ambit of banking. The inclusion of internet banking, mobile
banking, self-help groups and microfinance institutes have become really important indications
of the government to include more and more people to the banking sector through digital means
throughout the nation. The use of information and Communication Technology (ICT) and its
further development would attach people from the rural and sub-urban areas to the banking
sector enabling them to take advantage of the schemes and policies launched and run by the
government at present. This would in turn help the economy of the country to prosper

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.

NATIONALIZATION:

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 nationalization of 6 more commercial Indian banks in 1980.The stated reason for the
nationalization was more control of credit delivery. After this, until 1990s, the nationalized 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
nationalized banks in India.

LIBERALIZATION-

In the early 1990’s the then Narasimha rao government embarked a policy of liberalization and
gave licenses to a small number of private banks, which came to be known as New generation
tech-savvy banks, which included banks like ICICI and HDFC. This move along with the rapid
growth of the economy of India, kick started the banking sector in India, which has seen rapid
growth with strong contribution from all the sectors of banks, namely Government banks,
Private Banks and Foreign banks. However there had been a few hiccups for these new banks
with many either being taken over like Global Trust Bank while others like Centurion Bank have
found the going tough. The next stage for the Indian Banking has been set up with the proposed
relaxation in the norms for Foreign Direct Investment, where all Foreign Investors in Banks may
be given voting rights which could exceed the present cap of 10%, at present it has gone up to
49%with some restrictions. The new policy shook the Banking sector in India completely.
Bankers, till this time, were used to the 4-6-4 method (Borrow at 4%; Lend at 6%;Go home at 4)
of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working
for traditional banks. All this led to the retail boom in India. People not just demanded more
from their banks but also received more.

BANKING IN INDIA :
1 Central Bank Reserve Bank of India

State Bank of India,

Allahabad Bank, Andhra
Bank, Bank of Baroda, Bank
2 Nationalized Banks of India, Bank of
Maharashtra, Canara Bank,
Central Bank of India,
Corporation Bank, Dena
Bank, Indian Bank, Indian
overseas Bank, Oriental
Bank of Commerce, Punjab
and Sind Bank, Punjab
National Bank, Syndicate
Bank, Union Bank of India,
United Bank of India, UCO
Bank, and Vijaya Bank.

Bank of Rajasthan, Bharath

overseas Bank, Catholic
Syrian Bank, Centurion Bank
of Punjab, City Union Bank,
Development Credit Bank,
Dhanalaxmi Bank, Federal
Private Banks Bank, Ganesh Bank of
3 Kurundwad, HDFC Bank,
ICICI Bank, IDBI, IndusInd
Bank, ING Vysya Bank,
Jammu and Kashmir Bank,
Karnataka Bank Limited,
Karur Vysya Bank, Kotak
Mahindra Bank, Lakshmi
vilas Bank, Lord Krishna
Bank, Nainitak Bank,
Ratnakar Bank, Sangli Bank,
SBI Commercial and
International Bank, South
Indian Bank, Tamil Nadu
Merchantile Bank Ltd.,
United Western Bank, UTI
Bank, YES Bank
ABOUT LOGO

THE 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.

MISSION, VISION AND VALUES:

MISSION STATEMENT:

1. To make the Company the Financial Partner of Choice.

2. SBI seek to delight customers through their innovative product offerings and world-class
servicing standards, enabling them to make informed choices using State-of- the-Art
execution capabilities that provide trusted market access.
3. To be prompt, polite & proactive with their customers.
4. To create products and services that help their customers achieve their goals.
 5. To retain the Bank’s position as premiere Indian Financial Service Group, with world
class standards and significant global committed to excellence in customer, shareholder
and employee satisfaction and to play a leading role in expanding and diversifying
financial service sectors while containing emphasis on its development banking rule.

VISION STATEMENT :

1. To be the most trusted and preferred finance service provider worldwide

2. First in customer satisfaction.
3. To retain its position in the country as pioneers in Development banking.
4. Maximize the shareholders value through high-sustained earnings per Share

VALUES:

 Excellence in customer service

 Profit orientation
 Belonging commitment to Bank
 Fairness in all dealings and relations
 Risk taking and innovative
 Team playing
 Learning and renewal
 Integrity
 Transparency and Discipline in policies and systems.

PRODUCTS:

State Bank Of India renders varieties of services to customers through the following products:

I. Personal Loan Product:

 SBI Term Deposits
 SBI Recurring Deposits
 SBI Housing Loan
 SBI Car Loan
 SBI Educational Loan
 SBI Personal Loan
 SBI Loan For Pensioners
 Loan Against Mortgage Of Property
 Loan Against Shares & Debentures
 Rent Plus Scheme
  Medi-Plus Scheme
 Rates Of Interest

SBI Housing loan

SBI Housing loan or Mortgage Loan schemes are designed to make it simple for you to make a
choice at least as far as financing goes!

'SBI-Home Loans 'features:

INTEREST RATE:

SBI Home loan interest rate starts from 8.35%, which is one of the best rates available in the
market. The rates vary depending upon certain criteria, like occupation, the quantum of income,
nature of the loan, etc.

Loan Amount SBI Home Loan Rate for Female

Floating Borrower

Up to Rs.30 Lakh 8.40% 8.35%

Rs.30 Lakh – 75 Lakh 8.55% 8.50%

Above Rs.75 Lakh 8.65% 8.60%

You definitely want to ensure that your lender provides auto-adjusted benefits on interest rates
that extends into the future. That’s the reason why you need a credible lending institution with a
dedicated and experienced workforce who will guide you through the entire process.
FEATURES OF SBI HOME LOAN:

 SBI Home Loans are available for both salaried and self employed.

 Special rates for women customers.

 Home Loans granted to age group between 18 to 70 years.

 Security: Generally Mortgage of property you are planning to purchase, renovate or

construct.

 Loan to Value Ratio is 90%.

 Tenure of loan is between 5 to 30 years.

 Interest rates range from 8.50% to 8.70%.

 EMI of Rs.769 per lakh

 Repayment permitted upto 70 years of age

 Special scheme to grant loans to finance Earnest Money Deposits to be paid to Urban
Development Authority/ Housing Board, etc. in respect of allotment of sites/house/ flat.

For example,

Now, consider the different methods of saving Rs.10 lakhs at SBI from now for these 2 years:

Type of Investment Interest Rate Maturity Amount after 2 Years

Savings Account 3.50% Rs.10,37,270 (Gains=Rs.37,270)

Recurring Deposit 6.40% Rs.10,69,457 (Gains =Rs.69,457)

SIP 14-18% Rs.12,10,940 (Gains = Rs.2,10,940)

Hence from the above table SIP is the most beneficial saving’s scheme; as SIP, will enable you
to invest regularly keeping in mind your goal of owning your dream home in the shortest
possible time.
SERVICES:
 Listed are the Services, SBI offers to its customers

 DOMESTIC TREASURY
 BROKING SERVICES
 REVISED SERVICE CHARGES
 ATM SERVICES
 INTERNET BANKING
 E-PAY
 E-RAIL
 SAFE DEPOSIT LOCKER
 MICR CODES
 FOREIGN INWARD REMITTANCES
 SBI NO QUEUE APP FAQ
 DOORSTEP BANKING (DSB) SERVICES
 A PLATFORM INDEPENDENT UTILITY FOR CORPORATES TO CREATE HASH
FOR SALARY FILE UPLOAD
 SBI now provides your Account balance and last 5 Transaction details over phone round
the clock.
 Information on deposits/loan schemes and many more services are available.

Types of Financial Risks.

MARKET RISK:
Market risk is the risk of adverse deviation of the mark to market value of the trading portfolio,
due to market movement, during the period required to liquidate the transactions.

OPERTIONAL RISK:

Operational risk is one area of risk that is faced by all organizations. More complex the
organization more exposed it would be operational risk. This risk arises due to deviation from
normal and planned functioning of the system procedures, technology and human failure of
commission. Result of deviation from normal functioning is reflected in the revenue of
the organization, either by the way of additional expenses or by way of loss of opportunity.

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
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.

CONTRIBUTORS OF CREDIT RISK:

 Corporate assets
 Retail assets
 Non-SLR portfolio
 May result from trading and banking book
 Inter bank transactions
 Derivatives
 Settlement, etc.

KEY ELEMENTS OF CREDIT RISK MANAGEMENT:

 Establishing appropriate credit risk environment.

 Operating under sound credit granting process.
  Maintaining an appropriate credit administration, measurement & Monitoring.
 Ensuring adequate control over credit risk.
 Banks should have a credit risk strategy which in our case is communicated throughout
the organization through credit policy.

STEPS TO FOLLOW TO MINIMIZE DIFFERENT TYPES OF RISKS:

STANDARDISED

INTERNAL RATING
CREDIT RISK
CREDIT RISK MODEL

CREDIT MITIGATION

TRADING BOOK
RISK’S
RISK’S MARKET RISK
BANKING BOOK

OPERATION
OTHER RISK
OTHERS

CREDIT RATING:

Definition:-

Credit rating is the process of assigning a letter rating to borrower indicating that
creditworthiness of the borrower. Rating is assigned based on the ability of the borrower
(company). To repay the debt and his willingness to do so. The higher rating of company the
lower the probability of its default.

Use in decision making:-

Credit rating helps the bank in making several key decisions regarding credit including:

1. whether to lend to a particular borrower or not; what price to charge?

2. what are the product to be offered to the borrower and for what tenure?

3. at what level should sanctioning be done, it should however be noted that credit rating is one
of inputs used in credit decisions.

There are various factors (adequacy of borrowers, cash flow, collateral provided, and
relationship with the borrower). Probability of the borrowers default based on past data.

ANNUAL REPORT :

Personal Segment now 30% of Domestic Loan Book

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
credit derivatives activity in their credit underwriting and administration policies, and their
exposure measurement, limit setting, and risk rating/classification processes.

DIFFICULTY OF ,EASURING CREDIT RISK :-

Measuring credit risk on a portfolio basis is difficult. Banks and financial institutions
traditionally measure credit exposures by obligor and industry. They have only recently
attempted to define risk quantitatively in a portfolio context e.g., a value-at-risk framework.
Although banks and financial institutions have begun to develop internally, or purchase, systems
that measure (VaR) for credit, bank managements do not yet have confidence in the risk
measures the systems produce. In particular, measured risk levels depend heavily on underlying
assumptions and risk managers often do not have great confidence in those parameters.

Since credit derivatives exist principally to allow for the effective transfer of credit risk, the
difficulty in measuring credit risk and the absence of confidence in the result of risk
measurement have appropriately made banks cautious about the use of banks and financial
institutions internal credit risk models for regulatory capital purposes.

Measurement difficulties explain why banks and financial institutions have not, tried to
implement measures to calculate Value-at-Risk (VaR) for credit. The VaR concept, used
extensively for market risk, has become so well accepted that banks and financial institutions
supervisors allow such measures to determine capital requirements for trading portfolios. The
models created to measure credit risk are new, and have yet to face the test of an economic
downturn. Results of different credit risk models, using the same data, can widely. Until banks
have greater confidence in parameter inputs used to measure the credit risk in their portfolios.
They will, and should, exercise caution in using credit derivatives to manage risk on a portfolio
basis. Such models can only complement, but not replace, the sound judgment of seasoned credit
risk managers.

MANAGING CREDIT RISK:-

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 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 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.

APPRAISAL OF THE FIRMS POSITION ON BASIS OF FOLLOWING OTHER

PARAMETERS

1) Managerial Competence.
 2) Technical Feasibility.
3) Commercial viability.
4) Financial Viability

Managerial Competence:

 Back ground of promoters

 Experience
 Technical skills, Integrity & Honesty
 Level of interest / commitment in project
 Associate concern

Technical Feasibility:

 Location
 Size of the Project
 Factory building
 Plant & Machinery
 Process & Technology

Commercial Viability :

 Demand forecasting / Analysis

 Market survey
 Pricing policies
 Competition


Financial Viability:

 Whether adequate funds are available at affordable cost to implement the project
 Whether sufficient profits will be available
 Whether BEP or margin of safety are satisfactory
 What will be the overall financial position of the borrower in coming year’s.

RATED INSTRUMENTS JAN 2018

Instrument* Previous Rated Current Rated Rating Action

 Amount Amount
(Rs. cr) (Rs. cr)
Basel III Compliant 0.00 8,000.00 [ICRA]AA+(hyb)(Stable);
Tier I Bonds assigned
Basel III Compliant 15,743.00 15,743.00 [ICRA]AAA(hyb)(
Tier II Bonds Stable); outstanding
Lower Tier II Bonds 785.00 785.00 [ICRA]AAA(Stable);
Program outstanding
Certificates of 41,500.00 41,500.00 [ICRA]A1+; outstanding
Deposits
Medium Term NA NA MAAA(Stable);
Deposits outstanding
Total 58,028.00 58,028.00

RATING ACTION

ICRA has assigned the rating of [ICRA]AA+(hyb) (pronounced ICRA double A plus hybrid) for
Rs.8,000 crore. Basel III compliant Tier I bonds program of State Bank of India (SBI)1 ICRA
also has a rating outstanding of [ICRA]AAA (hyb) (pronounced ICRA triple A hybrid) for the
Rs. 15,743 crore .

Basel III compliant Tier II bonds and a rating of [ICRA]AAA (ICRA triple A) for Rs.785 crore
Lower Tier II bonds program of SBI. ICRA also has a rating outstanding of MAAA (pronounced
M triple A) for the medium term deposit program and of [ICRA]A1+ (pronounced ICRA A one
plus) for the Rs. 41,500 crore certificates of deposit program of SBI. The outlook on the long
term and medium term ratings is stable. The letters “hyb” in parenthesis suffixed to a rating
symbol stand for “hybrid”, indicating that the rated instrument is a hybrid subordinated
instrument with equity-like loss-absorption features; such features may translate into higher
levels of rating transition and loss severity vis-à-vis conventional debt instruments. The rating for
the Basel III compliant Tier I bonds is one notch lower than the Basel III compliant Tier II bonds
of the bank, as these instruments have the following loss absorption features that make them
riskier:

• The bank has the discretion at all times to cancel distribution and payments; cancellation of
discretionary payments shall not be an event of default.
• The minimum capital conservation ratio applicable to the banks may restrict the bank from
servicing these Tier I bonds in case the Common Equity Tier-I (CET-I) falls below the limit
prescribed by the Reserve Bank of India (RBI).
These Tier I bonds are expected to absorb losses through the write-down mechanism at the
objective pre-specified trigger point fixed at the bank’s (CET-I) ratio as prescribed by the
 RBI – 5.5% till March 2019 and thereafter 6.125% of total risk weighted assets of the bank
or when the “Point of Non-Viability” trigger is breached in the RBI’s opinion.

Basel III compliant Tier I bonds also have the following features, which makes them riskier.

• Coupon payments, which are non-cumulative, are discretionary and the bank has the full
discretion at all times to cancel coupon payments.

• Coupon can be paid out of current year profits. However, if current year profit is not sufficient,
or if the payment of coupon is likely to result in a loss, the coupon payment can be made from
reserves and surpluses created through appropriation of profits (including statutory reserves).

However, the coupon payment made by utilizing reserves is subject to the bank meeting the
minimum regulatory requirements for CET I, Tier I and total capital ratios (including capital
conservation buffer, CCB) at all times as prescribed by the RBI under Basel III regulations.

KEY FINANCIAL INDICATORS (AUDITED) :-

FY2016 (pre-merger) FY2017 (pre-merger) H1FY2018 (post-

merger)
Net interest income 57,195 61,860 36,192
Profit before tax 13,774 14,855 3,806
Profit after tax 9,951 10,484 3,587
Net advances 1,463,700 1,571,078 1,802,609
Total assets (adjusted 2,357,618 2,674,381 3,198,497
for revaluation
reserves)
% CET 1 9.81% 9.82% 10.24%
% Tier 1 9.92% 10.35% 10.96%
% CRAR 13.12% 13.11% 13.56%
% Net interest margin 2.64% 2.50% -
/ Average total assets
% Net profit / 0.46% 0.43% -
Average total assets
% Gross NPAs 6.50% 6.90% 9.83%
% Net NPAs 3.81% 3.71% 5.43%
% Provision coverage 43.15% 48.13% 47.40%
excl. technical write
offs
% Net NPA/ Net 38.68% 37.19% 50.39%
worth
PROPOSED RISK WEIGHT TABLE:-

Option 1 = Risk Weight based on risk weight of the country

Option 2a = Risk weight based on assessment of individual bank

Option 2b = Risk Weight based on assessment of individual banks with claims of original
maturity of less than 6 months.

Retail Portfolio ( subject to qualifying criteria) 75%

Claims Secured by residential property 35%

Non Performing Assets: If specific provision is less than 20% 150%

If specific provision is more than 20% 100%

RISK WEIGHTS:

 Central Government guaranteed – 0%

 State Govt. Guaranteed – 20%
 Scheduled banks (having min. CRAR) – 20%
 Non-scheduled bank (having min. CRAR) -100%
 Home Loans (LTV < 75%)
 Less than Rs.20 lakhs – 50%
 Rs.20 lakhs and above – 75%
 Home Loans (LTV > 75%) – 100%
  Commercial Real estate loans – 150%
 Personal Loans and credit card receivables- 125%
 Gold loans up to Rs 1 lakh – 50%
 NPAs with provisions <20%->150%
-do- 20 to < 50%-> 100%
-do- 50% and above -> 50%
 Restructured/ rescheduled advances – 125%
 Credit Conversion Factors (CCFs) to be applied on off balance sheet items [NFB]&
unutilized limits before applying risk weights.

 Some important CCFs –

 Documentary LCs – 20% (Non- documentary - 100%);

 Perf. Guarantees – 50%, Fin. Gtees- 100%,
 Unutilised limits – 20% (up to 1 year), 50% (beyond 1 year)

STANDARDIZED APPROACH – LONG TERM:-

COMPONENTS OF CREDIT RISK:-

CREDIT POLICY

Introduction to credit policy

Bank’s investments in accounts receivable depends on: (a) the volume of credit sales, and (b) the
collection period. There is one way in which the financial manager can affect the volume of
credit sales and collection period and consequently, investment in accounts receivables. That is
through the changes in credit policy. The term credit policy is used to refer to the combination of
three decision variables:

(1) credit standards,

(2) credit terms, and

(3) collection efforts, on which the financial manager has influence.

1. Credit Standards:

Credit Standards are criteria to decide the types of customers to whom goods could be sold on
credit. If a firm has more slow-paying customers, its investment in accounts receivable will
increase. The firm will also be exposed to higher risk of default.
(2) Credit Terms:

Credit Terms specify duration of credit and terms of payment by customers. Investment in
accounts receivables will be high if customers are allowed extended time period for making
payments.

(3) Collection Efforts:

Collection efforts determine the actual collection period. The lower the collection period, the
lower the investment in accounts receivable and higher the collection period, the higher the
investment in accounts receivable.

THE MAIN OBJECTIVE OF BANK’S CREDIT POLICY ARE:-

 A balanced growth of the credit portfolio which does not compromise safety.
 Adoption of a forward-looking and market responsive approach for moving into
profitable new areas of lending which emerge, within the predetermined exposure
ceilings.
 Sound risk management practices to identify measure, monitor and control credit risks.
 Maximize interest yields from the credit portfolio through a judicious management of
varying spreads for loan assets based upon their size, credit rating and tenure.
 Ensure due compliance of various regulatory norms, including CAR, Income Recognition
and Asset Classification.
 Accomplish balanced deployment of credit across various sectors and geographical
regions.
 Achieve growth of credit to priority sectors / sub sectors and continue to surpass the
targets stipulated by Reserve Bank of India.

INTEREST RATE OF SBI BANK AND OTHER BANKS

REAL ESTATE ADVANCESBY PUBLIC SECTOR BANK
INTERPRETATION:

Considering the above data we can say that year on year the amount of interest lent by State
Bank of India is less as compared to other banks, 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. The State Bank of India comes first for taking Real
Estate Loans as it has less lending interest rates in comparison to other with banks.

PRIORITY SECTOR ADVANCES OF BANKS:

COMPARISON WITH OTHER PUBLIC SETOR BANKS

PRIORITY SECTOR ADVANCES OF PUBLIC SECTOR BANKS INPERCENTAGES

ARE AS FOLLOWS:
INTERPRETATION:

 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.
 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.

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.
 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 anybody 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.
 Credit risk management process of SBI used is very effective as compared with 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

 Some of the information is of confidential in nature that could not be divulged for the
study.
 The time constraint was a limiting factor, as more in depth analysis could not be carried.

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 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.