Edited Sbi Toc

Credit Risk Assessment in SBI & Its Improvements
ACKNOWLEDGEMENT
The path toward completion of an internship is hard and often times can seem quite difficult. It has
been an enriching and rewarding experience for me both professionally as well as personally. I would
like to express my thanks and appreciation to the many that have encouraged and lifted my feelings
along the way.
Firstly I would like to extend my deep sense of gratitude to Mr.Ashwini Sharma, Regional
relationship officer, SBI SME J P Nagar, Bangalore my project mentor who provided inspiration,
valuable guidelines, suggestions in the early stages of this report through the sense of enthusiasm that
he continually exuded.
I would also like to thank Prof Vijay Nishtala and Prof Madhavi Lokhande ,my project mentors who
helped me a lot during my internship program.
I am sure the immense learning that I have had from this project would help me stand in good stead in
the future.
I extend my heartiest thanks to all those persons whose willing cooperation led to the timely
completion of the project. Also I would like to thank all those who have helped me directly or
indirectly in completing the project.
In completing this study, I did my level best correcting my shortcomings to possible extent and I
sincerely hope that this report will serve its purpose.
Executive Summary..........................................................................................................................5
1. CHAPTER: 1 (INTRODUCTION)...................................................................................................6
1.1 Background of the Report.......................................................................................................6
1.2 Introduction of the Study........................................................................................................6
1.3 Statement of the Problem......................................................................................................6
1.4 Rationale of the Study.............................................................................................................6
1.5 Scope of the Study..................................................................................................................6
1.6 Objective of the Study............................................................................................................7
1.7 Methodology of the study......................................................................................................7
1.8 Benefit of the report...............................................................................................................7
1.9 Limitation................................................................................................................................8
2. CHAPTER 2: (Overview)..............................................................................................................9
2.1. Emergence of Risk management in Banks..............................................................................9
2.2. Introduction..........................................................................................................................10
2.3. COMPANY PROFILE...............................................................................................................11
2.3.1 STATE BANK OF INDIA.................................................................................................11
2.3.2 ABOUT LOGO.................................................................................................................12
2.3.3 MISSION, VISION AND VALUES.....................................................................................13
2.4. SBI & ITS ASSOCIATES............................................................................................................14
2.5. PRODUCTS AND SERVICES....................................................................................................15
2.6. SERVICES...............................................................................................................................16
3.CHAPTER 3: (Credit Risk Management)........................................................................................19
3.1 THEORITICALBACKGROUND OF CREDIT RISK.......................................................................19
3.1.1 CREDIT...........................................................................................................................19
3.1.2 RISK...............................................................................................................................19
3.1.3 MARKET RISK.................................................................................................................19
3.1.4 OPERTIONAL RISK..........................................................................................................19
3.2 CREDIT RISK...........................................................................................................................20
3.2.1 CONTRIBUTORS OF CREDIT RISK...................................................................................20
3.2.2 KEY ELEMENTS OF CREDIT RISK MANAGEMENT...........................................................20
3.3 Credit rating..........................................................................................................................21
3.3.1 Definition.......................................................................................................................21
3.3.2 Use in decision making..................................................................................................21
3.4 Rating tool for SME...............................................................................................................21
3.4.1 Financial performance:-................................................................................................22
3.4.2 Operating performance................................................................................................23
3.4.3 Quality of management................................................................................................23
3.5 Difficulty of measuring credit risk.........................................................................................28
3.6 APPRAISAL OF THE FIRMS POSITION ON BASIS OF OTHER PARAMETERS............................29
3.6.1 Managerial Competence...............................................................................................29
3.6.2 Technical Feasibility......................................................................................................29
3.6.3 Commercial Viability.....................................................................................................29
3.6.4 Financial Viability..........................................................................................................29
3.7 Credit investigation report....................................................................................................29
3.8 CRA Proposal.........................................................................................................................31
3.8.1 Illustration: A model of a CRA proposal........................................................................31
3.9 Credit Files.............................................................................................................................34
3.9.1 Contents of the credit file.............................................................................................34
4. CHAPTER 4: (STUDY ON CREDIT RISK MANAGEMENT IN STATE BANK OF INDIA)....................35
4.1 THE TERMS............................................................................................................................35
4.2 Treatment of advances-Major Categories............................................................................35
4.3 Proposed Risk Weight Table.................................................................................................35
4.4 Risk weights...........................................................................................................................36
4.5 Components of Credit Risk...................................................................................................37
4.6 SALIENT FEATURES OF CRA MODELS....................................................................................38
4.6.1 (A) TYPE OF MODELS.....................................................................................................38
4.6.2 (B) TYPE OF RATINGS.....................................................................................................38
4.7 NEW RATING SCALES - FACILITY RATING: 16 RATING GRADES.............................................39
4.8 Short-term and Long-Term Ratings: .....................................................................................40
4.9 Competitors details...............................................................................................................40
4.10 POSITION OF STATE BANK OF INDIA IN LENDING.................................................................40
4.10.1 PRIVATE SECTOR BANK.................................................................................................40
4.10.2 PUBLIC SECTOR BANKS..................................................................................................41
4.11 Credit risk mitigation techniques Guarantees...................................................................42
4.11.1 Operational requirements for guarantees....................................................................42
4.11.2 Additional operational requirements for guarantees...................................................43
4.12 Qualitative Disclosures..........................................................................................................43
4.13 Quantitative Disclosures.......................................................................................................43
CHAPTER 5: (STUDY ON CREDIT POLICY).........................................................................................45
5.1 INTRODUCTION TO CREDIT POLICY......................................................................................45
5.1.1 Credit Standards............................................................................................................45
5.1.2 Credit Terms..................................................................................................................45
5.1.3 Collection Efforts...........................................................................................................45
5.2 GOALS OF CREDIT POLICY.....................................................................................................46
5.2.1 OBJECTIVES...................................................................................................................46
5.3 COMPARISON OF LOANS & ADVANCES OF STATE BANK OF INDIA WITH OTHER PUBLIC AND
PRIVATE SECTOR BANKS...................................................................................................................47
5.3.1 Interpretation................................................................................................................51
5.4 COMPARISON STUDY ON CREDIT RECOVERY MANAGEMENT..............................................52
5.5 PRIORITY SECTOR ADVANCES OF BANKS COMPARISON WITH OTHER PUBLIC SETOR BANKS
54
5.5.1 Interpretations..............................................................................................................55
6. CHAPTER 6 : (FINDINGS)..........................................................................................................56
6.1 Findings.................................................................................................................................56
6.2 LIMITATIONS.........................................................................................................................56
7. CHAPTER 7: (RECOMMENDATIONS).......................................................................................57
7.1 RECOMMENDATIONS............................................................................................................57
8. CHAPTER 8: (CONCLUSION)....................................................................................................58
8.1 CONCLUSION.........................................................................................................................58
9. CHAPTER 9: (BIBLIOGRAPHY)..................................................................................................59
Executive Summary
Banking sector of India is one of the major sectors, which contributes significantly to the
national economy. State Bank of India is the oldest nationalised bank operating in India. It has
over the years created one of the largest networks among all the other banks in India. In this
report I tried to analyze the credit risk assessment process of State Bank of India. Behind the
success of the bank they efficiently analyze the credit risk and the other risk and handle the risk
in such a way that brings them the success.
The first part of the report contains about the background of the study, the literature review
and the research methodology of the report. In the background of the study there is statement
of the problem, rationale of the study, scope of the project and the objective of the project.
Second part of the report discusses about the organization overview, mission and vision of the
organization, goals and objectives, its operations and performance of the bank at a glance etc.
The third part of the report analyzes the topic as a whole about the credit risk, different types of
credit risk and the credit risk management process of the bank.
The fourth part of the report discusses about the major findings of the report.
The fifth part of the report covers some suggestion about the findings of the report and I
conclude the report with the conclusion part.
1. CHAPTER: 1 (INTRODUCTION)
1.1 Background of the Report
This internship report is originated as a partial fulfilment of the PGDM program of Welingkar
Institute of Management Development & Research. I have worked at State Bank of India, SME J P
Nagar branch for twomonths and the experience of working at State Bank of Indiahas helped me to
match our theoretical knowledge with practical understanding. As an intern of State Bank of IndiaI
was provided with the topic Credit Risk Assessment in State Bank of India.
1.2 Introduction of the Study
The report basically deals with The Credit Risk Assessment in State Bank of India.Credit
department plays a very important role in bank as they evaluate the risk and take decision about
giving loan to the customers. In this report I have tried to study the literatures statements about credit
risk management and also the credit operation of State Bank of India. I made a comparison study
between literatures statements and the actual activities of the bank.
1.3 Statement of the Problem
Credit Risk corresponds to potential financial loss as a result of customers inability to honour
the terms and conditions of credit facility. This report will mainly focus on managing credit risk by
providing proper satisfaction towards the customers as well as achieving organizations goals.
1.4 Rationale of the Study
Now a days credit risk is a major risk for all banking institutions. Profitability of banks
depends on this sector. Liquidity is another major issue for selecting this topic, because each and
every bank isnow facing liquidity crisis, if they are not efficient enough to handle credit risk, they are
also facing more liquidity crisis. Most of the shares of the total revenue of the bank come from credit
operation and the existence of the bank depends on quality of assets portfolio. So, efficient
management of credit risk is a paramount importance. Credit risk is the loss associated with
degradation in the credit quality of borrowers of counter parties. In a banks portfolio, losses stems
from outright default due to the inability or unwillingness of the customer or counter party to meet
commitments in relation to leading, trading, settlement and other financial transaction. Alternatively,
losses result from reduction in portfolio value arising from actual or perceived determination in credit
quality. As the credit department plays a vital role in all these issues I have chosen this topic for my
report as well as it will help me to take different credit related decisions in different stages of my
future career.
1.5 Scope of the Study
This report has been prepared on the basis of experience gathered during the period of
internship. This study is limited with function of credit operation system and credit risk assessment of
State Bank of India. Most of the data used in the reporting of the study are from secondary sources.
All the data related to the reporting requirements are not available due to confidential reservation
practice for the benefit of the organization.
1.6 Objective of the Study
Specific Objectives
To understand the Credit Policy.
To identify the problems of Credit Assessment of State Bank of India.
To understand Credit Risk Management Policy of State Bank of India.
To identify the problem of CRM in State Bank of India.
To provide suggestions for the improvement of Credit Risk Management Policy of the Bank.
To compare the credit operation of bank with the literature statements.
1.7 Methodology of the study
I have got all the relevant information frommy working experience with SBI, their Annual
report, some circular, various brochures, SBI web site and such.
Primary data
The primary data of this report is the information, which is gathered from SBI while I worked
with them.
Secondary data
The secondary data of thisreport are collected from SBI Annual report, and some reports.
Secondary Sources: Secondary data is collected in the following ways :-
Data gathered within the organisation itself.
Data gathered from texts.
Internet sources.
General reports
Annual reports
Official documents
Credit manuals of the bank
1.8 Benefit of the report
As a student, I have learned about a bank; I also have learned the report writing, as a
great deal of theory is included in this report. It will be also benefited for the people who are
interested to know about Credit Assessment in SBI.
1.9 Limitation
Objective of the practical internshipis to have practical exposure for the students. My tenure
was for eight weeks only, which was somehow not sufficient. To prepare my internship report I faced
some limitation. Those are:
Due to the time constraint, the data has only been collected from the clients of SBI, J P Nagar
Branch, which may fail to represent the factual scenario of the relationship between
measurable variables.
The data collectedare subjected to be inaccurate and imprecise.
Unavailability to required published documents.
Lack of my experience and efficiency to prepare the standard report.
Lack of comprehension and time customer was a major problemin the collection of data.
Large-scale research was not possible.
Time constraint was also one of the factors that curtailed the scope of the study.
2. CHAPTER 2: (Overview)
2.1. Emergence of Risk management in Banks
The banking environment consists of numerous risks that can impinge upon theprofitability
of the banks. These multiple sources of risk give rise to a range of different issues. In an environment
where the aspect of the quantitative management of risks has become a major banking function, it is
of lesser importance to speak of the generic concepts. The different types of risks needs to be
carefully defined and such definitions provide a first basis for measuring risks on which the risk
management can beimplemented.
There have been a number of factors that can be attributed to the stabilization of thebanking
environment in nineties. Prior to that period, the industry was heavily regulated. Commercial banking
operations were basically restricted towards collecting resources and lending operations. The
regulators were concerned by the safety of the industry andthe control of its money creation power.
The rules limited the scope of the operations of the various credit institutions and limited their risks as
well. It was only during thenineties that banks experienced the first drastic waves of change in the
industry. Amongthe main driving forces that played a crucial role in the changes were the inflating
role of the financial markets, deregulation of the banking sector and the increase in thecompetition
among the existing and emerging banks.
On the foreign exchanges front, the floating exchanges rates accelerated the growth of
uncertainty. Monetary policies favouring high levels of interest rates and stimulating their
intermediation was by far the major channel of financing the economy, disintermediationincreased at
an accelerated pace. Those changes turned into new opportunities and threatsfor the players.
These waves of changes generated risks. Risks increased because of new competition, product
innovations, the shift from commercial banking to capital markets increasedmarket volatility and the
disappearance of old barriers which limited the scope of operations for the various financial
institutions. There was a total and radical change inthe banking industry. Here it is worth mentioning
that this process has been a continuous
2.2. Introduction
In the present world money is circulated all over the globe. Globalization, technological
advances and other factors money is circulating unimaginably. Financial Institutions mainly Banks
play a pivotal role in matching a depositor and lenders and channelling money and making the
economy more efficient. Although there are different types of banks specialized for different purposes
and with different brands and capital structure, they are regulated by standards such as the BASEL
standards (to keep a minimum amount of capital) BASEL II etc.
Banks offer a wide range of products and services to appeal to different customers and be
competitive in the market place. The State Bank of India wasborn with a new sense of social purpose
aided by the 480 offices comprising branches, sub offices and three Local Head Offices inherited
from the Imperial Bank. The concept of banking as mere repositories of the community's savings and
lenders to creditworthy parties was soon to give way to the concept of purposeful banking sub-serving
the growing and diversified financial needs of planned economic development. The State Bank of
India was destined to act as the pacesetter in this respect and lead the Indian banking system into the
exciting field of national development.
The competition in the banking industry has intensified more than ever before. Global
financial crisis, stock market crash, recessions and other factors affected the banking industry. So
banks should position themselves at a unique place in the minds of the customers by offering
attractive offers such as higher interest rates or by offering superior service to the customers. Services
include financial advice, flexible rates or dates of payment, portfolio management etc.
Nevertheless, the banking sector occupies an important place in India because of its
intermediary role; it ensures allocation and relocation of resources and keeps up the momentum of
economic activities. It plays a pivotal role in the economic development of the country and forms the
core at the money market.
2.3. COMPANY PROFILE
2.3.1 STATE BANK OF INDIA
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 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 contravenes 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.
A highly efficient and experienced management functioning in a well defined organizational
structure did not take long to place the bank an executed pedestal in the areas of business,
profitability, internal discipline and above all credibility A impeccable financial status consistent
maintenance of the lofty traditions if banking an observation of a high standard of integrity in its
operations helped the bank gain 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. An 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 continued to be upheld even to this
day as the State Bank years itself to meet the emerging challenges of the millennium.

2.3.2 ABOUT LOGO

Slogans are:
1) The Nation banks on us
2) Pure banking nothing else
3) The Banker to every Indian
4) With you all the way.
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 d
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 indicate
complete services towards customers. The logo also denotes a bank that it has prepared to do anything
to go to any lengths, for customers.
and newer, more challenging, more promising direction. The key hole indicates safety and security.
enotes a bank that it has prepared to do anything
s safety and security.
2.3.3 MISSION, VISION AND VALUES
MISSION STATEMENT:
To retain the Banks 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:
Premier Indian Financial Service Group with prospective world-class standards of efficiency
and professionalism and institutional values.
Retain its position in the country as pioneers in Development banking.
Maximize the shareholders value through high-sustained earnings per share.
An institution with cultural mutual care and commitment, satisfying and good work
environment and continues learning opportunities.
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.
2.4. SBI & ITS ASSOCIATES
There are seven other associate banks that fall under SBI. They all use the "State Bank of" name
followed by the regional headquarters' name.
State Bank of Bikaner & J aipur
State Bank of Hyderabad
State Bank of Indore
State Bank of Mysore
State Bank of Patiala
State Bank of Saurashtra
State Bank of Travancore
State Bank of India is present in 32 countries, where it has 84 offices serving the international needs
of the bank's foreign customers, and in some cases conducts retail operations. The focus of these
offices is India-related business.
SBI has branches in these countries:
Australia
Bahrain
Bangladesh
Belgium
Canada
Dubai
France
Germany
Hong Kong
Israel
J apan

2.5. PRODUCTS AND SERVICES
State Bank Of India renders varieties of services to customers through the following products:
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
RatesOf 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:
No cap on maximum loan amount for purchase/ construction of house/ flat
Option to club income of your spouse and children to compute eligible loan amount
Provision to club expected rent accruals from property proposed to compute eligible loan
amount
Provision to finance cost of furnishing and consumer durables as part of project cost
Repayment permitted upto 70 years of age
Free personal accident insurance cover
Optional Group Insurance from SBI Life at concessional premium (Upfront premium
financed as part of project cost)
Interest applied on daily diminishing balance basis
'Plus' schemes which offer attractive packages with concessional interest rates to Govt.
Employees, Teachers, Employees in Public Sector Oil Companies.
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
No Administrative Charges or application fee
Prepayment penalty is recovered only if the loan is pre-closed before half of the original
tenure (not recovered for bulk payments provided the loan is not closed)
Provision for downward refixation of EMI in respect of floating rate borrowers who avail
Housing Loans of Rs.5 lacs and above, to avail the benefit of downward revision of interest
rate by 1% or more
In-principle approval issued to give you flexibility while negotiating purchase of a property
Option to avail loan at the place of employment or at the place of construction
Attractive packages in respect of loans granted under tie-up with Central/ State Governments/
PSUs/ reputed corporates and tie-up with reputed builders (Please contact your nearest branch
for details)
2.6. SERVICES
Domestic treasury
Sbi vishwa yatra foreign travel card
Broking services
Revised service charges
ATMservices
Internet banking
e-pay
e-rail
rbieft
Safe deposit locker
Gift cheques
Micro-codes
foreign inward remittances
ATM SERVICES
STATE BANK NETWORKED ATM SERVICES
State Bank offers you the convenience of over 8000 ATMs in India, the largest network in the
country and continuing to expand fast! This means that you can transact free of cost at the ATMs of
State Bank Group (This includes the ATMs of State Bank of India as well as the Associate Banks
namely, State Bank of Bikaner & J aipur, State Bank of Hyderabad, State Bank of Indore, State Bank
of Mysore, State Bank of Patiala, State Bank of Saurashtra, and State Bank of Travancore) and wholly
owned subsidiary viz. SBI Commercial and International Bank Ltd., using the State Bank ATM-cum-
Debit (Cash Plus) card.
KINDS OF CARDS ACCEPTED AT STATE BANK ATMs
Besides State Bank ATM-Cum-Debit Card and State Bank International ATM-Cum-Debit
Cards following cards are also accepted at State Bank ATMs: -
State Bank Credit Card
ATM Cards issued by Banks under bilateral sharing viz. Andhra Bank,Axis Bank, Bank of
India, The Bank of Rajasthan Ltd., Canara Bank, Corporation Bank, Dena Bank, HDFC
Bank, Indian Bank, Indus Ind Bank, Punjab National Bank, UCO Bank andUnion Bank of
India.
Cards issued by banks (other than banks under bilateral sharing) displaying Maestro, Master
Card, Cirrus, VISA and VISA Electron logos
All Debit/ Credit Cards issued by any bank outside India displaying Maestro, Master Card,
Cirrus, VISA and VISA Electron logos
Note: If you are a cardholder of bank other than State Bank Group, kindly contact your Bank for the
charges recoverable for usage of State Bank ATMs.
STATE BANK INTERNATIONAL ATM-CUM-DEBIT CARD
Eligibility: All Saving Bank and Current Account holders having accounts with networked branches
and are:
18 years of age & above
Account type: Sole or J oint with Either or Survivor / Anyone or Survivor
NRE account holders are also eligible but NRO account holders are not.
Benefits:
Convenience to the customers traveling overseas
Can be used as Domestic ATM-cum-Debit Card
Available at a nominal joining fee of Rs. 200/-
Daily limit of US $ 1000 or equivalent at the ATM and US $ 1000 or equivalent at Point of
Sale (POS) terminal for debit transaction
Purchase Protection*up to Rs. 5000/- and Personal Accident cover*up to Rs. 2,00,000/-
Charges for usage abroad: Rs. 150+Service Tax per cash withdrawal Rs. 15 +Service Tax
per enquiry.
State Bank ATM-cum-Debit (State Bank Cash plus) Card:
Indias largest bank is proud to offer you unparalleled convenience viz. State Bank ATM-cum-
Debit(Cash Plus) card. With this card, there is no need to carry cash in your wallet. You can now
withdraw cash and make purchases anytime you wish to with your ATM-cum-Debit Card.
Get an ATM-cum-Debit card with which you can transact for FREE at any of over 8000 ATMs of
State Bank Group within our country.
SBI GOLD INTERNATIONAL DEBIT CARDS
E-PAY:
Bill Payment at Online SBI (e-Pay) will let you to pay your Telephone, Mobile, Electricity, Insurance
and Credit Card bills electronically over our Online SBI website
E-RAIL:
Book your Railways Ticket Online.
The facility has been launched wef Ist September 2003 in association with IRCTC. The scheme
facilitates Booking of Railways Ticket Online.
The salient features of the scheme are as under:
All Internet banking customers can use the facility.
On giving payment option as SBI, the user will be redirected to onlinesbi.com. After logging
on to thesite you will be displayed payment amount, TID No. and Railway reference no.
The ticket can be delivered or collected by the customer.
The user can collect the ticket personally at New Delhi reservation counter .
The Payment amount will include ticket fare including reservation charges, courier charges
and Bank Servicefee of Rs 10/. The Bank service fee has been waived unto31st J uly 2006.
SAFE DEPOSIT LOCKER:
For the safety of your valuables we offer our customers safe deposit vault or locker facilities
at a large number of our branches. There is a nominal annual charge, which depends on the size of the
locker and the centre in which the branch is located.
NRI HOME LOAN
SALIENT FEATURE
Purpose of Loan
Loans to NRIs & PIOs can be extended for the following purposes:
To purchase/construct a new house / flat
To repair, renovate or extend an existing house/flat
To purchase an existing house/flat
To purchase a plot for construction of a dwelling unit.
To purchase furnishings and consumer durables, as a part of the project cost
AGRICULTURE / RURAL
State Bank of India Caters to the needs of agriculturists and landless agricultural labourers through a
network of 6600 rural and semi-urban branches. here are 972 specialized branches which have been
set up in different parts of the country exclusively for the development of agriculture through credit
deployment. These branches include 427 Agricultural Development Branches (ADBs) and 547
branches with Development Banking Department (DBDs) which cater to agriculturists and 2
Agricultural Business Branches at Chennai and Hyderabad catering to the needs of hitech commercial
agricultural project
3.CHAPTER 3: (Credit Risk Management)
3.1 THEORITICAL BACKGROUND OF CREDIT RISK
3.1.1 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.
3.1.2 RISK
Risk is defined as uncertain resulting in adverse outcome, 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.
There are mainly three types of riskthey are follows
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 stepin
gauging the feasibility of the project. Once risks have been identified they can be allocated to
participants and appropriate mechanisms put in place.
3.1.3 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.
3.1.4 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 omission and
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. Technical
breakdown and change in staff also account for the operational risk.
3.2 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.
3.2.1 CONTRIBUTORS OF CREDIT RISK
Corporate assets
Retail assets
Non-SLR portfolio
In case of guarantees, Letter of credit and Letter of comfort
Securities trading business
Treasury operations
Derivatives
Cross border exposure
Collaterals accepted by the bank
Settlement, etc
3.2.2 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.
3.3 Credit rating
3.3.1 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.
3.3.2 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.
Main features of the rating tool:-
comprehensive coverage of parameters
extensive data requirement
mix of subjective and objective parameters
includes trend analysis
13 parameters are benchmarked against other players in the segment
captions of industry outlook
8 grade ratings broadly mapped with external rating agencies prevailing data.
3.4 Rating tool for SME
Internal credit ratings are the summary indicators of risk for the banks individual credit exposures. It
plays a crucial role in credit risk management architecture of any bank and forms the cornerstone of
approval process.
Based on the guidelines provided by Boston Consultancy Group (BCG), SBI adopted credit rating
tool.
The rating tool for SME borrower assigns the following Weight ages to each one of the four main
categories i.e
(i) Scenario(I) : without monitoring tool
S No Parameters Weightages (%)
1 financial performance XXXX
2 operating performance XXXX
3 quality of management XXXX
4 industry outlook XXXX
(ii). Scenario (II): with monitoring tool [conduct of account]:- the weight age would be conveyed
separately on roll out of the tool. In the above parameters first three parameters used to know the
borrower characteristics. In fourth encapsulates the risk emanating from the environment in which the
borrower operates and depends on the past performance of the industry its future outlook and macro
economic factors.
3.4.1 Financial performance:-
S No Sub parameters Weightages
(in %)
1 Net sales growth rate(%) Xxxx
2. PBDIT Growth rate (%) Xxxx
3. PBDIT /Sales (%) Xxxx
4. TOL/TNW Xxxx
5. Current ratio Xxxx
6. Operating cash flow Xxxx
7. DSCR Xxxx
8. Foreign exchange ratio Xxxx
9. Expected values of D/E of 50% of NFB credit devolves Xxxx
10. Realisability of Debtors Xxxx
11. State of export country economy Xxxx
12. Fund deputation risk Xxxx
Total Xxxxxx
3.4.2 Operating performance
S No Sub parameters Weightage
(%)
1. credit period allowed Xxxx
2. credit period availed Xxxx
3. working capital cycle Xxxx
4. Tax incentives Xxxx
5. production related risk Xxxx
6. product related risk Xxxx
7. price related risk Xxxx
8. client risk Xxxx
9. fixed asset turnover Xxxx
Total Xxxxxx
3.4.3 Quality of management
S No sub parameters Weightages (%)
1. Hy / Track record of industrial unrest Xxxx
2 market report of management reputation Xxxx
3 history of FERA violation / ED enquiry Xxxx
4 Too optimistic projections of sales and other financials Xxxx
5 technical and managerial expertise Xxxx
6 capability to raise money Xxxx
Total Xxxxxx
IN STATE BANK OF INDIA DFFERENT PARAMETERS USED TO GIVE RATINGS AREAS
FOLLOWS:-
FINANCIAL PARAMETERS
S.NO Indicator/ratio Score
F1(a) Audited net sales in last year Xxxx
F2(b) Audited net sales in year before last Xxxx
F1(c) Audited net sales in 2 year before last Xxxx
F1(d) Audited net sales in 3 year before last Xxxx
F1(e) Estimated or projected net sales in next year Xxxx
F2 NET SALES GROWTH RATE(%) Xxxx
F3 PBDIT growth rate(%) Xx
F4 Net sales(%) Xx
F5 ROCE(%) Xx
F6 TOL/TNW Xxx
F7 Current ratio Xxx
F8 DSCR Xxx
F9 Interest coverage ratio Xx
F10 Foreign exchange risk Xx
F11 Reliability of debtors Xx
F12 Operating cash flow Xx
F13 Trend in cash accruals x
BUSINESS PARAMETERS
S.NO Indicator/ratio Score
B1 Credit period allowed(days) Xx
B2 Credit period availed(days) Xx
B3 Working capital cycle(times) Xx
B4 Production related risks Xx
B5 Product related risks X
B6 Price related risks X
B7 Fixed assets turnover X
B8 No. of yeas in business X
B9 Nature of clientele base X
MANAGEMENT PARAMETERS
SR. NO INDICATOR/RATIO SCORE
M1 HR policy X
M2 Track record in payment of statutory and other dues X
M3 Market report of management reputation X
M4 Too optimistic projections of sales and other financials X
M5 Capability to raise resources X
M6 Technical and managerial expertise X
M7 Repayment track record X
CONDUCT PARAMETERS
A1 Creation of charges on primary security X
A2 Creation of charges on collateral and execution of personal or
corporate guarantee
X
A3 Proper execution of documents X
A4 Availability of search report X
A5 Other terms and conditions not complied with X
A6 Receipt of periodical data X
A7 Receipt of balance sheet X
B1 Negative deviation in half yearly net sales vis--vis proportionate
estimates
X
B2 Negative deviation in annual net sales vis--vis estimates X
B3 Negative deviation in half yearly net profit vis--vis proportionate
estimates
X
B4 Adverse deviation in inventory level in months vis--vis estimate
level
X
B5 Adverse deviation in receivables level in months vis--vis
estimated level
X
B6 Quality of receivable assess from profile of debtors X
B7 Adverse deviation in creditors level in months vis--vis estimated
level
X
B8 Compliance of financial covnants X
B9 Negative deviation in annual net profit vis--vis estimates X
Unit inspection report observations X
C2 Audit report internal/statutory/concurrent/RBI X
C3 Conduct of account with other banks/lenders and information on
consortium
X
D1 Routing of proportionate turnover/business X
D2 Utilization of facilities(not applicable for term loan) X
D3 Over due discounted bills during the period under review within the
sanctioned terms then not applicable
X
D4 Devolved bill under L/c outstanding during the period under review X
D5 Invoked BGs issued outstanding during the period under review X
D6 Intergroup transfers not backed by trade transactions during the period
under review
X
D7 Frequency of return of cheques per quarter deposited by borrower X
D8 Frequency of issuing cheques per quarter without sufficient balance and
returned
X
D9 Payment of interest or instalments X
D10 Frequency of request for AD HOC INCREASE OF LIMIS during the last
one year
X
D11 Frequency of over drawings CC account X
E1 Status of deterioration in value of primary security or stock depletion X
E2 Status of deterioration in value of collateral security X
E3 Status of deterioration in personal net worth and TNW X
E4 Adequacy of insurance for the primary /collateral security X
3.5 Difficulty of measuring 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 (VaR) 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.
Credit Risk
The most obvious risk derivatives participants face is credit risk. Credit risk is the risk to
earnings or capital of an obligors 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.
F1 Labor situation/industrial relations X
F2 Delay or default in payments of salaries and statutory dues X
F3 Non co-operation by the borrower X
F4 Intended end-use of financing X
F5 Any other adverse feature/snon financial including corporate governance
issues suchasadverse publicity, strictures from regulators, pitical risk and
adverse trade environment not covered
X
3.6 APPRAISAL OF THE FIRMS POSITION ON BASIS OF OTHER PARAMETERS
1. Managerial Competence
2. Technical Feasibility
3. Commercial viability
4. Financial Viability
3.6.1 Managerial Competence
Back ground of promoters
Experience
Technical skills, Integrity & Honesty
Level of interest / commitment in project
Associate concerns
3.6.2 Technical Feasibility
Location
Size of the Project
Factory building
Plant & Machinery
Process & Technology
Inputs / utilities
3.6.3 Commercial Viability
Demand forecasting / Analysis
Market survey
Pricing policies
Competition
Export policies
3.6.4 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 years.
3.7 Credit investigation report
Branch prepares Credit investigation report in order to avoid consequence in later stage Credit
investigation report should be a part of credit proposal. Bank has to submit the duly completed credit
investigation reports after conducting a detailed credit investigation as per guidelines.
Some of the guidelines in this regards as follow:
Wherever a proposal is to be considered based only on merits of flagships concerns of
the group, then such support should also be compiled in respect of subject flagship in
concern besides the applicant company.
In regard of proposals falling beyond the power of rating officer, the branch should
ensure participation of rating officer in compilation of this report.
The credit investigation report should accompany all the proposals with the fund
based limit of above 25 Lakhs and or non fund based of above Rs. 50 Lakhs.
The party may be suitably kept informed that the compilation of this report is one of
the requirements in the connection with the processing for consideration of the
proposal.
The branch should obtain a copy of latest sanction letter by existing banker or the
financial institution to the party and terms and conditions of the sanction should
studied in detail.
Comments should be made wherever necessary, after making the observations/lapses
in the following terms of sanction.
Some of the important factors like funding of interest, re schedule of loans etc terms
and conditions should be highlighted.
Copy of statement of accounts for the latest 6 months period should be obtained by
the bank. To get the present condition of the party.
Remarks should be made by the bank on adverse features observed. (e.g., excess
drawings, return of cheques etc).
Personal enquiry should be made by the bank official with responsible official of
partys present / other bankers and enquiries should be made with a elicit information
on conduct of account etc.
Care should be taken in selection of customers or creditors who acts as the
representative. They should be interviewed and compilation of opinion should be
done.
Enquiries should be made regarding the quality of product, payment terms, and
period of overdue which should be mentioned clearly in the report. Enquiry should be
aimed to ascertain the status of trading of the applicant and to know their capability to
meet their commitments in time.
To know the market trend branch should enquire the person or industry that is in the
same line of business activity.
In depth observation may be made of the applicant as to :
- whether the unit is working in full swing
- number of shifts and number of employees
- any obsolete stocks with the unit
- capacity of the unit
- nature and conditions of the machinery installed
- Information on power, water and pollution control etc.
- information on industrial relation and marketing strategy
3.8 CRA Proposal
The proposal is made considering 3 years balance sheet of a company to arrive at a pricing
based on its current rating. It includes many parameters.
3.8.1 Illustration: A model of a CRA proposal
Memorandum for the committee of CRA validation
1. CRA model used: Choose one form
a. Trading
b. Non trading ( Regular)
c. Non trading regular ( Diamond)
2. Borrower details (Name)
3. Particulars of CRA
a. Borrower Rating
i. Before country risk
ii. Final after country risk
b. External Rating
4. Proposal for validation of
a. Borrower rating
b. Facility rating
5. Credit limits
6. Brief particulars of the borrower
a. Age, Succession planning
b. Collateral, Management
c. Name of the directors
d. Associate / Sister / Group company
7. Validation
a. Performance and financial indicators
S.No Financial Parameters Last 3 years
audited data
Current year
estimation
1 Net Sales
2 Export Sales
3 Operating Profit
4 Total Assets (TA)
5 Total Current Assets
6 Net Working Capital
7 Total Outside Liability (TOL)
8 Profit After Tax (PAT)
9 PAT / Net Sales
10 Retained Profit
11 Retained Profit / TA
12 Net Cash Accrual (NCA)
13 NCA / Total Debt
14 PBDIT
15 PBDIT / Interest
16 PUC
17 Total Net Worth (TNW)
18 Adjusted TNW
19 TOL / TNW
20 TOL / Adjusted TNW
21 (Inventory / Net Sales) +(Receivables / Gross
Sales) in days
22 Current Ratio
b. Comments on variance in values
c. Performance under other relevant factors
i. Net Salesas a percentage of estimated net sales
ii. Profit as a percentage of estimated net profit
d. Moving average of companys last 3 years ratio
S.No Financial Parameters Moving Average ( Last 3
years)
Projected( Next
Year)
1 TOL / TNW 1.95 2.15
2 Current Ratio 1.33 1.29
3 ROCE % 17.90% 16.91%
4 PBDIT / Interest 4.22 2.55
5 PAT / Net Sales (%) 5.92% 4.28%
6 Retained Profit / TA 6.17% 4.48%
7 Net Cash Accruals / Total Debt % 12.95% 10.21%
8 (Inventory / Net Sales) +(Receivables /
Gross Sales)
147 145
e. Details in terms of loan.
8. Quarterly Sales
Sales in the last 2 quarters preceding the date of Risk Assessment
Particulars September 2012 December 2012
Sales
Sales in the corresponding quarters in the preceding year
Particulars September 2011 December 2011
Sales
a. Growth %
b. Average Growth
9. Comments on
a. Financial flexibility of the company
i. Raise funds through internal sources like internal accruals, scalable assets.
ii. Raise resources through external sources based on the relationship with
banker, liquidityback up etc.
iii. Record in raising funds from capital market.
iv. Flexibility to defer its capex in case of weakening financial position etc.
b. Forex business details
c. Country risk
d. J ustification for giving abnormal high or low
10. Conduct of Account ( Last 12 months)
S.No Particulars Comments
1 Irregularity in CC, Term Loanand Other Accounts
2 Devolvement of Letter of credit
3 Invocation of Bank guarantee
4 Over duesto other Banks / Financial Institutions
5 Routing of Sales
6 Adherence to sanction terms
7 Completion of documentation formalities
8 Timely submission of financial data / Balance sheet / Stock statement
9 Investment in group company
11. Future Prospects
12. Entry Barriers
13. Details of security available
14. CRMD guidelines on industry outlook
15. Non compliance with regulation to banks laid down instruction with regard to loan policy
guidelines / Earlier prescription of sanctioning authority / RMD exposure norms / Figuring in
RBI / ECGC defaulters list / Major I & A audit irregularities / Other risk factors etc.
16. Qualitative factors
17. Hurdle scores comparison
18. Risk Score
19. Certificate
20. Recommendation
3.9 Credit Files
Its the file, which provides important source material for loan supervision in regard to information
for internal review and external audit. Branchhas to maintain separate credit file compulsorily in case
of Loans exceeding Rs 50 Lakhs which should be maintained for quick access of the related
information.
3.9.1 Contents of the credit file
basic information report on the borrower
milestones of the borrowing unit
competitive analysis of the borrower
credit approval memorandum
financial statement
copy of sanction communication
security documentation list
Dossier of the sequence of events in the accounts
Collateral valuation report
Latest ledger page supervision report
Half yearly credit reporting of the borrower
Quarterly risk classification
Press clippings and industrial analysis appearing in newspaper
Minutes of latest consortium meeting
Customer profitability
Summary of inspection of audit observation
Credit files provide all information regarding present status of the loan account on basis of credit
decision in the past. This file helps the credit officer to monitor the accounts and provides concise
information regarding background and the current statusof the account
4. CHAPTER 4: (STUDY ON CREDIT RISK MANAGEMENT IN STATE BANK
OF INDIA)
4.1 THE TERMS
Credit is Money lent for a period of Time at a Cost (interest)
Credit Risk is inability or unwillingness of customer or counter party to meet commitments
Default/ Willful default
Losses due to fall in credit quality real / perceived
4.2 Treatment of advances-Major Categories
Governments
PSEs (public Sector Enterprises)
Banks
Corporate
Retail
Claims against residential property
Claims against commercial real estate
4.3 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
Credit
Assessment
AAA to
AA-
A+ to
A-
BBB+
to BBB-
BB+
To B-
Below
B-
Unrated
Sovereign(Govt.&
Central Bank)
0% 20% 50% 100% 150% 100%
Claims on Banks
Option 1 20% 50% 100% 100% 150% 100%
Option 2a 20% 50% 50% 100% 150% 50%
Option 2b 20% 20% 20% 50% 150% 20%
Corporate 20%
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 byresidential property - 35%
Non Performing Assets:
If specific provision is less than 20% 150%
If specific provision is more than 20% 100%
Simple approach similar to Basel I
Roll out from March 2008
Risk weight for each balance sheet & off balance sheet item. That is, FB & NFB, both.
Risk weight for Retail reduced
Risk weight for Corporate - according to external rating by agencies approved by RBI and
registered with SEBI
Lower risk weight for smaller home loans (<20 lacs)
Risk weight for unutilized limits =(Limit- outstanding) >0Importance 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).
4.4 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%
Staff Home Loans/PF Lien noted loans 20%
Consumer credit (Personal Loans/ Credit Card Receivables) 125%
Gold loans upto 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] &
unutilised 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)
4.5 Components of Credit Risk
=== Size of Expected Loss
1. What is the probability of a
default (NPA)?
2. How much will be the likely
exposure in the case the advance
becomes NPA?
3. How much of that exposureis the
bank going to lose?
Expected Loss
Probability of Default
(Frequency)
Exposure at Default
Loss Given Default
Severity
EL
=
=
=
=
=
PD
X
EAD
X
LGD
4.6 SALIENT FEATURES OF CRA MODELS
4.6.1 (A) TYPE OF MODELS
S. Exposure Level (FB +NFB Non Trading Sector Trading Sector
No. Limits ) (C&I , SSI , AGL) ( Trade & Services)
(i) Over Rs. 5.00 crore Regular Model Regular Model
(ii) Rs 0.25 crore to Rs. 5.00 crore Simplified Model Simplified Model
4.6.2 (B) TYPE OF RATINGS
S. No. Model Type of Rating
(i) Regular Model Borrower Rating
Facility Rating
(ii) Simplified Model Borrower Rating
New Rating Scales Borrower Rating: 16 Rating Grades
There are different rating given to the different banks. For example
S. No. Borrower Rating Range of scores Risk level Comfort Level
1 SB1 94-100 Virtually Zero risk Virtually Absolute safety
2 SB2 90-93 Lowest Risk Highest safety
3 SB3 86-89 Lower Risk Higher safety
4 SB4 81-85 Low Risk High safety
5 SB5 76-80 Moderate Risk with Adequate Adequate safety
Cushion
6 SB6 70-75 Moderate Risk Moderate Safety
7 SB7 64-69
8 SB8 57-63 Average risk Above Safety Threshold
9 SB9 50-56
10 SB10 45-49 Acceptable Risk Safety Threshold
(Risk Tolerance Threshold)
11 SB11 40-44 Borderline risk Inadequate safety
12 SB12 35-39 High Risk Low safety
13 SB13 30-34 Higher risk Lower safety
14 SB14 25-29 Substantial risk Lowest safety
15 SB15 <24 Pre-Default Risk (extremely Nil
Vulnerable todefault)
16 SB16 - Default Grade
Bank has introduced New Rating Scales for borrower for giving loans. Rating is
given on the basis of scores out of 100. Bank gives loans to the borrower as per their rating
like SBI gives loans to the borrower up to SB8 rating as it has average risk till SB8 rating.
From SB9 rating the risk increases. So banks does not give loans after SB8 rating.
4.7 NEW RATING SCALES - FACILITY RATING: 16 RATING GRADES
S FACILITY RANGE RISK LEVEL COMFORT
NO GRADES OF LEVEL
SCORES
1 FR1 94-100 Virtually Zero Risk Virtually Absolute Safety
2 FR2 87-93 Lowest Risk Highest Safety
3 FR3 80-86 Lower Risk Higher Safety
4 FR4 73-79 Low Risk High Safety
5 FR5 66-72 Moderate Risk with Adequate Safety
Adequate Cushion
6 FR6 59-65 Moderate Moderate
7 FR7 52-58 Risk Safety
8 FR8 45-51 Average Risk Above Safety
Threshold
9 FR9 38-44
Acceptable Risk Safety Threshold
10 FR10 31-37 (Risk Tolerance Threshold)
11 FR11 24-30 High Risk Low Safety
12 FR12 17-23 Higher Risk Lower Safety
13 FR13 11-16 Substantial Risk Lowest Safety
14 FR14 5-10
15 FR15 1-4 Highest Risk
NIL
16 FR16 0
4.8 Short-term and Long-Term Ratings:
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 toone particular entity within a corporate group cannot be used to risk weight
other entities within the same group.
4.9 Competitors details
In Bangalore Main competitors of State Bank of India are ICICI Bank in private sector banks
and Syndicate Bank and Corporation Bank In public sector. In SBI, it can be better understood with
given Pie diagram as follows:
4.10 POSITION OF STATE BANK OF INDIA IN LENDING
4.10.1 PRIVATE SECTOR BANK
BANK LENDING IN Cr
State Bank Of India 29
ICICI bank 15
HDFC 5
AXIS 25

4.10.2 PUBLIC SECTOR BANKS
BANK LENDING IN Cr
State Bank Of India 29
Syndicate Bank 26
Canara Bank 23
Corporation Bank 25
State Bank Of India
ICICI bank
HDFC
AXIS
0 10 20 30 40
LENDING IN Cr
LENDING IN Cr

In total lending, State Bank of India is in first place relatively in Public Sector Banks.
4.11 Credit risk mitigation techniques Guarantees
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 recognised. 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:
4.11.1 Operational requirements for guarantees
a. A guarantee (counter-guarantee) must represent a direct claim on the protection
provider and must be explicitly referenced to specific exposures or a pool of
exposures, so that the extent of the cover is clearly defined and incontrovertible. The
guarantee must be irrevocable; there must be no clause in the contract that would
allow the protection provider unilaterally to cancel the cover or that would increase
the effective cost of cover as a result of deteriorating credit quality in the guaranteed
exposure. The guarantee must also be unconditional; there should be no clause in the
guarantee outside the direct control of the bank that could prevent the protection
provider from being obliged to pay out in a timely manner in the event that the
original counterparty fails to make the payment(s)due.
b. All exposures will be risk weighted after taking into account risk mitigation available
in the form of guarantees. When a guaranteed exposure is classified as non-
State Bank Of India
ICICI bank
HDFC
AXIS
0 10 20 30 40
LENDING IN Cr
LENDING IN Cr
performing, the guarantee will cease to be a credit risk mitigant and no adjustment
would be permissible on account of credit risk mitigation in the form of guarantees.
The entire outstanding, net of specific provision and net of realisable value of eligible
collaterals / credit risk mitigants, will attract theappropriate risk weight.
4.11.2 Additional operational requirements for guarantees
In addition to the legal certainty requirements in paragraphs 7.2 above, in order for a
guarantee to be recognised, the following conditions must be satisfied:
a. 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 theright to receive any such payments from the guarantor
without first having to take legal actions in order to pursue the counterparty for
payment.
b. The guarantee is an explicitly documented obligation assumed by the guarantor.
c. 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.
4.12 Qualitative Disclosures
(a) The general qualitative disclosure requirement (paragraph 10.13 ) with respect to credit risk,
including:
Definitions of past due and impaired (for accounting purposes);
Discussion of the banks credit risk management policy;
4.13 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
(e) Residual contractual maturity breakdown of assets,
(g) Amount of NPAs (Gross)
Substandard
Doubtful 1
Doubtful 2
Doubtful 3
Loss
(h) Net NPAs
(i) NPA Ratios
Gross NPAs to gross advances
Net NPAs to net advances
(j) Movement of NPAs (Gross)
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
(m) Amount of provisions held for non-performing investments
(n) Movement of provisions for depreciation on investments Opening balance
Provisions made during the period
Write-off
Write-back of excess provisions
Closing balance
CHAPTER 5: (STUDY ON CREDIT POLICY)
5.1 INTRODUCTION TO CREDIT POLICY
Banks 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.
5.1.1 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.
5.1.2 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.
5.1.3 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.
5.2 GOALS OF CREDIT POLICY
A firm may follow a lenient or a stringent credit policy. The firm following a lenient credit
policy tends to sell on credit to customers on very liberal terms and standards; credits are granted for
longer periods evento those customers whose creditworthiness is not fully known or whose financial
position is doubtful. In contrast, a firm following a stringent credit policy sells on credit on a highly
selective basis only to those customers who have proven creditworthiness and who are financially
strong. In practice, follow credit policies are ranging between stringent to lenient.
Firms use credit policy as a marketing tool for expanding sales. In declining market, it may be
used to maintain the market share. Credit Policy helps to retain old customers and create new
customers by weaning them away from competitors. In a growing market, it is used to increase the
firms market share. Under a highly competitive situation or recessionary economic conditions, a firm
may loose its credit policy to maintain sales or to minimize erosion of sales.
5.2.1 OBJECTIVES
The main objectives of Banks 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 whish emerge, within the pre determined 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.
Use pricing as a tool of competitive advantage ensuring however that earnings are protected.
Develop and maintain enhanced competencies in credit management at all levels through a
combination of training initiatives and dissemination of best practices.
5.3 COMPARISON OF LOANS & ADVANCES OF STATE BANK OF INDIA WITH
OTHER PUBLIC AND PRIVATE SECTOR BANKS
For the year 2008: (*Amt in millions)
Name Of the Banks Amt of advances
State Bank Of India 4167681.96
Syndicate Bank 640510.11
Canara Bank 1072380.40
Corporation Bank 391855.74
HDFC Bank 634268.93
ICICI Bank 2256160.82
UTI Bank 596611.44

0 2000000 4000000
State Bank Of India
Syndicate Bank
Canara Bank
Corporation Bank
HDFC Bank
ICICI Bank
UTI Bank
Amt of advances
Amt of advances
HDFC Bank 988830.47
UTI Bank 815567.65

0 2000000 4000000 6000000
State Bank Of India
Syndicate Bank
Canara Bank
Corporation Bank
HDFC Bank
ICICI Bank
UTI Bank
Amt of advances
Amt of advances
HDFC Bank 1258305.93
UTI Bank 1043409.46

0 2000000400000060000008000000
State Bank Of India
Syndicate Bank
Canara Bank
Corporation Bank
HDFC Bank
ICICI Bank
UTI Bank
Amt of advances
Amt of advances
UTI Bank 1424078.28

0 2 4 6 8
State Bank Of India
Syndicate Bank
Canara Bank
Corporation Bank
HDFC Bank
ICICI Bank
UTI Bank
Millions
Amt of advances
Amt of advances
UTI Bank 1697595.38

5.3.1 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 banks 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.
0 2000000 4000000 6000000
State Bank Of India
Syndicate Bank
Canara Bank
Corporation Bank
HDFC Bank
ICICI Bank
UTI Bank
Amt of advances
Amt of advances
5.4 COMPARISON STUDY ON CREDIT RECOVERY MANAGEMENT
Name Of The Banks
Loans Issued Recovered Outstanding
State Bank Of India 157933.54 91601.4 66332.09
Syndicate Bank 20646.62 11562.11 9084.5
Canara Bank 47638.62 27058.74 20579.88
Corporation Bank 14889.72 7500 6389.72
HDFC Bank 17744.51 9670.75 8073.76
ICICI Bank 60757,36 34631.70 26125.66
UTI Bank 9362.92 4615.55 4447.40
For the year 2005:
Name Of The Banks Loans Issued Recovered Outstanding
Syndicate Bank 26729.21 15422.75 11306.46
Canara Bank 60421.40 35044.42 25376.96
Corporation Bank 18546.36 10478.70 8067.67
HDFC Bank 25566.30 14291.56 11274.74
ICICI Bank 88991.75 52327.15 36664.60
UTI Bank 15602.92 8550.40 7052.52
For the year 2006:
Syndicate Bank 36466.24 21879.74 14386.50
Canara Bank 79425.69 48446.67 30976.02
HDFC Bank 35061.26 20125.61 14936.10
ICICI Bank 143029.89 88392.47 54637.46
UTI Bank 22314.24 12429.03 9885.20

For the year 2007:
Syndicate Bank 51670.44 31879.74 19790.7
Canara Bank 98505.69 68449.67 30056.02
HDFC Bank 46944.78 30125.16 16819.62
ICICI Bank 164484.38 98392.47 66091.91
UTI Bank 36876.48 22429.03 14447.45
5.5 PRIORITY SECTOR ADVANCES OF BANKS COMPARISON WITH OTHER
PUBLIC SETOR BANKS
S.No Name of the Bank
Direct
Agriculture
Advances
Indirect
Agriculture
Advances
Total
Agriculture
Advances
Weaker
Section
Advances
Total
Priority
Sector
Advances
Amount Amount Amount Amount Amount
1 STATE BANK OF INDIA 23484 7032 30516 19883 82895
2 SYNDICATE BANK 4406.33 1464.64 5870.94 3267.71 14626.62
3 CANARA BANK 8348 3684 12032 4423 30937
4 CORPORATION BANK 963.58 971.22 1934.80 665.32 9043.74
PRIORITY SECTOR ADVANCES OF PUBLIC SECTOR BANKS IN PERCENTAGES ARE
AS FOLLOWS:
S.No Name of the Bank
Direct
Agriculture
Advances
Indirect
Agriculture
Advances
Total
Agriculture
Advances
Weaker
Section
Advances
Total
Priority
Sector
Advances
% Net Banks
Credit
% Net
Banks
Credit
% Net
Banks
Credit
% Net
Banks
Credit
% Net
Banks
Credit
1 STATE BANK OF INDIA 10.5 3.1 13.6 8.9 37.0
2 SYNDICATE BANK 13.5 4.5 18.0 10.0 44.9
3 CANARA BANK 11.2 4.9 15.7 5.9 41.4
4 CORPORATION BANK 4.5 4.5 9.0 3.1 41.9

5.5.1 Interpretations
SBIs direct agriculture advances as compared to other banks is 10.5% of the Net Banks
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.
6. CHAPTER 6 : (FINDINGS)
6.1 Findings
Project findings reveal that SBI is sanctioning less Credit to agriculture, as compared
with its key competitors viz., Canara Bank, Corporation Bank, Syndicate Bank
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:
SBI Term Deposits
SBI Recurring Deposits
SBI Housing Loan
SBI Car Loan
SBI Educational Loan
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.
SBIs direct agriculture advances as compared to other banks is 10.5% of the Net Banks
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.
6.2 LIMITATIONS
The time constraint was a limiting factor, as more in depth analysis could not be carried.
Some of the information is of confidential in nature that could not be divulged for the
study.
7. CHAPTER 7 : (RECOMMENDATIONS)
7.1 RECOMMENDATIONS
The Bank should keep on revising its Credit Policy which will help Banks effort to correct
the course of the policies
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 instalments. 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.
8. CHAPTER 8 : (CONCLUSION)
8.1 CONCLUSION
The project undertaken has helped a lot in gaining knowledge of the Credit Policy and Credit
Risk Assessment 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 thecredit risk assesment in banking
sector.
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 Assessment. 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 Industry.
9. CHAPTER 9: (BIBLIOGRAPHY)
BOOKS REFERRED:
1. M.Y.Khan and P.K.J ain, Management Accounting (Third Edition), Tata McGraw Hill.
2. M.Y.Khan and P.K.J ain, 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
BANKS INTERNAL RECORDS:
1. Annual Reports of State bank Of India(2003-2012)
2. State bank Of India Manuals
3. Circulars sent to all Branches, Regional Offices and all the Departments of Corporate Offices.

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