Essay: The impact of credit risk on financial variables HDCC Bank.

1.1 INTRODUCTION ABOUT THE INTERNSHIP:
The internship is an opportunity to give the students in a field experience working to share their findings in order to explore the connections between academic preparation of the students and their work on the ground, and the participants in the development and implementation of the most important research project that will help serve culminate their internship experience.
The 10-week internship in interpersonal 3rd and 4th semesters of the MBA program is positioned as to students and providing the industry with a top-class graduates who are willing to move forward the twin purpose of providing critical business information in the world are served from day one.
Internships are individualized and tailored to the needs and interests of each student in the program. Students has to take an active role and involvement in internal ship.
TOPIC CHOSEN the investigation:
I have chosen this topic as a “Credit Risk Management in HDCC Bank, Hassan, because the effective credit risk management reduces the risk of customer default and help co-operative banks remain competitive in the credit market. Good Hart (1998) noted that poor credit risk management, in unnecessary Credit risk, is a major cause of bank failure.
Needed for the study:
Effective credit risk management in HDCC Bank, Hassan have decisive importance, because the expansion of the HDCC Bank, Hassan manage their credit risks have an impact on the survival and growth of the financial sector and the economy as a whole.
Bank must be active in the management of risks in various securities and derivatives. Yet progress must be made for the analysis of loans and determining the probability of default and loss risks. So I’m trying to identify the importance of credit risk management in HDCC Bank, Hassan. This study is therefore necessary to unravel the causes of high non-performing loans in HDCC and how they deal with the situation.
Objectives of the study:
The aim of this study is,
‘ To know and analyze the impact of credit risk on financial variables HDCC Bank.
‘ the nature of credit risk to understand.
‘ To the basis on which the Bank handled the account as the default white
SCOPE OF THE STUDY:
The scope of the study is to show the relationship between credit risk management and performance of the cooperative banks. And also to know the challenges posed by the financial institution in terms of credit risk management faced. To the main tools or techniques used by HDCC Bank to analyze their credit risks. It will be used as a starting material for further study.
RESEARCH METHODOLOGY:
In the present study will be conducted to find the credit risk in the Bank HDCC; Hassan research methodology involves a systematic attempt made to obtain knowledge of the topic understudy. This is systematic research is conducted to identify the problem and its impact without which research is not to get in a position to the facts and figures of employees.
The primary data for the project analysis is required was performed by unstructured interviews and discussions with the finance department. The secondary data sources are company annual reports, promotional material, magazines newspapers and company web sites.
Primary data:
Primary information is information that we collect, specifically for the purpose of our internship report Primary sources supply raw data “that we use to test the first working hypothesis and then as proof of our assertion. An advantage of the primary data that is specific to your needs tailored research .A disadvantage that it expensive to obtain, ,
Methods of collecting primary data:
The four basic methods of collecting primary data are as follows
‘ Field Research
‘ Content Analysis
Secondary data:
Secondary information can be accurately define as the data has been collected from the existing reports ,ledgers, company statements that is collected by someone else or for a specific purpose, as the looking straight from often a combination of the two either.
Sources of secondary data:
‘ Official statistics
‘ Technical Reports
‘ Government documents
‘ journals
Tool and Techniques
To my goals of this study, I have the different approaches and methods are used in order to meet to analyze the credit risk and the impact of credit risk on HDCC Bank:
Approaches of credit risk:
Banks always face the risk that some of its borrowers to repay loans or interest on any loan default. This risk is defined as credit risk. Basel II standards require banks to accurately measure the credit risk in order to maintain sufficient capital to cover it. Basel II framework prescribes 3 main approaches for estimating cover capital requirements for credit risk.
Moody method – Standard approach:
Standardised Approach (or the standardized approach) refers to a number of credit risks according to Basel II capital requirements for banks proposed measurement techniques.
Quantitative methods:
Karl’spearson correlation coefficient – Effect of Gross NPAs of financial variables in HDCC
Limitations of the study:
‘ The duration of the study is limited.
‘ Financial matters are sensitive in nature, the same could not be easy to acquire.
‘ There can be due to restrictions imposed by the management.
‘ Due to the confidential matters of financial data, the data is not exposed, so the study can not be detailed and fledge.
‘ Since the study is based on data obtained from financial statements of the company, so the boundaries of completion will be equally applicable.
‘ The study on the secondary data source is limited and figures are taken from reports and proposals adopted by various accounting.
‘ difficulties in the collection of information that is very important for generating the required results, which were also limit the credibility of the results.
Chapter 2
Industry Profile
Industry Profile
2.1 Introduction:
Banking in India in the modern sense emerged in the last decades of the 18th century. The first banks Bank of Hindustan (1770-1829) and the General Bank of India, founded in 1786, and defunct since.
The largest bank, and the oldest still existing, is the State Bank of India, which originated in the Bank of Calcutta in June 1806 which was almost immediately the Bank of Bengal. This was one of three presidential banks, the other two are the Bank of Bombay and the Bank of Madras, which were established under charters from the British East India Company, all three. The three banks in 1921 merged to the Imperial Bank of India, which, after the independence of India, was to form the State Bank of India acted in 1955 for many years the presidency banks as quasi-central banks, as well as their successors, to the Reserve Bank of India was established in 1935.
In 1969, the Indian government has nationalized all the big banks that do not have it already, and they have remained in the property of the government. You will know running under a structure as “profit-making public sector enterprises” (PSU), and have the right to compete and operate like commercial banks. The Indian banking sector is made up of four types of banks, and made the power supplies and the state-owned banks; they have been linked since the 1990s by the new private banks and a number of foreign banks.
Banking in India was generally quite mature in terms of supply, range and reach, even if to reach in rural India and to the poor still remains a challenge. The government has developed these initiatives by the State Bank of India expanding the branch network and by the National Bank for Agriculture and Rural Development with things like microfinance address.
Indian Banking Industry currently employs 1,175,149, employees and has a total area of 109 811 branches in India and 171 branches abroad and manages a total deposit of 67.50454 trillion (US $ 1.1 trillion or 840.000.000.000 ‘) and bank loans of 52,604,590,000,000 (890 billion US $ or ‘ 650 billion). The net profit of banks in India was 1027510000000 (USD 17 billion or ‘ 13 billion) compared to a revenue of 9.14859 trillion (US $ 160 billion or ‘ 110 billion) for the fiscal year 2012/13.
Cooperative banks:
The Co-operative Bank has a history of nearly 100 years. The Co-operative Bank is an important component of India’s financial system, judging by the its place to the expectations, they should meet, their number and the number of offices they operate. The cooperative movement emerged in the West, but the meaning that such banks considered in India, often accompanied else somewhere in the world. The role in rural finance still important even today, and their business in the urban areas also is phenomenal increases in recent years mainly due to the sharp increase in the number of primary co-operative banks.
While cooperative banks in rural areas to finance mainly agriculture based activities such as training, cattle, milk, hatchery, personal finance etc. with small industries and self-employment driven activities, the cooperative banks in urban areas, especially the financing of various categories of people for self-employment , industry, small appliances, home finances, personal finances, etc.
The Co-operative institutions play an important role in providing loans to the agricultural sector since 1904 in India. The District Central Cooperative Bank, a key position in the co-operative credit structure. The success of the cooperative credit movement depends largely as its financial strength.
OVERVIEW:
Cooperative movement quite well established in India. As a Co-operative Societies Act in 1904, it passed no provision for the formation of the central bank. In 1914, the Committee Maclagen saw a three-tier structure of the Co-operative Bank namely. agricultural credit societies (PACS) at the gross level, central cooperative banks at the district level and provincial cooperative banks at the country level or apex level. The first urban co-operative bank in India was formed almost 100 years back in Baroda.
In the early 20th century, the availability of credit in India especially in rural areas was almost non-existent. Agriculture and related activities have been starved of organized institutional credit. In the formative phase cooperative societies run at Community level and their lending was limited to cover the credit needs of its members. The concept of urban cooperative bank was first of Mehta Bhansali Committee in 1939, which are written on urban co = operative Bank. Provision of ?? 5 (CCV) of the Banking Regulation Act, 1949 defines a municipal Co-operative Bank, which was made in 1966.The co Karnataka applicable law as the primary co-operative bank in addition to a primary co-operative society and comes under the jurisdiction of the Banking Regulation Act 1949. The Bank should have been working for a minimum period of three years and should be a member of the local clearing and deserving cases, the apex bank even as enrollment banks, which were for a working year as a member. The Bank should mention a current account with the central branch of KSC have Apex Bank Ltd. All DCC banks, urban cooperative banks and their subsidiaries are entitled to be members of the IMAS scheme, in which case the minimum working capital of the banks should be Rs.150 lakh. It should continuously defaults not required in the maintenance of liquidity reserves and liquid assets ratio as described in Section 1949 of the Banking Regulation Act.
Main principles of the cooperative banks are:
‘ voluntary and open membership.
‘ Democratic member control.
‘ Member economic participation.
‘ autonomy and independence.
‘ education, training and information.
‘ Cooperative among cooperatives.
‘ The concern for the community.
Classification of Cooperative Banks
Urban Cooperative Banks:
UCB from row, namely. Primary cooperative banks, commonly referred to as urban cooperative banks. Primary (urban) cooperative banks play an important role in addressing the growing credit needs of urban and semi-urban areas. UCB mobilize savings from the middle and lower income groups and purvey credit small borrowers, including weaker sections of society. The regulation and supervision of UCB’s brought into the area of the Reserve Bank.
Rural cooperative banks:
The rural cooperative credit structure has traditionally been bifurcated into two parallel wings is Viz., Short term and long term.
Short-term rural cooperatives:
These banks have a federal structure with three rows. At the top of the system is a state co-operative banks (SCB) in each state. In the middle (or district) level, there are central cooperative banks (CCBS) also known as the district central cooperative banks. The lowest (or village) level, primary agriculture cooperative societies (PACS). The smaller states and Union Territories (UTS), a two-tier structure with state cooperative banks directly meeting the credit needs of PACS.
State co-operative banks:
The SCB is the highest point of the three-tier cooperative credit structure in a state. It serves as a link between RBI, CCBs and PACS. RBI offers loans to lower-level cooperatives by the SCB. This function of the RBI was now taking by the NABARD. The SCB also serves as a “balance center ‘for CCBs. The exercises general control and supervision of CCBs and PACS.
Central Co-operative Bank:
These banks act as a link between the SCB and PACS. The main task of the CCBs is, lend money to affiliated village primary societies. The CCBs is expected that deposits from the general public to win.
Primary Agricultural Credit Societies (PACS):
These companies form the basic unit of the cooperative credit system in India. These voluntary societies that put a voice to challenge the exploitative practices of the village moneylender on the principle of one man. The farmers and other small time borrowers come to direct contact with these companies. The success of the cooperative credit movement depends largely on the strength of these villages’ level companies. These are more than one lakh such companies in the country at present. A major objective of PACS is to serve the needs of the weaker sections of society. To this end, the people will be planned with limited resources, especially scheduled castes and tribes, are encouraged to become members of these societies. Government has promoted multi-purpose societies in the tribal areas for the benefit of the people living there.
Long -term Rural Cooperatives:
Generally, these co-operative have two levels, viz., State Co-operative Agriculture and Rural Development Banks (SCARDBs) at the state level and primary co-operative Agriculture and Rural Development Banks (PCARDBs) at taluk level. However, some states have have a unitary structure with the state-level banks operating through its own subsidiaries; three states have a mixed structure that is both unified and federal systems.
NABARD and cooperative sector:
National Bank for Agriculture and Rural Development (NABARD) is accredited in rural areas in India a highlight institution with all matters of policy, planning and operations in the field of credit for agriculture and other economic activities. NABARD serves as the apex refinancing agency for the institution, investment and production credit in rural areas.
Other focal points of NABARD include:
‘ Introduction of measures to institution-building to improve the capacity of the credit delivery system, including monitoring, formulation of rehabilitation programs, restructuring credit institution and training of personal.
‘ Coordination of the rural financing activities of all institutions in the development work at the field level active.
‘ Care co-operation with the Government of India, the state government, the Reserve Bank and other involved with policy formulation national institutions.
‘ Conduct monitoring and evaluation of projects refinance her.
‘ NABARD providing refinancing State Cooperative Agriculture and Rural Development Bank (SCARDBs), state co-operative banks (SCB), Regional Rural Banks (RRBs) and other approved by the Reserve Bank financial institutions. The final recipients of funding from NABARD could individuals, partnership concerns, companies and state-owned enterprises or cooperatives his companies.
Origin of the co-operative banks:
As a Co-operative Societies Act 1904 passed there is no provision for the creation of central banks. To expect the sponsors of the cooperative movement that rural credit companies would be able to attract substantial deposits of the members and to do part of the village community and their savings would be available to meet the needs of the needy village. It was also considered that any deficiency in the fund would be well done by loans from the government.
The Co-operative Bank movement in India can be traced back to the 19th century, as the success of the experiments on the “cooperative movement” in the United Kingdom and the “Co-operative credit movement” inspired in Germany related to how companies have been established in India , Cooperative banks are an important part of the financial system. They are the main financiers of the agricultural activities, some small industries and self-employed. The ‘Anyonya Co-operative Bank’ in India is considered the first Co-operative Bank in Asia.
The cooperative movement in India about its origins in agriculture and allied sector is at the end of the 19th century
Growth and Development of Cooperative Banks:
Cooperative Movement is fairly well established in India. The first cooperative law was passed in 1904. In 1914 the committee Maclagen envisages a three-tier structure for cooperative banks through primary agricultural credit societies (PAC) in gross root level, ‘Cooperative Central Banks’ in a state cooperative statewide or apex level and district level banks. The first urban cooperative bank in India was formed almost 100 years ago in Baroda. Cooperative institution dedicated to all types of activities namely production, processing, marketing, distribution, maintenance and banking in India and have visit and powerful superstructure. Cooperative banks are important cogs of this structure.
In the early 20th century, the availability of credit in India, more particularly in rural areas was almost absent. Agricultural and related activities were starved of organized, institutional credit. Country people had to rely entirely on money lenders who often lent to usurious interest rates. Cooperative banks came to India in the early 20th century as an official effort to create a new type of institution based on the principles of suitable conditions for the peculiar problems of the Indian cooperative organization and management. These banks were conceived as substitutes for money lenders to provide timely and appropriate short-term and long-term institutional credit at reasonable interest rates.
Despite the cooperative banking was introduced from the year October 19, 1953, the real development in the country began just over banking regulation act separate cooperative banks called ‘Banking Regulation Act 1949 (as societies co-generators applicable in 1966). Cooperative banks are organized and controlled in accordance with the provision of the Law of the cooperative society in question, but its banking operations are regulated by the Banking Regulation Act 1949 also controlled by RBI.
Over the years, the primary cooperative banks have seen significant growth in the number, size and volume of business handled. Since the March 31, 2003 there were 2,104 banks scheduled 56 cooperative banks. About 79 percent of them are located in five states, including Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Tamil Nadu. Recently the problems faced by some cooperative banks have highlighted some of the difficulties that these banks face and political efforts are aimed to consolidate and strengthen these sectors and improve governance.
The future prospects of Cooperative Banks:
RBI has decided not to allow urban cooperative bank (UCB) less the net value Rs.50crore to spread its operations out of state jurisdiction. The main exposure of UCB no credit risk, but the risk of interest rate because the interest rates paid by these banks, particularly on deposits, they were out of sync with the rest of the banking sector. The large number of weak UCB, which is well over 200, is a concern for the RBI.
Rehabilitation of these banks may include strategies such as cooperative registrar directing courts to speedy recovery process and implementation of the decrees, either unviable branches being relocated or closed, exploring ways to raise capital and further merger with a well-managed bank.
The RBI shifted its focus gradually from the policy of crisis management to recovery management. On the front of the credit delivery, now the developments include the introduction of the mechanism of base rates and exemption from the safety / margin for agricultural loans. Financial education and financial inclusion have been thrust areas. Among the important financial measures it has been discovered as the values and Laws (Amendment and Validation) Bill 2010, passed by parliament to provide a joint mechanism to resolve differences between the regulations.
RBI is taking several measures to improve the infrastructure and initiated the steps to greater absorption of technology.
There are two major technological milestones are achieved are:
‘ Technological advances in all public sector banks taken or about to adopt computerization. The number of public broadcasters who adopt core banking solutions has been increasing.
‘ From the point of view of financial inclusion, there has been a steady increase in the penetration of bank branches and ATMs, especially in rural areas.
GENESIS AND HISTORY:
The Review Committee institutional credit arrangements for Agriculture and Rural Development (CRAFICARD), created by the RBI, chaired by Sri B Sivaraman in his report to the Governor of the Reserve Bank of India on 28 November 1979 recommended the establishment of NABARD. Parliament through Law 61 of 81 approved the establishment of the Commission after reviewing the agreements concluded that a new agreement at national level to achieve the desired foci would be necessary and pushed the integration of activities credit in the context of the Strategy for Integrated Rural Development. In the context of credit needs massive rural development and the need to uplift the weaker sections in rural areas within a given time horizon called an institutional arrangement separately. In the same way. The Reserve Bank had onerous responsibilities for approval of its many basic functions of a central bank in monetary and credit regulation and was not therefore able to devote full attention to the operational details of the complex problems emerging credit . This paved the way for the establishment of NABARD.
CRAFICARD also found it prudent to integrate the short term, medium term and the structure of long-term credit for agriculture through the establishment of a new bank. NABARD is the result of this recommendation. It was created with an initial capital of Rs 100 corer, which was enhanced to Rs 2000 core, fully subscribed by the Government of India and the RBI.
2.2 COMPANY PROFILE:
El Hassan District Cooperative Central Bank Ltd, Hassan Rs.1.18 Rs.0.55 lakhs equity deposits and Rs fully established in1953 with lakhs. 8530 rupees as investment gain. Now that reached Rs.2974.54 lakhs of equity, Rs.10522.81 28241.00 lakhs and lakhs deposits earning investments this a great milestone in the cooperative sector was created, providing frequent services to farmers in the district of Hassan .
Historic achievements:
The HDCC Bank is continuously increasing its own potential through this expanding throughout the district and the rapid increase in their benefit, helping the economic development of the farmer.
1. With the cooperation of government that provides loans to 4% rate of interest for farmers during the period of one year.
2. Your goal is to Rs.15000.00 lakhs loans to farmers. Now it is the first bank in the district that provides loans of lakhs Rs.11600.00 farmers.
3. Facilitate Accident insurance for all farmers receiving agricultural loans from the bank.
4. Provide Yashaswini insurance service to all members of cooperative societies.
5. Awareness scheduled to farmers with regard to banking transactions by issuing credit cards Kissan.
6. Provide training to members of management of cooperative societies.
7. By establishing SWA-sahayasangha 10,571 in the district, the bank to contribute to the economic development of the farmer.
8. Provide more loan facility for animal husbandry, floriculture and other non-agricultural activities farmers within the regime SwarnaJayanthi Gram Swarojgar.
9. Provide attractive interest on deposits from customers and an additional 1% for seniors.
2.7INFRASTRUCTURE FACILITIES:
‘ Maintains a very good system of internal and external communication, as it is equipped with phones, computers, photocopiers and Internet services.
‘ The Bank has HDCC private transport vehicle to cover the branches of the district.
‘ It has nicely furnished rooms, meeting rooms, board room and training center.
‘ Offers 60% to 70% and remaining building rented their own buildings.
‘ The branches are all essential infrastructure facilities.
OF 2.8COMPETITOR INFORMATION:
El Hassan District Central Co-operative Bank Ltd. is basically a Co-operative Bank serves the needs of agriculture, small industry (SSI) and Self Help Group (SHG). Change in the current economic scenario, the organization faces tough competition. As it regards interest rates, which are governed by the RBI and NABARD, an aggressive approach is adopted by commercial banks, regional rural banks and cooperative societies. The following are the main competitors of Hassan District Central Co-operative Bank Ltd …
‘ Commercial banks like Canara Bank, State Bank of Mysore, State Bank of India, etc.,
‘ Regional Rural Banks (RRB) as pragmatic Gramin Bank etc.,
‘ Other Cooperative Societies.
2.9 SWOT ANALYSIS:
Strength:
‘ Has good brand, he has since crossed the 50 years of its existence.
‘ Another important strength of HDCC ltd rural bank is providing financing at a rate of acceleration.
‘ It has the support of the Government.
Weakness:
‘ Recruitment is not done properly in the bank HDCC too much political interference.
‘ The HDCC computerization process is rather slow.
‘Trained staff is not available the lack of skilled workers.
‘ The lack of professional management.
‘ The lack of initiative and innovation among staff and members.
Opportunities:
‘ Co-operative banks are pioneers in the field of microfinance has enormous potential in rural areas.
‘ Creation of cooperative banks by RBI as the recognition of this sector as an important part of the banking system in 1984.
‘ Growth of the banking sector in India, especially in rural areas.
‘ More number of branches is being created, and there are several opportunities.
Threats:
‘ Huge market competition.
‘ The increased incidence of fraud and embezzlement.
‘ Tighten recognition of income and assets Standards Classification had a direct influence on the balance of the HDCC.
‘ The increase in disputes between management and employees.
‘ The external pressure to finance eligible borrowers.
‘ The Departmental interference in financial matters in various forms.
2.10 FUTURE GROWTH AND PROSPECTS:
The service organization is in the process of becoming and, therefore, the bank has signed agreements with the Nationalized insurance companies provide instructors. The bank plans to increase branches in many rural areas, where it has great opportunity for the growth. In addition, there is a proposal for the future DDCCB modernization of the office, internal communication systems and strategies of other grading services through the new specific technologies in the industry. IT infrastructure facilities and initiated steps to greater absorption Technology. There are two major technical milestones achieved are:
Technological progress with all branches adopt or adopt computerization. The number of branches that adopt IT infrastructure solution has been increasing. From the point of view of financial inclusion, there has been a steady increase in the current penetration of the branches, especially in rural areas.
Joint liability groups:
The program for the formation of self-help groups and the merging of banks for the first time NABARD has been successful in providing financial services and banking sector support to extremely poor and landless people. Now to help very small farmers, peasants, farmers tenanted, producing partners and sleeping partners who are engaged in business outside agriculture, NABARD has proposed the formation of joint liability groups to develop comprehensive schemes and disbursing loans them.
Bank has implemented this plan by forming joint liability groups and through this scheme disburses loans for the purpose of breeding animals.
And for the period 2011-12, 161 groups have been formed through primary agricultural cooperative societies and including 112 groups have been provided with loans of Rs. 241.00 lakhs.
For the year 2102-13, 145 groups have been formed Loan of Rs 290, 123 Spread on the joint liability of 79
As in the year ended 03/31/2013, they have formed total of 306 joint liability groups and 189 groups have been provided with a loan of Rs. 364 250 rupees. As in the year ended 31.03.2013, the outstanding amount is Rs. 256.34 and the recovery rate is 100%.
For 2013-14, we have set the goal of forming a total of 1,000 groups and granting more loans to 500 groups.
Facilities (A):
Any bank:
Any Branch Banking (ABB) is a facility for our customers to operate their accounts from any of our branches network. The branch where the client maintains his account is the base branch and the branch from which conducts its transactions are known as Remote branches. Any branch banking facility available at all branches of HDCC Bank.
FACILITIES available on ABB:
‘ Cash withdrawal.
‘ cash bond.
‘ Funds Transfer.
‘ Purchase Orders Demand Drafts / payment.
‘ Local deposit checks.
‘ Repayment of loan accounts.
Eligible Customers:
All individual customers and concerns adults who have a property, checking SB Corp 4-in-1 a / a Current, Overdraft a / c.
Core Banking Solutions:
As part of the expansion of more and more facilities to our customers, Core banking service is also being introduced in our Bank.
ATM facilities:
We introduced our bank ATM facilities to our customer.
Lockers:
Safe deposit lockers are available in all Existing branches of the Bank of various sizes to suit the needs of different customers.
RTGS – (Real Time Gross Settlement):
RTGS is the fastest installation possible interbank money transfer available through secure banking channels in India.
NEFT- (National Electronic Fund Transfer):
The funds transfer system operates on a deferred net settlement basis. NEFT operates in batches by Time 09 am to 7 pm on weekdays and 9 am to 1 pm Saturdays.
Different types of loans in the bank HDCC:
HDCC Bank offers all types of loans for ordinary people car loans to home loans
Risk meaning:
Before going further study first we need to know about risks, the risk involves the extent that any chosen action or omission which may result in a loss or an undesired result. The concept implies that a choice can have an influence on the result that exists or has existed.
The different types of risk can be classified into two groups,
A. Systematic risk,
Systematic risk is due to the influence of external factors in an organization. Such factors are often uncontrollable from the point of view of an organization.
This is a macro in nature, as it affects a large number of organizations that operate under a similar current or same domain. It can not be planned by the organization.
Systematic risk types are represented and are listed below.
‘ interest rate risk,
‘ Market risk and
‘ Purchasing power and inflation risk.
Now let’s talk about each classified risk in this group,
1. Interest rate risk:
Interest rate risk arises due to variability in interest rates from time to time. Particularly affects the debt, since they carry the fixed rate.
The types of interest rate risk are represented and are listed below.
‘ Price risk and
‘ Reinvestment rate risk.
2. Market risk:
Market risk is associated with constant fluctuations observed in the trading price of the shares or particular values. That is, that arises due to rise or fall in the market price of the shares or securities listed on the stock market.
The types of market risk are represented and are listed below.
‘ The absolute risk,
‘ The relative risk
‘ Risk management
‘ non-directional Risk
‘ Basis risk and
‘ Volatility Risk.
3. The purchasing power or inflation risk:
Risk purchasing power also known as inflation risk. Thus, since it issues (creates) the fact that affects purchasing power negatively. It is wise to invest in securities in an inflationary period.
The types of power or represent the inflationary risk and are listed below:
‘ Inflation risk demand and
‘ Inflation risk costs.
B. Risk unsystematic:
Unsystematic risk is due to the influence of internal factors prevailing within an organization. Such factors are typically controlled from the point of view of an organization.
The types of unsystematic risk are represented and are listed below.
‘ Business or liquidity risk,
‘ Financial and Credit Risk and
Operational risk.
Let’s talk about each of these groups more likely to be classified.
1. Enterprises or liquidity risk:
Business Risk Liquidity risk is also known. So it is (to create), etc. economic cycles, technological changes, affected by the sale of securities, after the purchase of the problems
Business, which represents the type of liquidity risk is shown below.
‘ liquidity risk assets
‘ Funding liquidity risk.
2. The financial or credit risks:
Credit risk is the financial risk. It arises because of a change in the structure of the capital of the entity. The structure of the three ways to fund projects primarily in the structure of the capital. These are:
‘ Funds assets. For example, the share of the capital.
‘ borrowed funds. For example, a loan fund.
‘ retained earnings. For example, the reserve ””””””’.
The following types of financial risk, or credit account.
‘ exchange rate risk,
‘ The recovery rate risk,
‘ credit risk events,
‘ Non-Directional Risk
‘ sovereign risk
‘ Settlement risk.
3. Operational Risk:
The process of operational risks, including the risks of business fail due to human error. This risk will become an industrial one. This is due to the internal policies and procedures to the people of the breakdowns occur in the system.
These are represented by the following types of operational risk.
‘ Risk Model,
‘ the risk of people,
‘ The legal risk and
‘ Political Risk.
What is credit?
First, we need to know what is going to loan and credit risk management, credit and one for the party and the first party to the second party in a way that the solution to another party (the emergence of a debt) to the self-confidence that allows you to provide the resources, but instead of (,. Sullivan et al 2003) later in the resources (or the equivalent value and other materials), or to return to the place of either the set. Given the resources (eg, consumer credit), both economic (eg, loans) can be, or can be goods or services. Therefore, in addition to bank credit, known as a debtor, known as extended by the borrower for a loan to cover the payment of any deferred in any way.
The promise of a loan to pay advances to the beneficiaries of a date in the future. Individuals, companies, institutions and other corporate credit and access to a variety of reasons. Therefore, the purpose and nature of the claim and the short-term, get into the medium and long-term loans. In short, no more loans (5) of five-year repayment period is extended to the short term (for example, personal loans) are advances. (Small design) and medium-term loans for five (5) to ten (10) years and has a maturity between. (Only the giant corporate institutions) and long-term loans, as the name suggests, the ten (10) has a repayment period of years. Most of the medium-term access to credit facilities within HDCC.
This balance is the key to the file of the heavy assets of the banks’ credit operations significantly. It has the potential to produce a profit, but there are almost as high risk. Banks and credit risks in connection with the loss of practice time, monthly shows.
Credit risk:
We have the credit, since the understanding of the credit for the next period is to know the relationship between the risk and assume most of the banks’ asset portfolios, constitute a large proportion of the promise of a loan to a borrower does not pay, as a result of the loss of an investor relative risk is high liquidity and credit risk (Koch and MacDonald, 2000) quality.
That is the theory of asymmetric information and adverse selection and moral problems, which can lead to accidents and bad borrowers (Auronen, 2003) story, and that it is impossible to separate the good for borrowers. Adverse selection and moral danger delinquent accounts with banks (; Bofondi and Gobbi, 2003 Bester, 1994) resulted in a significant accumulation.
Credit risk and the resources:
There are two main sources of credit risk factors. The risk of external and internal factors. The following external risk factors are discussed below:
Economic:
National income, unemployment, changes in the economic cycle and changes in the exchange rate, interest rate, credit availability and credit quality and credit risk will affect the way. Liquidity crisis will affect the ability of the loan or financial problems can not violate their duty. In addition, financial institutions, regulatory and legal changes may result in the ability to repay the debt levels, as well as to change the way of a transaction monitor.
Competition:
Growth, profitability and be a leader in the market to lower the level of competition between the desire of financial institutions in respect of financial institutions, or malfunctioning can lead to price their loan products. This is due to the high costs of rising NPLs.
Credit Risk Management:
The banking industry and credit risk management, risk identification, measurement, assessment, monitoring and control of the process continues. Measures to reduce the risk is to identify, prevent and control the activities enshrined this potential undesirable effects observed, and consider the consequences of its identification of the risk factors. In this process, the bank applies a strategic operational penguin
Most of the banks for the loans, the largest and most obvious source of credit risk; , And other sources of credit risk in banking and trading book and on the balance sheet of the bank’s activities, even though both of them.
Furthermore, the banks in the forex transactions, trade financing, foreign exchange transactions, financial futures, Swaps, bonds, equities, options, and commitment to, and guarantees for loans and acceptances, including the financial instruments, in addition to the extension of credit risk (default risk) is facing, settlement of transactions. Is to reduce the impact of different types of risks related to the level of the selected pre-approved for the purpose of the society is the domain of risk management. This is the environment, technology, people may refer to any kind of threat, due to a number of organizations and politics. Moreover, all of the available means, in particular, a risk management entity (person, staff, organization) is.
From the above discussion it hard for the customer sophistication, and general economic and increasingly tighter regulatory framework in a way that-a-way, deregulation, increasing competition, it is clear that there is a banking sector risks and uncertainties. This makes the adoption of the main drivers of an effective credit risk management strategies.
Credit Risk Exposure = ?? (1 minus the recovery rate) ?? default of the Assumption
The credit risk management process of the credit risk on the potential consequences of that control. The identification, assessment and management: normal process of risk management, that is a part of. That is, should be identified as the cause of the risk, and the size of the risk is assessed and decisions.
Sliver identification and implementation of treatment
Avoid high
Risks
The transfer is identified,
Controlled risk
All medium risk
Risks
Unknown
Well, the risk of a low risk
Assessments
Risk management is a continuous process and the different steps: identification, measurement, treatment and enforcement. Find all the dangers of the new cycle of successive government to improve the protection of existing systems
Credit risk assessment:
The assessment of the risk of a counterparty in whole or in part, of their obligations, for example the risk of credit default. We have the basic model in terms of credit risk management and the decision itself. To refuse to provide the reward of this credit, but which carries a risk of credit, or (b) a decision to either (a) indicates. The picture shows a decision in the context of the problem being faced by the Credit Manager 1.1. Credit risk is the equivalent of extending the requirement for credit against the loss of potential profit-taking. The decision is a reward, not a problem of any alternative to the declining credit
Risk management is a continuous process and the different steps: identification, measurement, treatment and enforcement. Find all the dangers of the new cycle of successive government to improve the protection of existing systems
Credit risk assessment:
The assessment of the risk of a counterparty in whole or in part, of their obligations, for example the risk of credit default. We have the basic model in terms of credit risk management and the decision itself. To refuse to provide the reward of this credit, but which carries a risk of credit, or (b) a decision to either (a) indicates. The picture shows a decision in the context of the problem being faced by the Credit Manager 1.1. Credit risk is the equivalent of extending the requirement for credit against the loss of potential profit-taking. The decision is a reward, not a problem of any alternative to the declining credit
1.1 The decision to issue the credit decision and resolution
Unlike the credit evaluation process and approach:
System approach
Methods trial
Assessor’s decision to extend credit to reject the case and apply the experience and knowledge
Expert systems (eg, credit committees)
Using a panel approach is to try the case in the way of loans or decisions that formalized system and procedures
Analytical models
The desire for a decision, usually quantitative information, a set of analytical methods for use
Statistical models (credit
Score)
Use statistical inference to derive the appropriate relationship with the decision.
Behavioral models
Monitor the behavior of the time to make a proper relationship
Reaching a decision
Different analytical approaches can be grouped:
Subjectivity is a degree of any knowledge models (eg, using the
According to an analyst and expert review) effects models (with some analysis of the components of the system analysis of the relationship between the subject of subjectivity in this category) approach to capital that can be considered more statistical models (models of this type has a credit rating). Credit is given to the analysis of the results, or the means to reach a decision, the decision to use the space.
The credit quality classification:
A qualify for the credit quality of the company
Assessments
Quantitative improvement compared to companies
Rating Rating
Assessment
The chances are the Class AAA credit AA, BB BCD
Credit Rating
Refuse to accept the auto-rickshaw
Auto reject. The decision to accept the self-Expert
Application Scoring systems:
The line has exceeded the threshold value or cutting a score) scoring systems for the fully automated application for the license application;
B) If the request is approved or rejected in a semi-automated systems and low score was high. Following the decision from the middle to score an extra man, an expert in the analysis.
Marco’s credit metrics
Due to the correlation of the value of the credit risk exposure
Credit rating:
Basel Capital Accord, the second external credit assessment institution is clearly (ECAI) recognizes the role of institutions.
The extremely strong credit quality of the loan is very low risk of Aaa AAA. It is highly unlikely that it will adversely affect the ability of the events that preceded the commitment to close the fi nancial. It is one of the credit rating.
Aa AA credit reflects the low credit risk is very powerful. There is a strong capacity to influence events in advance is unlikely to meet the commitment to fi nancial. The highest rating is limited to the difference.
A strong credit quality and low credit risk. Deemed a strong ability to pay, which is higher than the risk of changes in the economy.
Accreditation, Baa: fl ects currently has sufficient credit quality and credit risk moderate again.
However, the appropriate changes, and judged on the economic and financial commitment and the ability to close the credit rating of the taxonomy of myself and undermining the ability of the 123 to close the magazine. This is the lowest investment-grade rating.
BB Ba: the speculative credit quality, particularly in adverse circumstances, the credit risk that may develop. The meeting financial commitments is still a possibility, but there are uncertainties and speculative key elements for progress. It is one of the most speculative-grade ratings.
B: Highly speculative, reflecting the high credit quality and credit risk. Current is an important credit risk; It remains limited to a safety margin. Adverse economic and business conditions and the economy is likely to impair the ability to pay. This rating indicates that the risk is very high, back problems.
CCC Caa: a state of very high credit quality, the real credit for the events will be a possibility of credit risk. Favorable economic and business conditions may reduce. Adverse economic conditions make credit Hussey events. This rating has back problems and positive expectations.
Cc, CA: Too much weaker credit quality has become probable defect. This classification has a rating of medium and back problems.
C: an imminent threat to the very weak creditworthiness, credit events.
The recovery of a negative rating of the Party of the problems.
Reserve as a credit risk management:
‘ The amount of risk by credit score.
‘ Price risk – the prime lending interest rate risks fix.
‘ an effective monitoring system for the control of risk and loan portfolio management.
Credit Risk Management Objectives:
Goals:
‘ Many types of loans, a part of the graphics / category for developing and frame advance, credit quality and to determine the consequences on the risk.
‘ Strategic Business Units (divisions) and strategies for exposure to the issue of the suggested guidelines / quality level of corporate development at the appropriate levels to achieve.
‘ Benchmarks, etc. The recovery rate, the amount of idle, the volume of exposure, likely to be the case
‘ Check periodically the performance of displays.
‘ Design and Control Systems / adequate monitoring.
‘ Analytical tools to assess disease risk profiles and ensure the healthy development of the Cleansing of portfolio protection.