Credit Risk Management

difficult proposition. There is an

of deposits by deploying Banks have grown

implicit understanding on the part

funds for developmental from being a

of the planners that in the post

activities and productive pur- financial interme-

nationalization era, banks will meet

poses through credit creation diary, in the past,

what is called social obligations

process. Deposit mobilization & to a risk interme-

Credit deployment constitute the diary, at present. RS Raghavan through directed lending. Early

core of banking activities and In credit, risks are co-related and stage of nationalization belonged

substantial portion of expendi- exposure to one risk may lead to to security oriented approach; in

ture and income are associated another having deeper ramification the nineties it was the spread-ori-

with them. In the case of deposits, and hence, the real mantra for pru- ented era and in the early 21st cen-

baring few stray instances of oper- dent banking lies in successfully tury the focus is shifted to risk.

ational risks linked to the system managing the risks in an integrated When the security oriented

and human failure culminat-

Even though Tandon Committee norms have been dumped to dust-

ing in fraud, forgeries &

loss, there may not be any-

bins, alternative methods being practiced by the banks are yet to

thing very alarming. But

pass the test of time. While some banks adopt the method of justi-

credit portfolio is the real

fying the sanction of loan, others follow a combination of Turnover

dynamic activity that

Method, Cash Flow Method, Cash Budget Method, Projected

requires close monitoring

Balance Sheet method, etc.

and continuous manage-

ment. This article attempts

to focus on not only credit manage- and pro-active manner to optimize approach was followed, economic

ment but also credit risk manage- the exposure already taken or to be activities and banking products

assumed by the bank. Adherence to were simple and "instances of

ment.

Till recently, all the activities standards of quick decision and frauds and forgeries were few and

of banks were regulated and hence providing adequate and need based far in between.

It is very much essential to con-

operational issues were not con- financial assistance on attractive

ducive to risk taking. The financial but safe terms, without losing the duct credit investigation before

sector, now, wears a relaxed and sight of the associated risks taking up a proposal for considera-

tion. This preliminary study should

The author is the Senior Manager (Risk Management) at Vijaya Bank

lead to valuable information on

B

THE CHARTERED ACCOUNTANT

996

THEME

borrower's integrity, honesty, reli-

ability, credit worthiness, manage-

ment competency, expertise, asso-

ciate concern, guarantor, etc. A due

diligence report shall invariably

accompany the credit proposal

evaluation. Banks have to strictly

adhere to the KYC (Know Your

Customer) norms to ensure