Rajamma Project

RISK MANAGEMENT ____________________________________________________________________________________

PART A

1 | P a g eDepartment of MBA, RYMEC, Bellary

RISK MANAGEMENT ____________________________________________________________________________________

EXECUTIVE SUMMARY

As per the curriculum of Visvesvaraya technological university for the partial fulfillment of the

post graduate degree, master of business administration, I had undertaken an organizational study

of established & growing business organization.

The project is entitled “A study on the risk management” at PRAGATHI

GRAMIN BANK , head office, Bellary, Karnataka state. The process of liberalization &

globalization have created challenging, competitive & rapidly changing environment in the

banking industry.

I have undertaken internship study at PRAGATHI GRAMIN BANK. It is one

of the Regional rural banks in Karnataka. Pragathi gramin Bank ., which provides services to its

customers all the 365 days of the year. It is licensed under reserve bank of India to do the

business banking.

PRAGATHI GRAMIN BANK has been rendering financial services to growing

needs of the people. Their main customers are carrier owners, which is the backbone of the

mining activity in this area. And naturally, the mine owners some second in list. Rests are

traders, small and medium entrepreneurs & other needy people.

For the project I had access to meet the employees of the bank for the considerable time

duration which helped me to gain insight about the type of work they do and study the functions

of the bank.

This report is endeavor to cover the overall organizational structure, procedures,

and functions of the organization and also covers industry profile and company profile with their

objectives that the bank have. The report gives an insight view about managerial function,

operative function towards the services and employees of the organization. The project report

also covers the various types of loans with their interest rates of the bank, & also know how the

bank manages the deposits & loans, fluctuation in the CD-ratio, management of loans and risk

management.


RISK MANAGEMENT ____________________________________________________________________________________

INDUSTRY PROFILE:

The world economy today is driven by the way the banks in the world perform. The

economical position of the country is also driven by the performance of banks. Banks, by

extending their services to areas hitherto untouched and making themselves accessible to the

common man, have become a part of our lives. The banking institutions in the past performed

very limited functions such as receiving deposits against bank notes and then issuing notes in the

country, as the time advanced and with the progress of commerce and industry, the scope of

banking also expanded. Modern banking institution is a large corporate giant with large

resources and a vast field of activity. Since the nationalization of some big commercial banks in

India in the year 1969, there has been a great surge of banking industry throughout the world

with the growing number of banking offices. The banking business today has become highly

critical and competitive between various classes of banks in offering a greater variety of services

nationally and internationally. With globalization setting in, banks are also modernizing

operations with a view to satisfying modern customers with an aim to improve bank operations

with a view to maintain The Indian banking system can be classified into nationalized, private

and specialized banking institutions. The industry is highly fragmented with 30 banking units

contributing to almost 50%of deposits and 60% of advances. The Reserve Bank of India is the

foremost monitoring body in the high standard banking system that involves applications of

better management techniques. India, class banking has given way to mass banking, bringing in

its fold very large number of customers. Banks are now looked upon as development agents

instead of purveyors of credit to the large industries and big business companies. Apart from

providing credit to trade, industry and agriculture it is also involved in offering pension for

retired employees, government servants and collection of utility bills.

Indian Financial sector:


RISK MANAGEMENT ____________________________________________________________________________________

It is a centralized body that monitors discrepancies and shortcomings in the system.

Industry estimates indicate that out of 274 commercial banks operating in the country, 223 banks

are in the public sector and 51 are in the private sector. These private sector banks include 24

foreign banks that have begun their operations here. The specialized banking institutions that

include cooperatives, rural banks, etc. form a part of the nationalized banks category.

The Indian banking system is financially stable and resilient to the shocks that may arise due to

higher non-performing assets (NPAs) and the global economic crisis, according to a stress test

done by the Reserve Bank of India (RBI). Significantly, the RBI has the tenth largest gold

reserves in the world after spending US$ 6.7 billion for the purchase of 200 metric tons of gold

from the International Monetary Fund (IMF).The purchase has increased RBI’s share of gold

holdings from approximately 4% to 6%.

In the annual international ranking conducted by UK- based Brand Finance Plc, 20

Indian banks have been included in the Brand Finance® Global Banking 500. The State Bank of

India has become the first Indian bank to be ranked among the Top 50 banks in the world,

capturing the 36th rank, as per the Brand Finance study. The brand value of SBI

Increased from US$ 1.5 billion in 2009 to US$ 4.6 billion in 2010.ICICI Bank also made it to the

Top 100 list with a brand value of US$ 2.2 billion. The total brand value of the 20

Indian banks featured in the list stood at US$ 13 billion.

Following the recent financial crisis, new deposits have gravitated towards the public

sector banks. According to RBI's

'

Quarterly Statistics on Deposits and Credits of Scheduled Commercial Banks: December 2009,

nationalized banks, as a group, accounted for 50.9% of the aggregate deposits, while State Bank

of India and its associates accounted for 23.4%. The share of other scheduled commercial banks,

foreign banks and regional rural banks in aggregate deposits were 17.1%, 5.5% and 3%


RISK MANAGEMENT ____________________________________________________________________________________

respectively. With respect to gross bank credit, nationalized banks hold the highest share of

50.6% in the total bank credit, with SBI

And its associate’s at23.8% and other scheduled commercial banks at 17.8%. Foreign banks and

regional rural banks had a share of 5.3% and 2.5% respectively in the total bank credit. The

confidence of non-resident Indians (NR Is) in the Indian economy is reviving again. NR I

Deposits have increased by nearly US$ 47.8 billion on March 2010, as per the RBI’s June

2011 bulletin. Most of this has come through Foreign Currency Non-resident (FCNR) accounts

and Non-resident External Rupee Accounts. Foreign exchange reserves were up by US$ 1.69

billion to US$ 272.8 trillion, for the week ending June 11, on account of revaluation gains. June

21, 2011

The General Bank of India was first Joint Stock Bank to be established in the year 1786.

The Reserve Bank of India which is the Central Bank was created in 1935 by passing

Reserve Bank of India Act, 1934 which was followed

up by the Banking Regulations in 1949.

STRUCTURE OF BANKING IN INDIA


RISK MANAGEMENT ____________________________________________________________________________________

Key affecting factors of banking industries

I decided to limit my project to just banking sector, because it is one of the most dynamic sector

and also availability of time was not permitting me to go beyond this. They can be broadly

classified into two:

1. Internal Factors

2. External Factors

Internal factors: As the name suggests, Internal Factors are those which affect the share prices

internally, i.e. they are internal to the company or more specifically bank. Some of the major

internal factor that affect are as fallows

Earnings of the bank

Investors invest money in the companies who earn well and in turn give good return on

investment. Thus, a wealthy and a profitable company have good investors and thus have

positive rice movements. Price/Earnings ratio also gives


RISK MANAGEMENT ____________________________________________________________________________________

Market capitalization

A company or bank with high market capitalization turns out to be more popular among

investors. For example, HDFC BANK, ICICI BANK and SBI are more popular among

investors than other banks because they have huge market share and market

capitalization. As market capitalization increase, the shares price tends to increase and as

market capitalization decreases, the share price tends to decrease.

Price earnings ratio

Price/Earnings ratio pr the P/E ratio gives us a fair idea of how company’s share price

compares to its earnings. If the price of the share is too much lower than the earnings of

the company the stock is has the undervalued and it has the potential to rise in the near

future.

External Factors:

Economic factors: includes the structure of the company the industrial, agricultural,

tariffs, transport and trade policies of the country, the growth and pattern of national

income and distribution, the condition obtaining in the primary, secondary and tertiary

sector, the situation obtaining in to balance of payment and balance trade and various

economic policies, these all affect will stock broking industry. Government changes rules

regulation in business

Technological factor: now a day the technology has change day by day all the

companies adopting in terms banks now installed their own ATM, through the country

convenient location. Debit card, net banking, phone banking.

Environment factor: Environment factors will also affect the banking industry

Other factors:


RISK MANAGEMENT ____________________________________________________________________________________

Other factors like growth of the company, figures of deposits, advances, balance sheet, profit

and loss account, etc. also affect the share prices drastically for the same is done in later part of

the report

Company profile:

Pragathi Gramina Bank (PGB) is Regional Rural bank sponspored by Canara Bank operating in 8 districts

of Karnataka State. It is a pioneer bank for extending financial support mainly to agriculturirsts, artisans,

self help groups and traders. The market share of the bank in the operating districts is around 20%. The

bank has to it’s credit many innovative schemes and has the achievement highest number of rural

godowns (more than 800 godowns ) in Karnataka state

BACKGROUND & INCEPTION OF THE COMPANY

The first RRB in south India was established by Canara Bank on 25.01.1976, by name

Tungabhadra Gramin Bank.

Subsequently, Canara Bank established and sponsored Chitradurga Gramin Bank, Kolar Gramin

Bank and Sahyadri Gramin Banks in Karnataka State.

All the above mentioned four RRBs were amalgamated and Pragathi Gramin Bank came into

existence on 12.09.2005.

Nature of the business carried:

Pragathi Gramin Bank, a Bellary based regional rural bank, opened 32 branches as part of

financial outreach in Kolar and seven other districts.

According to Mr M.G. Bhat, Chairman, Pragathi Gramin Bank, “In short period of bank's

existence, business has touched Rs 9,000 crore, covering a clientele base of over 37 lakh.”


RISK MANAGEMENT ____________________________________________________________________________________

400 branches

“With today's branch opening, the bank's total branch tally has touched 400. This has been done

to reach out to more people and more areas, bank opened two branches each at Bellary and

Kolar, five branches at Chitradurga, Raichur and Davanagere, three branches at Chikkaballapur,

six at Koppal and four at Shimoga,” he added.

sampoorna solar villages

PGP along with its sponsor (Canara bank) declared three villages and four villages of Canara

Bank as ‘Sampoorna Solar Villages'.

Earlier, opening one of the Pragathi Gramin Bank branches, the Union Minister of State for

Finance, Mr Namo Narain Meena, urged the bank to increase assistance to agriculture and allied

sectors and bring prosperity among the farmers in particular and rural populace in general.

e-products launch

Mr Meena also launched e-products – ATM cards and NEFT facility offered by PGB and

distributed loans sanction papers under KCC, GCC, SHG, Solar lighting system, smart cards.

Kolar gramin bank

The Union Minister of State for Railways, Mr K.H. Muniyappa, recalled his association with

Kolar Gramin Bank as its director, which is now merged with Pragathi Gramin Bank.

PGB staff members are cordial and helping the farmers and the issuance of two lakh Kissan

Credit Cards is the testimony of their services.

Kolar is known for milk, silk, mango, flowers and the bankers have to make helping hand to the

farmers by liberally sanctioning loans.


RISK MANAGEMENT ____________________________________________________________________________________

Mr R.Varthur Prakash, Karnataka Minister for Textiles, Ms Archana S. Bharghava, Executive

Director, Canara Bank, and Mr S.N.A. Jinnah, Chief General Manager, Nabard, were present.

Vision, Mission, Quality policy:

VISION

Placing our Organization at the Highest Altitude among the RRB's in the country and

making it financially strong, viable, vibrant and an effective proactive instrument of

social change, with an eye to work for overall development of the people and the

economy of the operational area, through aggressive banking.

MISSION

To increase the business on a sustainable manner with consistent efforts and bring all the

house holds in the operational area into banking folds.

To fine tune the existing products and design new products and services to match the

competition prevailing in the market.

To mould the staff of the bank as computer literate and technologically savvy and to

achieve hundred percent computerization of branches.

To continue to be a true friend, philosopher and guide to customers with dedicated

service and accelerate the pace of development of the operational area for accomplishing

the Bank's Objectives.

Quality policy

Taking the banking services to the doorstep of rural masses, particularly to unbanked

rural areas.

ii. Making available institutional credit to the weaker sections of the society who had by

far little or no access to cheaper loans and had perforce been depending on the private

money lenders.


RISK MANAGEMENT ____________________________________________________________________________________

iii. Mobilize rural savings and channelize them for supporting productive activities in

rural areas.

iv. To create a supplementary channel for the flow the central money market to the rural

areas through refinance

v. Generating employment opportunities in rural areas and bringing down the cost of

providing credit to rural areas.

PRODUCTS/SERVICES PROFILE

DEPOSIT SCHEMES

Savings Bank Account:

Save while you can, draw when you need it.

An account for individuals, non-trading organizations and permitted institutions etc.

Minimum amount: Rs.100/- without cheque book facility (Rs.500/- with Cheque Book

facility)

No Frill Account ( Savings Bank Account)

Basic bank account to all house holds

Savings account with basic facilities can be opened with an initial deposit of Rs.10/- or

nil balance.

The objective is to enable under privileged house-holds to have access to financial, insurance

and extension schemes for socio-economic development.

New Nitya Nidhi Deposit

A Scheme which suits poor and rich alike


RISK MANAGEMENT ____________________________________________________________________________________

Collection of your daily savings at your door steps

Scheme period 5 years closer before maturity permissible

No restrictions/ceilings for daily savings.

Saving Bank A/c with Personal Accident Insurance cover 3 schemes to choose

from:

Schemes Amt. to be

maintained in the

A/c.

Int. to be earned

for one year

Annual

premium to be

deducted

Amount of

Insurance

Coverage

SJJND

PSJND – I

PSJND - II

500

1000

2000

17.00

35.00

70.00

8

16

32

25,000

50,000

1,00,000

Hassle-free and uninterrupted renewal.

The interest earned every year taken care of premium to be paid.

Customers in the age group of 12-70 years are eligible to open accounts under the above

schemes.

Fixed Deposit

“It is safe, Liquid and fetches high returns”

When you want to invest your hard earned money for a longer period of time and get a regular

income, our Fixed Deposit Scheme is ideal.

How much can you

invest

Minimum : Rs.100/-

Maximum : No ceiling


RISK MANAGEMENT ____________________________________________________________________________________

Period of Deposit Minimum : 15 days

Maximum : 120 months

High Returns Attractive rates as applicable from time to time

Interest Payment Monthly, Quarterly, Half-yearly at depositor’s choice

Easy Liquidity Loan against deposit. Closure before maturity permissible

Pragathi Tax Saver Deposit (Term Deposit Account)

Benefits of Section 80 C of the I.T Act 1961 extended to this deposit

Investment upto Rs.1.00 Lakh deductable from Income under Section 80C of the I.T. Act

1961

Scheme available to individuals/firms/Institutions

Fixed period of 5 years. No closure before maturity

No loans against the pledge of deposit

Not accepted as security/collateral security to any loan.

Kamadhenu Deposit:

“Our re-investment plan that multiplies your money” Apart from safety and liquidy, it offers

you the highest growth option (Compound interest)

How much can you

invest

Minimum : Rs.100/-

Maximum : No ceiling

Period of Deposit Minimum : 05 months

Maximum : 120 months (can be for odd period also)


RISK MANAGEMENT ____________________________________________________________________________________

High Returns Attractive rates as applicable from time to time

Interest Payment Interest calculated at quarterly rests and added to the principal

Easy Liquidity Closure Before maturity permissible. Loan against deposit

available.

Deposit Scheme for Senior Citizens:

Fixed Deposits and Kamadhenu Deposits:

“We respect senior people not by words alone. But in deeds too”! We offer 0.5% more interest

to them on the above deposit schemes.

Recurring Deposit

Make saving habit a rewarding recurring habit.

Ideal for convenient savings. Enables to build up a sizeable capital in a regular and systematic

way.

Amount of Deposit As low as Rs. 50/- per month (in multiples of Rs.50/-) No ceiling

on maximum limit.

High Returns Attractive rates as applicable from time to time. Interest

compounded every quarter.

Liquidity Closure before maturity permissible

Loan against deposit permissible

RATE OF INTEREST ON DEPOSITS

Period of Deposit Base rate of

interest

Preferential

rates to


RISK MANAGEMENT ____________________________________________________________________________________

Senior

Citizens

7 days to 14 days 4.00 % 4.50 %

15 days to 30 days 4.00 % 5.00 %

31 days to 45 days 5.00 % 5.50 %

46 days to 60 days 7.25 % 7.75 %

61 days to 90 days 7.00 % 7.50 %

91 days to 179 days 7.25 % 7.75 %

180 days to 269 days 8.50 % 9.00 %

270 days to less than 1 year 8.50 % 9.00 %

1 year to less than 18 months 9.60 % 10.10 %

18 months 9.80 % 10.30 %

Above 18 months and up to 5 years 9.50 % 10.00 %

5 years and above up to 10 years 9.25 % 10.25 %

Pragathi Tax Saver [5 years period] 9.00 %

INSURANCE COVERAGE ON DEPOSITS

All Deposits made by our Customers are covered under Deposit Insurance scheme of Deposit

Insurance and Credit Guarantee Corporation (DICGC), Mumbai up to Rs. 1 lakh per party. Hence the

Deposits with our Bank are Safe and Secure

SERVICES:

Pragathi Gramin Bank Services:

Pragathi Gramin Bank is involved in deposits, loans and insurance sector. It offers schemes and


RISK MANAGEMENT ____________________________________________________________________________________

ROI in deposit services. Agriculture investment finance, trade finance, personal finance and ROI

loans are the main services of Pragathi Gramin Bank loan schemes. It offers life insurance, safe

deposit of lockers and transfer of funds in services area.

LIFE INSURANCE SCHEMES MARKETED BY ALL OUR BRANCHES

Life insurance coverage is one of the integral components of the Financial Inclusions. Life insurance

products not only provide social security to the insured but also enable to use the same as a saving

cum wealth creation tool.

Our Bank has entered in to life insurance business as a Corporate Agent of Canara HSBC OBC Life

insurance company Ltd., (Corporate Office : Gurgaon). The stake holders and ownership pattern of

the Company is as under.

NON - LIFE INSURANCE

CORPORATE AGENT WITH UNITED INDIA INSURANCE COMPANY LTD.

Assets held as security to the Bank finance are to be adequately covered under Insurance. For

example, livestock, Vehicles, machineries, building and Stock in trade, etc.

Our Bank has entered into an MOU with M/s United India Insurance Company Ltd., for undertaking

non-life insurance business as Corporate Agent.

Under this arrangement, insurance business can be mobilized not only from existing lanes but also

from non-loanees and non-customers.

In the event of any claim arising in the insured cases, the insured (customer) will have to contact our

branch who in turn would contact the branch office of the company with the details of the policy.

Branches would provide prior intimation to the company over phone regarding the claim of the

insurer. The company would initiate the necessary steps to settle the claim thereby making the

process a hassle-free one.


RISK MANAGEMENT ____________________________________________________________________________________

TRANSFER OF FUNDS

All our Branches are permitted to issue Demand Drafts/Money Transfers on all our Bank Branches.

Additionally, we have made DD drawing arrangement with the following Branches of Canara Bank.

DEMAND DRAFT DRAWING ARRANGEMENT ON CANARA BANK BRANCHES

For the benefit of our Customers our Bank is issuing DDs on all Branches of Canara Bank within the

State of Karnataka and the following designated 36 Branches outside Karnataka up to Rs. 5 lakh per

day per party

Sl.No

.Name of the Place (State) Designated Center D.P. Code

1 Adoni (Andhra Pradesh) Branch 601

2 Ahmedabad (Gujarath) Accounts Section 1310

3 Agra (Uttar Pradesh) Accounts Section 1746

4 Ananthapur (Andhra Pradesh) Branch 659

5 Bhavani (Tamil Nadu) Branch 1237

6 Bhopal (Madhya Pradesh) Berasia Road, Main 360

7 Chandigarh(Punjab/Haryana) Accounts Section 1995

8 Chennai (Tamil Nadu) Accounts Section 1760

9 Coimbatore (Tamil Nadu) Accounts Section 1165

10 Delhi (NCR) Accounts Section 1745

11 Ernakulam (Kerala) Accounts Section 1730

12 Erode (Tamil Nadu) Cutchery Road, Main 1104

13 Goa(Goa) Sanquelim 342

14 Guntakal (Andhra Pradesh) Branch 778

15 Hyderabad(Andhra Pradesh) Accounts Section 622

16 Jalandar (Punjab) Accounts Section 2484

17 Kanpur (Uttar Pradesh) Accounts Section 2302


RISK MANAGEMENT ____________________________________________________________________________________

18 Kolkatta (West Bengal) Accounts Section 279

19 Kurnool (Andhra Pradesh) Branch 661

20 Kolhapur (Maharashtra) Laxmipuri 304

21 Ludhiana (Punjab) Accounts Section 1996

22 Madurai (Tamil Nadu) Accounts Section 1060

23 Mumbai (Maharashtra) Accounts Section 101

24 Pune (Maharashtra) Accounts Section 1591

25 Panaji (Goa) Panaji 308

26 Rajahmundry (Andhra Pradesh) Branch 642

27 Salem (Tamil Nadu) Accounts Section 1739

28 Sangli (Maharashtra) Branch 1613

29 Sholapur (Maharashtra) Chatigalli 310

30 Sivakasi (Tamil Nadu) Branch 921

31 Surat (Gujarath) Accounts Section 1997

32 Tiruppur (Tamil Nadu) Main Branch 1246

33 Trichy (Tiruchirapalli) (TN) Accounts Section 2303

34 Trivandrum (Tiruvanthapuram) Accounts Section 1729

35 Vadodara (Gujarath) Raopura (Main) 343

36 Vijayawada (Andhra Pradesh) Accounts Section 2300

.

Designated Branches of Canara Bank Branches in Karnataka (where there are more than

one Branch) for the purpose of drawing DD by Pragathi Gramin Bank

SL. NAME OF THE BRANCH NPBW DAY SL. NAME OF THE BRANCH NPBW DAY

Bellary Tq. HOSPET Tq.

1 BANAPUR Wednesday 1 DEVASAMUDRA Thursday


RISK MANAGEMENT ____________________________________________________________________________________

2 BELLARY COWL BAZAAR ------ 2 DHARMASAGARA Thursday

3 BELLARY GANDHINAGAR ------ 3 HOSPET

ANANTHASAYANA

GUDI

-

4 BELLARY KALAMMA

STREET

------ 4 HOSPET BELLARY

ROAD

--------

5 BELLARY MILLERPET --- 5 HOSPET COLLEGE ROAD Thursday

6 BELLARY MOTHI CIRCLE -- 6 HOSPET DAM ROAD --------

7 BELLARY S G NAGAR -------- 7 HOSPET INDIRA NAGAR --

8 CHELLAGURKI Wednesday 8 KAMPLI --------

9 GENIKEHAL Wednesday 9 MARIYAMMANAHALLI Thursday

10 KAMMARCHEDU Wednesday 10 METRI Thursday

11 KOLUR Wednesday 11 RAMASAGARA Thursday

12 KORLAGUNDI Wednesday HUVINAHADAGALI Tq.

13 KUDATHINI Wednesday 1 HARAVI Wednesday

14 KURUGODU ------ 2 HIREHADAGALI Wednesday

15 MOKAGONAL Wednesday 3 HUVINAHADAGALI ---------

16 SANGANKAL Wednesday 4 ITTIGI (BELLARY) Thursday

17 SIDARAGADDA Wednesday 5 KOMBLI Wednesday

18 SIDDAMMANAHALLI Wednesday 6 MAGALA Wednesday

19 SINDHIGERI Wednesday 7 MAKARABBI Wednesday

20 SIRIGERE (BELLARY) Thursday 8 MYLAR Wednesday

21 SIRIVARA (BELLARY) Wednesday 9 SOGI Thursday

22 SOMASAMUDRA Wednesday KUDLIGI Tq.

HAGARIBOMMANAHALLY Tq. 1 BANAVIKAL Wednesday

1 BACHIGONDANAHALLI 2 HOSAHALLI Wednesday

2 HAGARIBOMMANAHALLY Friday 3 KOTTUR ---

3 HAMPAPATNA Friday 4 KUDLIGI ---


RISK MANAGEMENT ____________________________________________________________________________________

4 HAMPASAGARA Friday 5 OOJEIN Wednesday

5 HANSI Friday 6 RAMADURGA Wednesday

6 KOGALI Friday 7 THAYAKANAHALLI Wednesday

7 MOREGERE Friday SIRUGUPPA Tq.

SANDUR Tq. 1 HATCHOLLI Wednesday

1 BANDRI Thursday 2 K BELAGAL Wednesday

2 CHORNOOR Thursday 3 KARUR Wednesday

3 NEW DAROJI Thursday 4 MUDDATANUR Wednesday

4 SANDUR Thursday 5 RARAVI Wednesday

5 TARANAGAR Thursday 6 SIRUGUPPA ---

7 TALUR Wednesday

Market Share (in %) as at March 2011 (Amt. In Crore)

District No.of

Branches

Branch Network

(in %)

Deposits

(in %)

Advances O/s

(in %)

Total Business

(in %)

Bellary 68 30.00 17.49 11.66 14.60

Chitradurga 65 45.77 29.46 32.80 31.52


RISK MANAGEMENT ____________________________________________________________________________________

Davanagere 45 27.37 15.03 17.22 16.11

Kolar 35 29.91 23.50 23.80 23.63

Chikkaballapura 31 28.03 25.26 23.14 24.34

Koppal 42 37.50 32.03 22.02 26.37

Raichur 54 34.83 24.49 33.72 29.43

Shimoga 28 12.78 6.21 5.36 5.86

Bank's Business Position (Amt. In Crore)

Year/Month Agg.

Deposits

Advances

O/s

Total

Business

% Increase

12th Sept.

2005

1326.49 1374.05 2700.54

March 2006 1642.94 1614.49 3257.43 20.62

March 2007 2006.19 2025.29 4031.48 23.76

March 2008 2548.63 2400.00 4948.63 22.75

March 2009 3222.32 2986.66 6208.98 25.47

March 2010 4122.46 3878.93 8001.39 28.87

March 2011 4812.60 4349.51 9162.11 14.50

COMPETTIORS INFORMATION :

1) State Bank of India:

The State Bank Group, with over 16000 branches, has the largest branch network in India


RISK MANAGEMENT ____________________________________________________________________________________

And the bank has 141 overseas offices spread over 32 countries. State Bank of India is one of the

Big Four Banks of India with ICICI Bank, Axis Bank and HDFC Bank. The State bank of India

is 29th most reputable company in the world according to Forbes. The products of the bank are

Loans Credit Cards, Savings, Investment, vehicles, SBI Life Insurance etc.

2) ICICI Bank:

It is India's largest private sector bank by market capitalization and second largest overall in

terms of assets. The Bank also has a network of 1,640 branches and about 4,816 ATMs in

India and presence in 18 countries, as well as some 24 million customers. ICICI Bank offers a

wide range of banking products and financial services to corporate and retail customers through a

variety of delivery channels. ICICI Bank is also the largest issuer of credit cards in India.

3) Bank of India:

It was established on 7 September 1906 is with its headquarters in Mumbai. Government-owned

since nationalization in 1969,It is one of India's leading banks, with about 3101 branches

including 27 branches outside India. Bank of India is a founder member of SWIFT (Society for

Worldwide Inter Bank Financial Telecommunications) in India which facilitates provision of

cost-effective financial processing and communication services.

INFRASTRUCTURAL FACILITY

Pragathi Gramin Bank is located in the centre of the city where the bank has multi-floor building

where it has separate partition for all the departments.


RISK MANAGEMENT ____________________________________________________________________________________

The bank is fully computerized and well furnished with air condition facility to the

employees

The bank provides medical facilities to its employees

It also provides educational facility to the employees and their children.

The bank also provides vehicle faculty or traveling allowances to their employees

The bank also has provided with quarters facilities to its employees (officers).

The bank has established its own training centre to develop the employees knowledge,

skill & attitude.

WORK FLOW MODEL :

The bank has a two way approach in its work flow pattern. Let’s consider a loan sanction

model, the person who requires the loan needs to fill an application and submit it to the

respective branch authority. Each branch has certain limitations regarding the loan

amount; bank needs to check the authentication of the details and information produced

by the party. Loan can be sanctioned only if the securities pledged are valid and are free

from legal considerations. The loan is sanctioned by the bank authorities if the

requirements are fulfilled; else if the loan amount is exceeding the limits of the branch,

the request is forwarded to the circle office or the head office. The circle or the head


RISK MANAGEMENT ____________________________________________________________________________________

office verifies and approves or rejects the proposal. The order (approved/rejected) is sent

back to the respective branch, and hence sent to the person. The figure above provides a

clear understanding of the same

AWARDS & ACHIEVEMENTS :


RISK MANAGEMENT ____________________________________________________________________________________

NABARD has been recognizing Best Performing Branch/RRB annually under Farmers Club and

SHG linkage.

Bank has received the following Awards for excellence under promotion of SHGs and Farmers

Clubs.

o “Sri Sharana Muddanna Raitha Koota” Farmers club promoted by our Kumbalur

branch of Davanagere District is adjudged as the Best Farmer’s Club in the State.

o Bank secured State Level Award under SHG Bank linkage programme for

“Higest Average Loan per Group Account” unde RRB

FUTURE GROWTH AND PROSPECTUS

Business finance.

Measures to improve the economic condition of minority community.

Government sponsored schemes.

Investment.

McKinney’s 7s FRAMEWORK


RISK MANAGEMENT ____________________________________________________________________________________

The 7-s frame work of McKinney is a value based management (VBM) model that describes

how one can holistically and effectively organizes a company. Together these factor determine

the way in which a corporate operation.

SHARED VALUE

Contribution to the rural productivity & prospective is one of the stated objectives of the co-

operative bank. The following two illustration studied by me could be quoted as testimony to the

banks achievements.

Farmers in rural areas generally found taking their agriculture produce to make for selling,

immediate after investing. The commission agents also make outright purchases & pick up the


RISK MANAGEMENT ____________________________________________________________________________________

produce directly from the framer land after investing. As most farmers don’t have

accommodation for storage, they cant take the advantage of holding the produce for a couple of

months in anticipation of remunerative prices.

The bank took decision to help the farmers community with financial assistance for construction

of commodity storage go down in agriculture land/ village. The bank introduced special schemes

in the year 2005 for above purpose. An extensive canvassing of the scheme was undertaking by

the bank, organization customers meets / village it floted a special schemes to advance loans to

farmers, who stored their agriculture produces in their own hours or go downs for want of

remunerative price. The Commodity pledge to the bank.

STRATEGY

Loans /advance strategies.

Reserve bank of India & national bank for agriculture & rural development is the guiding

authority to the bank in the matter of loans/ advances policy/ scheme. The procedural aspects are

guided by sponsor bank be canara bank.

Every guideline from RBI/NABARD that suggests adoption of particular policy as put up to the

board for decision. The board of directors after examining the pros & cons of the guideline

resolve either for implementing of the guideline or defer it.

If the policy is expected by the board for implementation, then the head office comes out with

detailed guidelines which are communicated to authorities for implementation.

STRUCTURE


RISK MANAGEMENT ____________________________________________________________________________________

The bank is operating with three tier Organization structure. The bank has the head office at

Bellary, 7 Regional Offices and 365 Branches around the Karnataka.

There are 3 General Managers for the bank who are

looking after seven different wings of the bank. They are

1. Development Wing

2. Personnel Wing

3. Premises staff and Information Technology Wing

4. General Administration Wing


RISK MANAGEMENT ____________________________________________________________________________________

5. Recovery and Legal Wing

6. Inspection Wing

7. Credit Wing

SYSTEM

Fixing of interest rates for various deposits schemes offered to the customers by the bank is one

of the important functions of the above said department.

The fixing of interest rates on deposits on following factors.

Demand for loans from the customers.

Loans recovery position.

Other sources of borrowing & interest rate on such borrowings.

Interest bun on bank both for outside borrowing & for raising deposit from customers.

Managing of profit available at the end.

Whenever other competing banks make either an upward/downward revision in their existing

interest rates on deposits, this department studies the market trend & it own funds positions &

thereafter comes out with alteration in the existing rates, wherever needed.

STYLE

Cultural of the organization and how key managers behave in achieving the organizational goals.

Management style

As such the style adopted is naturally a top- down approach of participative approach on the

sense that the board of directors, managers, which is constituted with representation from

government official & public representative (2 directors nominated from among the public). It is


RISK MANAGEMENT ____________________________________________________________________________________

top – down management & authoritarian. The bank is established by the government of India.

Therefore, it is require functioning within the frame work of guidelines communicated by

government of India, RBI&sponsor bank.

STAFF

The bank is motivated to harness the unique assets of the human resources for growth of the

institution and to imbibe team spirit for self and mutual development among bank’s staff.

The bank has made inroads towards establishment of quality circle concept among its employees.

Training & Development Canara bank has been a fore runner in establishment of its own training

college at Bangalore, supported by 13 regional training centers spread over length & breadth of

the country. These centers take care of knowledge, skill & attitudinal development of the

employees.

SKILL

A skill refers to the fact employees have the skills needed to carry out the company’s strategy.

Training and development – ensuring people known to do their jobs and stay to date with the

latest development & techniques .Some of the training programs conducted to the employees in

the bank are as follows;

Project management training

Advanced risk management training

System appreciation training

Leadership development training

Behavioral training

Professional skills training.

SWOT ANALYS


RISK MANAGEMENT ____________________________________________________________________________________

SWOT mean analysis and assessment of comparative strengths and weakness of a firm in

relation with their competition and environment opportunities and threats, which a company may

likely to face. SWOT analysis is as such a systematic study and identification of those aspect and

strategies that best suit the individual company position in a given situation. It should be based

on logic and rational thinking such that a proper strategy improves an organization business

strengths and opportunities and at the same time reduces its weakness and threats

STRENGT

Good & quick service

Good Recovery

Deposits have been ensured with DICGC

Customer oriented approach

Staff members are committed and respond

well to the queries of the customer.

Customer identification

WEAKNESS

. ATM systems need to be installed all

over Karnataka.

Online Banking is required.

OPPORTUNITIES

Only 8 districts of the Karnataka has

been covered by the bank hence there

is great scope for expansion.

No much competition in the villages.

THREATS

Credit risk

Government policies

Credit policies

Many competitors in the urban and

semi-urban areas.

BALANCE SHEET AS ON 2010

PARTICULARS MARCH2O1O MARCH2009 INCREASE/DECREASE %INCREASE/

DECREASE


RISK MANAGEMENT ____________________________________________________________________________________

CAPITAL

&LIABILITIES

Capital 40000 40000

Share capital deposit 399079 399079

Reserves 4254009 33704460

Deposits 41224582 32223204

Borrowings 7376125 3400098

Other liabilities

&provisions

3398041 2833094

TOTAL 56691836 42599935 14091901 1.33

Assests:

Cash and balances

with RBI

3473425 254223

7

Balance with banks

and maney at call and

short noties

4329670 2011560

investments 12979068 9894428

advances 33797459 26993572

Fixesed assets 154997 107721

other assets 1957217 1050417

Total 56691836 42599935 14091901 1.33

Contingent liabilities 91984 72943

Bills of collection 165802 382348

BALANCE SHEET AS AT 31st MARCH 2011


RISK MANAGEMENT ____________________________________________________________________________________

PARTICULORS MARCH

2011

MARCH

2010

INCREASE/

DECREASE

%INCREASE/

DECREASE

Capital and

liabilities

capital 40000 40000

Share capital

deposit

399079 399079

reserves 4782693 4254009

deposits 48125974 41224582

borrowings 9578994 7376125

Other liabilities and

provisions

2880246 3398041

total 65806986 56691836 9115150 1.16

Assets:

Cash and balances

with RBI

3775505 3473425

Balance with banks

and maney at call

and short noties

2961200 4329670

investments 21973530 12979068

advances 34931504 33797459

Fixesed assets 140908 154997

other assets 2024339 1957217

total 65806986 56691836 9115150 1.16

Contingent

liabilities

143912 91984

Bills of collection 144060 165802

PROFIT AND LOSS ACCOUNT

PARTICULARS MARCH2011 MARCH2010 MARCH2009


RISK MANAGEMENT ____________________________________________________________________________________

INCOME

Interest Earned 5145478 4209997 3169599

Other income 248125 184870 201162

TOTAL 5393603 4394867 3370761

EXPENDITURE

Interest expended 3137286 2599423 1897010

Operating expenses 1387165 928110 802819

Provision & contigencies 340468 317785 311130

TOTAL 4864919 3845318 3010958

SURPLUSE

NET PROFIT FOR THE PERIOD 528684 549549 359802

APPROPRIATIONS

TO statutory reserves 110000 110000 75000

To reserve for long term finance 32500 59000 59300

To floating reserve towards investment 110000 50000 50000

Transfer to govt./proposed dividend --------- ---------- ---------

To floating reserve towards NPA 200000 90000 100000

TO General Reserve 75000 240000 75000

Balance of carried over to balance

sheet

1184 549 502

TOTAL 528684 549549 359802

LEARNING EXPERIENCE

The banking sector currently is the emerging sector and it is a fast changing and very dynamic.

Banks in the country are every effort to meet the expectations and needs of the customers more


RISK MANAGEMENT ____________________________________________________________________________________

than nationalized banks by offering the superior and innovative product and services. The study

highlights that the bank is focusing mainly on customer satisfaction through various innovative

products and services. In the present business world, each and every bank is making their

possible best efforts to attract more number of customer towards their bank, which resulted in

aggressive competition in the banking sector.

As the future managers of the bank world, we need to know everything about the functioning of

the organization and it is strongly believed institution learning is different from that of the

particle learning. And that is why in plant training helps us to know a complete functioning of

the organization.

During this in plant training, I got the opportunity to study and know exactly the various

strategies adopted by the organization and also to understand the duties, responsibilities, etc.., of

the various department and its functioning. In fact I was exposed to the systems followed by the

organization, the style of management.

In plant training program to a greater extent has helped me to understand the aspects such as

different products and services offered by the bank, area of operation, work flow model, overall

organization functioning, etc.,

Apart from these things, I was also able to understand the organization in depth with the

application of Mckensy’s 7s frame work with special reference to organization understudy

namely structure, skill, style, system, staff, shared value, and lastly the aspect of SWOT analysis

of the organization.

All and all, this in plant training was the most useful and valuable program in my education life,

where I got many things to learn and understand very practically and the program has given me

inputs about the process or the whole functioning of the organization. In fact this in plant training

was much valuable and added more value to my knowledge and to my career as well.

Lastly I thank our institute and university as well for providing such an opportunity of learning

and understanding the various functions and process of the organization practically, where it is


RISK MANAGEMENT ____________________________________________________________________________________

possible for me to make an attempt to apply theoretical aspect in the organization and most

importantly decision making aspect in the organization.


RISK MANAGEMENT ____________________________________________________________________________________

PART-B

GENERAL INTRODUCTION :

Risk is broadly defined as a threat that an event or occasion that will adversely affect

organisation`s ability to achieve its business objectives and successfully execute its strategy and


RISK MANAGEMENT ____________________________________________________________________________________

an adverse impact on profitable of several distinct source of uncertainty. Risk is the probability

of non-fulfilment of commitment to stakeholders on account of non realization of assets.

While the recovery in loans and investments would depend on the capabilities of proper recovery

machinery under risk management system, the payment to the stakeholders i.e. Depositor is

mandatory. Thus a mismatch between the inflow through recovery and out go to the depositors

could become very difficult if the risk management tools fails to deliver.

With opening up of the economy and widening of the banking operation, varied market condition

diverse regulatory requirement have to been necessarily inter related by adapting a proper policy

in risk management.

STATEMENT OF THE PROBLEM

The project helps in understanding the clear meaning of Risk Management in P. G.bank. It

explain about the most obvious risk derivatives participants face is risk. For both purchasers and

sellers of protection, Risk derivatives should be fully incorporated within risk management

process

OBJECTIVES OF THE STUDY

To study the trend in loans and advances of the bank

To analyze how the pragathi gramin Bank is adopting strategies to attract towards

their product.

To make comparative study of product/ services of pragathi Bank with other Bank.

To evaluate about the various credit facilities offered by bank

To know the different kinds of loans provided by the pragathi gramin bank.

To analyze how the pragathi gramin Bank is adopting strategies to attract towards

their product.


RISK MANAGEMENT ____________________________________________________________________________________

SCOPE OF THE STUDY

The scope of the study is identified during the study is conducted. The project is based on tools

like credit risk, return and management. Further, the study is based on information of last three

years.

The scope of the study is limited in bellary other division

The scope is limited to only the risk management

METHODOLOGY

Hence a project is understood on risk management and advising PG bank on how to recover the due from

the borrowers.

The quality of the project work depends on the methodology adopted for the study. Methodology in turn

depends on the nature of the project work. The use of proper methodology is an essential part of any

research. In order to conduct the study scientifically, suitable methods & measures are to be followed.

The type of research used for the collection & analysis of the data is “Historical Research Method”.

The main source of data for this study is the past records of the bank. The focus of the study is to

determine the non-performing assets of the bank since its inception & to identify the ways in which the

performance especially the non-performing assets of the State Bank of India can be improved. The data

regarding bank history & profile are collected through “Exploratory Research Design” particularly

through the study of secondary sources and discussions with individuals.

Title of the Project

“Risk Management in pragathi gramin bank Bellary”

Data Collection Method

Primary Data


RISK MANAGEMENT ____________________________________________________________________________________

The data directly collected by the researcher with respect to the problem under study is known as

Primary data. Primary data is also the first hand data collected by the researcher for the immediate

purpose of the study

Sources of Primary Data

Having face to face discussions with the bank officials

By taking guidance from bank guide & departmental guide.

Secondary Data

The secondary data is mainly obtained from company manual and annual report. Secondary data are

statistics that already exist. They have been gathered not for immediate use. This may be described as

“those data that have been compiled by some agency other than the users”

Limitation of the study :

The study is based only on risk management.

The study is based on the data given by the officials and reports of the bank. The confidentiality

of some facts and figures is a limitation.

The non-availability of relevant information is one of the limitations.

DATA COLLECTION AND ANALYSIS

THEORITICAL BACKGROUND OF RISK MANAGEMENT POLICY

Risk is broadly defined as a threat that an event or occasion that will adversely affect

organisation`s ability to achieve its business objectives and successfully execute its strategy and


RISK MANAGEMENT ____________________________________________________________________________________

an adverse impact on profitable of several distinct source of uncertainty. Risk is the probability

of non-fulfilment of commitment to stakeholders on account of non realization of assets.

While the recovery in loans and investments would depend on the capabilities of proper recovery

machinery under risk management system, the payment to the stakeholders i.e. Depositor is

mandatory. Thus a mismatch between the inflow through recovery and out go to the depositors

could become very difficult if the risk management tools fails to deliver.

With opening up of the economy and widening of the banking operation, varied market condition

diverse regulatory requirement have to been necessarily inter related by adapting a proper policy

in risk management.

In order to achieve disciplined and transparent system a scientific risk management covers all

risk information systems, reporting and subsequent action. The basic principles of risk

management are:

1. “The management rules should not constrain the risk taking process too much. Being too

prudent slows down the decision making process and limits the volume of business.

2. There should be a separation of the risk taker from the risk controller. The risk takers

have an interest in volume of business and profitability and both targets can be met at the

expenses of additional risk. The risk taker, therefore cannot be the risk controller.

3. There should be incentives to disclose the risks when they exists rather than to encourage

the managers to hide them.”

In order to achieve the objectives of the above principles a policy on risk management is

being put its place. Earlier to this the bank has been practicing certain risk management

function by adapting very strong review system, adoption of ALM system though ALM was

not mandatory to RRBs. With this prudent approach the bank has been addressing issues in

risk management.

However as a policy in order to fall in line with market standards in banking operation,

compete with other institution and to maintain stability we are presenting the policy on risk

management.


RISK MANAGEMENT ____________________________________________________________________________________

RISK MANAGEMENT FUNCTIONS:

The broad parameters of the risk management encompass the following:

Organisational structure.

Comprehensive risk measurement approach

Risk management policies approved by the board which shall be consistence with broader

strategies, financial strength, management experience and overall willingness to assess

risk

A strong MIS for reporting , monitoring and controlling.

Effective procedures, perfect control and comprehensive risk reporting framework.

Separate risk management frame work independent of operational departments and with

clear delineation of levels of responsibility for management of risk.

Periodical review and evaluation of risk management system.

Risk management is both top-down and bottom up process. At the top level target

earnings and risks level are defined. From top to bottom the overall goals are translated in

to signals to business unites(branches) and to managers in charge of transaction with

customers. The monitoring and reporting of risk are bottom up oriented, starting with

transaction and ending with consolidated risks revenues and volume of transactions.

Thus the functions in managing these risks involve following processes.

RISK MANAGEMENT PROCESSES

1. Risk identification :


RISK MANAGEMENT ____________________________________________________________________________________

Risk identification involves the understanding the nature of various kinds of risks. The

circumstances that lead to risk situation and knowing the causes due to which the risk can arise.

This should be done as under:

a) Periodical review of the asset portfolio

b) Risk rating of credit and investment exposures

c) Analysis of loss arising out of human and system failures like frauds, wrong posting of credit

and consequent of withdrawal of funds by persons non entitled for the same.

d) Technology issues.

2. Risk measurement or quantification :

Risk being probabilistic in nature, measuring it in accurate terms is difficult. At a time

quantification becomes difficult. However risk quantification is an assessment of the degree

of the risk to which a particular transaction or any activity is exposed. We can attempt to

quantify it in approximate terms by having a data base of loss events and by default “and

probability of default different methodology and techniques are suggested and these can be

adopted to quantify various risks. Such techniques are suggested in the ensuring passages.

3. Evaluation and control :

Monitoring and evaluation of the risks identified should be on continuous basis by way of

analysis and supervision of various drawn periodically by the risk management committee at

apex level basing the data collected. The risk matrics normally high risks, medium risk and

low risks. The risk management department at apex level shall appraise the top management

about quantitative qualitative information and take steps to plug the gaps if any noticed in

the existing controls. In order to focus attention on areas of greater risk to the bank an

activity wise and location wise identification and assessment of risk shall be under taken.

Previous internal audit reports and compliance


RISK MANAGEMENT ____________________________________________________________________________________

Proposed changes in loan policy or credit policy

Significant change in management

Latest inspection report of NABARRD/ RBI/ SPONSOR BANK/ Other approved

agencies

Report of external auditors.

Sectoral trends and other environmental factors.

Volume of business and risk prone credit

Substantial performance variations from the budgeted levels.

Proper MIS and data integrity

The internal audit section should be kept informed of all the development such as

introduction of new schemes, change in accounting practices and policies

4. Risk mitigation :

In order to mitigate the risk identified different strategies to be adapted for each type of risk,

For example: for credit transaction oriented shall be done with the help of internal audit, and

intrinsic risk shall be controlled by understanding various factors typical to particular

industry, activity or business to which u nit belongs by collecting information about the

industry.

Risk mitigation in case of market risk shall be controlled by adopting ALM exercise. In our

bank we have ALM concept. However ALCO committee shall periodically review and

appraise the top management.

When risk cannot be controlled, managed/ contained or absorbed or it can not be prudently

transferred. Such events are normally those on which bank has little control like fire, flood,

acts of God etc. The effective way of transferring of such risk is by way of recourse to

insurance cover.

One of the effective tools the bank shall adopt in mitigating the risk is gradually to move

towards risk based internal audit which will in addition to selective transaction testing. This

would mean that the roll of internal auditor is higher in mitigation risks. Suggestions from

internal auditor should be obtained periodically. This will help in mitigation of current risk


RISK MANAGEMENT ____________________________________________________________________________________

and avoid future risk. The bank has already adopted risk based supervision and risk based

audit in its system

Types of risk:

The principal banking risks are :

Credit risk

Liquidity risk

Market risk

Interest rate risk

Foreign exchange risk

Solvency risk

Operational risk

Credit risk :

Credit risk as “the losses in the event of default of the borrowers or in the event of detoriation of

the borrowers` credit worthiness. The credit risk emanates when the counter party/ borrower is

unwilling or unable fulfill the contractual obligation/ commitment leading to default. The credit

risk can be subdivided in to 3 risks.

Default risk.

Exposure risk

Recovery risk

Or it can also be classified into following factors

Internal factor (application to borrowers)

Internal factor (Application to bank)

External factor


RISK MANAGEMENT ____________________________________________________________________________________

Internal factors (Applicable to barrowers) include in adequate to technical know-how

location advantages, outdated production process, high cost inputs, break even points is too

high, uneconomic size of the project, large investment in fixed assets, over estimation of

demand, wide swings in commodities.

Internal factor(Application to bank) include deficiency in loan policies, absence of

prudential credit concentration limits, in adequately defined delegation of powers to loan

officers, deficiencies in appraisal of borrowers financial position, excessive dependence

on collateral`s, in adequate risk pricing, absence of review mechanism and post sanction

surveillance.

There are also other external factors, which are applicable both for banks barrowers. Credit

worthiness of the counter party, concentration risk, portfolio risk, transaction risk,

government policies, trade restrictions.

However among the above factors in credit risks, following are the important factors in credit

risks.

Default risk :

The default risk may be on account of missing a payment obligation for certain period, going

down in the economic value of the assets.

Exposure risk :

This is generated by uncertainty prevailing with future amounts at risks. For the credit limits

with repayment schedule the exposure risk can be considered as small or negligible. In case

of operative limits like overdraft , cash credit where bank is committed where lending money

up to some maximum amount of risk varies at the initiatives of the client. Recoveries in the

event of default are not predictable

Recovery risk :

recovery risk as three components i,e.

(i) Collateral risk – credit risk can be minimised if the collateral is easily convertible into

cash and credit towards the liability. Therefore the bank has to be more prudent in taking

collateral`s.


RISK MANAGEMENT ____________________________________________________________________________________

(ii) Third party guarantee risk – in this segment credit risk prevails if both guarantor and

guarantee fails to honor the commitment

(iii) Legal risk – this arises on account of bank not being able to sell the collateral or

enforce the guarantee legally.

The other types of factors influencing (external or internal ) credit risk are :

Interest rate risk:

Stipulation of lending rates for any activity should be reasonable, acceptable, and affordable to

the barrower based on his cash generation and repaying capacity. Fixation of any unreasonable

interest rate that is not matched by adequate cash generation by the barrower may lead to defaults

is meeting the agreed commitments. This shall be addressed by the bank by fixing reasonable

lending rates arrived by scientific calculations (ALM)

The other type of credit risk on account of external factor is Forex risk. This includes volatility

in foreign exchange rates on account of which the ability to repay the counter party is affected. If

the rupee value depreciates more of India currency may have to be bought in and ultimately lead

to default. If rupee strengthens against foreign currency the rupee equalant of export earnings

gets reduce which leads to eroded profits.

Country risk : the prevailing economic situation in different country determine the risk which

the bank is exposed to. If the importers country has imposed an embargo on repatriation, then,

our exporter will not be in a position to receive the export proceeds, which may leads to default.

Concentration risk :

Credit concentration is probably the single largest cause of major credit problems. It includes

conventional, concentration such as credits to single barrower, a group of connected, counter

parties, sectors or industries and the concentration based on common or core related risk factors.

Portfolio risk :


RISK MANAGEMENT ____________________________________________________________________________________

This is on the lines of concentration risk, where the banks takes credit and or investment

exposure on certain sectoral activities like housing, textile sugar industries etc. The success or

failure of the credit and or investment exposure directly depends on the success rate of these

segments. If these segments are not performing well and which may cause hardship to the

parties, in turn, this may result in default of payments. This is a major credit risk which bank has

to face.

Transaction risk :

In this type of risk the nature of transaction some times has an intrinsic risk like granting of

clean/ unsecured loan, discounting of supply bill, book debt finance to individuals and

proprietary concerns.

Economic scenario/ government policies, trade restriction etc.

The change in the economic scenario or the government policies or trade restrictions imposed by

various authorities are beyond the control of either the bank or the counter party. This may

adversely affect the business, which may cause default leading to credit risk.

Credit risk management :

After knowing the details of the credit risk and cause of the credit risk it is necessary to

understand and implement a sound credit risk management techniques by the bank in order to

mitigate the risk . according to the basle committee core principals following the factors, which

have direct bearing on the credit risk management functions of the bank. These are called basic

requirements for effective credit risk management.

1) Laying down sound credit granting standards and credit granting process.

This includes maintenance of prudent return lending policies, loan approval and

administrative procedures, appropriate loan documentation etc. Lending and investment


RISK MANAGEMENT ____________________________________________________________________________________

activities shall be based on prudent under writing standard duly approved by the board

and clearly communicated to the bank officers and the staff dealing with credit functions.

Bank shall also have sound, well defined credit granting process with proper delegation

of sanctioning powers to various functionaries of the bank. Bank shall fix prudential

exposure ceiling to individuals, group borrowers various industries, activities, sectors etc.

2) Effective credit administration :

In order to mitigate the credit risk bank shall have in place.

a. A system of on going administration of credit

b. An effective monitoring mechanism of loan portfolio

c. Develop and utilise internal credit risk rating systems.

d. Appropriate machineries to collect accurate management information.

e. With the MIS evolving proper techniques to address the credit risk.

The monitoring mechanism should also take into consideration the potential

future changes in the economic policies, government policies etc. Prevailing in

various parts to address the credit risk.

MECHANISMS OF CREDIT RISK MANAGEMENT :

i) Credit approving authority :

The board of director of the bank shall ensure that, prudential limits are fixed to

restrict bank exposures to single barrowers or groups of barrowers. Bank shall have

carefully formulated guidelines for delegation of powers. Bank may also consider

setting up of approval grid or committee of 3 or 4 officers including one from credit

risk management department who as no volume and profit targets. Such approval

grid shall be formed at various levels like large branches, regional offices etc.

ii) Benchmark financial ratios :


RISK MANAGEMENT ____________________________________________________________________________________

Bank shall stipulate benchmark current/ debt equity and profitability ratios, DSCR,

other ratios with flexibility`s for deviation to be permitted by the loan policies of the

bank.

iii) Prudential limits :

The supervisory authority of the bank sets prudential limits to restrict banks exposure

to single borrower, groups of related borrowers and other significant risk

concentration through CMA guidelines.

These exposure limits shall be well defined as per the RBI/NABARD guidelines issue

from time to time.

These exposure limits shall not generally exceed 25% of the capital found or any

thresh hold limit fixed by the board from time to time of capital founds.

iv) Connecting lending :

The Banks lending policy must be able to prevent abuses arising from connected and

related party lending. This will require ensuring that such lending is conducted only

on an arms length basis that the amount of credit extended is closely monitored.

1) RISK RATING :

Bank may have a comprehensive risk scoring / rating system for all borrowers. This shall

serve as a single point indicator of diverse risk factor of a counter party. This shall also

make the bank take credit decision in a consistent manner. The risk rating system shall be

drawn relevant to the RRBs and their credit exposure.

2) RISK PRICING :


RISK MANAGEMENT ____________________________________________________________________________________

Risk return pricing is a fundamental tenant of risk management. The pricing of loans

shall be normally linked to risk rating or credit quality. In a risk return setting barrowers

with weak financial are placed in high credit category and hence to be charged high.

Bank shall evolve scientific system to price the credit risk. The probability of the default

based on the passed behaviour of the credit portfolio should be an indicator to price the

credit risk.

3) LOAN REVIEW MECHANISM :

The loan mechanism is an effective tool for constantly evaluating the quality of the loan

assets. This is aimed at to bring about qualitative improvement in credit administration.

A proper loan review mechanism shall be placed for large volume of account. The

objective of the loan review mechanism shall include’

a) ‘Assessing adequacy and adherence to loan policies and procedure as per RBI guidelines

and monitoring compliance with relevant laws and regulation of RBI/NABARD/Sponsor

bank.

b) To provide top management with information on credit administration

c) To promptly identify loans which develop credit weakness and to initiate timely

corrective action.

d) To evaluate portfolio quality and to isolate problems areas

e) To provide information for determining adequacy of loan loss provisions.

f) To evaluate portfolio quality and isolate potential problem areas

g) Bank shall have a proper credit grading system, which includes quality of credit

identification of problem loans and risk ratings.

h) Bank shall have a loan review policy and it shall be reviewed annually by the board.

4) CREDIT RISK AND INVESTMENT BANKING :-


RISK MANAGEMENT ____________________________________________________________________________________

Significant magnitude of credit risk, in addition to market/ interest rate/ liquidity risk is

inherent in investment banking. The proposals for investment should therefore be

subjected to the same degree of credit risk analysis as any loan proposals, which are

not rated and should ensure comprehensive risk evaluation. The rating migration of the

issuers and the consequent diminution in the portfolio quality should also be periodical

intervals.

5) CREDIT RISK MANAGEMENT TECHNIQUES ADOPTED BY THE

BANK :

a) Adoption of comprehensive credit policy

b) Delegation of appropriate credit sanctioning power to various authorities.

c) Fixation of exposure limits as per RBI guidelines.

d) Ensuring strong appraisal system

e) Adopting benchmark financial

f) Proper pricing mechanism for loan products

g) Having an effective roll review mechanism.

h) Monitoring of the accounts by way of mid term review , periodical review (quarterly)

at various sanctioning level. Reviewing is being done by next sanctioning authority.

Sanction by the board are placed for review periodically.

i) Monitoring of accounts through various PRPs, stock statement, MOSD statement etc.

6) PROPOSED STEPS TO STRENGTHEN RISK MANAGEMENT

TECHNIQUES :

Fixing exposure limits to various industries/ sectors/activities

Constituting credit policy committee at head office to formulate and

evaluate sound credit policies.

Regular meeting of risk management committee to address the matters

relating to among others credit risk.


RISK MANAGEMENT ____________________________________________________________________________________

Evolving credit risk rating system for borrowal accounts beyond certain

limits.

Further refining review system wherever required

LIQUIDITY RISK :

Liquidity risk is considered a major risk. It is offen defined in different ways. Liquidity is

the safety cushion provided by the portfolio of the liquid assets or the banks ability to raise funds

at normal cost. Liquidity risk is the potential inability on the part of the banks to meet the

liabilities as and when they become due. Basically, liquidity risk originates, from mismatches in

the maturity pattern of the assets and liabilities. Liquidity risks arises on accounts of market

forces. Extreme liquidity results in bankruptcy. Hence liquidity risk is fatal risk.

Another common meaning of the liquidity risk is that short- term assets values are not sufficient

to match short-term liabilities or unexpected out flows. i.e. mismatch.

Liquidity risk arises on account of following market forces.

If the realisability of assets is either nil or low

Premature withdrawal of deposits/ borrowed funds.

No fresh inflows of deposits

Funding of contingent liabilities ( like development of LCs/bank guarantees)

Measurement of liquidity risk :

Measuring and managing liquidity needs are vital for effective operation of the bank. By

assuring banks ability to meet its ability to meet its liabilities as they become due, liquidity

management can reduce the probability of an adverse situation developing. Following are the

techniques of measuring liquidity risks.

a) Analysis of liquidity position of the bank on an on going basis


RISK MANAGEMENT ____________________________________________________________________________________

b) Examining affect of funding requirements under crisis situation

c) Analysing assets liabilities based on assumptions of future behaviour of assets and

liabilities based on time buckets and then calculating net flows.

d) Analysis of future cash flows under “what if scenarios so as to assess significant

positive/ negative liquidity swings on day to day basis.

Dimensions of liquidity risk in banks :

Following are the nature of liquidity risk in banks

Funding risks—need to replace net out flows due to unanticipated withdrawals/ non renewal

of deposits.

Time risk --- need to compensate for non receipt of expected inflows of funds i,e. Performing

assets turning into non performing assets

Call risk --- due to crystallisation contingent liabilities and in ability to undertake profitable

business opportunities when desirable.

Measuring the liquidity risks :

The liquidity risk is difficult to be measured. This can be measured through stock or cash flow

approaches. Following are some of the important techniques in measuring the liquidity risk.

a) Identifying and applying key ratios adopted in the banking system i,e. Loans to total

assets, loans to core deposits, large liabilities, less temporary investment to earning

assets , less temporary investment, borrowed funds to total assets , loan losses on net

loans, i.e tracking of cash flow mismatches.

b) The bank shall analyse the behavioural profile of various components of on / of

balance sheet items on the basis of assumption and trend analysis supported by time

series analysis


RISK MANAGEMENT ____________________________________________________________________________________

c) Bank shall study the impact of pre – payment of loans /pre-mature closure if deposits,

option of built in i.e put/call operation after specified times. Thus the difference

between cash inflow and outflow each time bucket shall indicate banks future

liquidity position.

d) Banks shall have a system for monitoring high value deposits (other than inter bank

deposit) say Rs 5.00 lakh or more to track the volatile liabilities. The liquidity profile

of the bank shall be analysed on a static basis.

e) Banks shall also estimate the liquidity profile on a dynamic way by giving due

importance to seasonal pattern of deposits/ loans

f) Potential liquidity needs for meeting new/ seasonal loan demand, unavailed credit

limits potential deposit losses, investment obligation statutory obligation etc

Management of liquidity risk:

The first steps towards liquidity management is to put in place an effective liquidity

management policy, which, interalia should spell out the funding strategies, liquidity planning

under alternative scenarios, prudential limits, liquidity reporting/ reviewing etc.

The liquidity risk can be controlled and managed by applying following measures.

Raising a proportion of bankfunds committed to readily marketable assets (SLR)

Refinance from lender of fast resort / NABARD/SIDBI/NHB.

Reliance on funds on large number of small deposits

Drawing up of maturity profile of assets and liabilities.

It shall be noted that the maturity profile can not assess /does not take into account the

followings:

The ability of the bank to borrow and raise resources

Quality of assets

Contingent liabilities.


RISK MANAGEMENT ____________________________________________________________________________________

MARKET RISK

Market risk can be defined as the risk of adverse deviation of the mark –to-market value of

trading portfolio during the period required to liquidate the transaction it may also be defined as

the possibility of loss of bank caused by changes in the market variables i.e changes in the rates

in fundamental economic markets. Ex. Equities and fixed interests bearing securities and other

external factors which will negatively impact on the market value on the banks investments/

trading portfolio.

As per the core principal enumerated by the Basel committee the bank shall have in place,

systems that accurately measure monitor and adequately control market risk.

The market risk normally arises on account of the following factor

Liquidity risk :

This is a risk that the potential inability on part of the bank to meet the liabilities’ as and when

become due. It is basically on account of mis-matches in maturity pattern of assets and liabilities.

Interest rate risk :

It is the risk where changes in the market interest rate might adversely affect the net interest

income (NII). A continuous impact on NII may reduce the banks net worth as also the economic

value of banks assets, liabilities and balance sheet positions. The earning on assets and cost of

liabilities are closely related to market interest rates volatility.

Foreign exchange risk :

It is the risk that bank may suffer losses as a result of adverse exchange rate movements.

Equity risk:


RISK MANAGEMENT ____________________________________________________________________________________

This risk is arises on account of holding or taking position in equities as also lending there

against. The value of the equities are very sensitive to the market fluctuation and there would

be constant threat of fluctuation in equity rates.

MANAGEMENT OF MARKET RISK:

The most important aspect in management of market risk is a constant and vigilant studies on the

behavior of the market specially investment portfolio and liquidity management. The liquidity

management process of the bank shall have the following aspects:

The funding strategies

Liquidity planning under alternative scenario

Prudential limits

Liquidity reporting/ reviewing

In order to effectively place a policy of managing market risk is the adaption of sound ALM

system as prescribed by RBI. Among others the bank shall have certain prudential limits to avoid

liquidity risk.

In order to manage the market risk bank shall prepare contingency plans to measure their ability

to withstand bank specified and market crisis scenario. There should be plan/ provision for back

up liquidity support.

At present the bank is following ALM system and also daily studying the market as far as

investment portfolio is concerned. However the ALM system shall be further refined in order to

measure and manage market risk.

The bank shall adopt the following important strategis in managing the market risk.

1) The bank shall have clearly and articulated market risk management policy, procedure,

prudential risk limits review mechanism, and reporting and auditing systems.


RISK MANAGEMENT ____________________________________________________________________________________

2) Operating prudential limits and the accountability of line management shall be Clearly

defined.

3) Bank shall have comprehensive dynamic, frame work for measuring and managing liquidity,

interest rates, foreign exchange, equity and commodity prices . the policies on these aspects

shall be closely integrated with the banks business policy.

4) The bank shall have the following organisational set up for market risk management

The board of directors

Risk management committee

Assets liability management committee(ALCO)

ALM support group.

5) The bank shall constitute an independent risk management committee to study and

implement market risk. The main function of the committee to study and implement market

risk. The main function of the committee setting policies and guidelines for market risk

measurement, management and reporting. Reviewing and approving market risk limits. The

policy of the bank shall be studied carefully from time to time.

6) The ALCO committee shall be responsible for ensuring adherence to the limit set by the

board and business policies of the bank. It is responsible for balance sheet planning from risk

return perspective including management of interest rate and liquidity risk. The major

functions of the ALCO shall be;

Product pricing for deposits and advances

Deciding on the mix of incremental assets and liabilities

Articulating interest rate view of the bank and deciding on the future business policy/

strategies

Reviewing funding policy

Reviewing economic and political impact on the balance sheet.

OPERATIOAL RISK :


RISK MANAGEMENT ____________________________________________________________________________________

Operational risk are defined as those of the mal functioning of the information system, reporting

system and of the internal risk monitoring rules. The Basel committee on the bank supervision

has come up with a comprehensive definition of operational risk, which reads as under

“ The operational risk is the risk of loss from inadequate or failed internal process, people and

systems and from external events”

From the above definition we can make out the causes of the operational riskj and as such can

help in managing and ultimately the measuring the operational risk. The operational risk appears

at two different levels, which are

The technical level--- when the information risk or the risk measures of the bank are

deficient

The organizational level--- reporting and monitoring of risk and all related rules and

policies.

The ultimate consequence of the above are similar. Any deficiencies potentially generates losses

of an unknown magnitude given that no corrective action is taken during the time span when the

risk remains ignored.

Measurement of operation risk :

There is no uniformity of approach in measurement of operational risk in the banking systems.

In the absence of any sophisticated models, banks should evolve simple benchmarks based on an

aggregate measure of business activity such as revenue, fee income operating costs, total assets

adjusted for off- balance sheet exposures or a combination of these variables.

To measure the operational risk it is necessary to understand the framework of operational risk

and process. For this purpose the operational risk management can be measured and managed by

addressing the following ways.

1.Organizational set up:


RISK MANAGEMENT ____________________________________________________________________________________

A risk management committee to be constituted which designs the policies and its

implementation. Risk management committee and the concerned department shall work in close

coordination with internal inspection section which looks after risk based supervision. It also

monitors the review system and controls by various departments at head office/ regional offices.

2.Operational risk mapping :

It is an exercise of identifying and listing out all the risks perceived in the entire gamut of

bank`s operations. It provides a common risk language that should be used though out the

organization it is dynamic component in the operational risk management chain. It needs to be

reviewed constantly to add fresh loss types under various forms of operational risks.

3. Operational risk assessments :

This involves categorisation of the risk identified/ listed to low, medium and high depending

upon the degree of loss as also frequency of occurrence. The systems and procedure in force

should then be listed out against each of the assessed risks control to should be graded as low,

medium and high based on there adequacy. A comparison should then be made between assessed

risk and the existing controls to identify the degree of risks.

Collection of operational risk loss incident data-

Collection of the operational risk loss incident is a prerequisite for managing and measuring

operational risk. Building up of historical data of loss events enable us to arrive at meaningful

estimates of operational risk loss. For this purpose bank shall have following type of collection

of data on operational risks.

Collecting non – fraud related operational loss events


RISK MANAGEMENT ____________________________________________________________________________________

Collecting fraud related loss event from other department / section like inspection,

personnel wing.

Risk quantification :

As per Basel committee on banking supervision there are three types of measuring operational

risk.

Basic indicate approach

Standardized approach

Advanced measurement approach

Under the basic indicate approach a fixed percentage on the gross income shall be the capital to

be held by the bank for operational risk. This shall be decided as per the regulation by the bank

from time to time.

Under the standardised approach banks activities are divided into various types of activity based

transaction, like corporate finance, retail banking, agency service and custody, trading in sales

etc.

Capital charge is calculated for each activity by multiplying the gross income by factor

percentage assigned to specific activity. The summation of capital charge of all the business lines

gives the bank overall capital charge for operational risk.

Control of operational risk:

Bank should have well defined policies on operational management. The policies and procedure

should be based on common element across business lien or risks. One of the major tools for

managing operational risk is the well- established internal control system, which includes

segregation of duties, clear management reporting lien and adequate operating procedures. Most

of the operational risk events are associated with weak links in internal control systems or laxity

in complying with the exiting internal control procedures. Banks should endeavor for detection

of operation problem spots rather than their being pointed out by the inspecting officers/ external


RISK MANAGEMENT ____________________________________________________________________________________

auditors. Audit committees should pay greater role to ensure independent financial and internal

control functions.

For the purpose bank shall identify loss types under operational risks. This exercise shall be done

from time basing on the historical data collected by the bank. However for illustrative purpose

following are the groups of losses on account of operational risk.

1. proposing risk.

Transaction put though without proper authority/ mandate

Erroneous transaction execution

Wrong reporting at some point through out the process of business transaction.

Erroneous cash movement

Omission of tasks

Inaccurate /incomplete documentation

Frauds both internally and externally

Money laundering

Unauthorized persons excess to bank records.

2. people risks :

Inadequate staff

Hiring unsuitable staff.

Loss of key personal.

Over reliance on few key staff.

Insufficient succession and development planning

Insufficient training

Poor communication

Behavior and attitude.

3. system risk:

Irrelevant, inaccurate, incomplete MIS.


RISK MANAGEMENT ____________________________________________________________________________________

IT system failure

Telecommunication failure

Technology interference

Failure of support function

Inadequacy of backup systems/ procedure

Working under different platform/software environment.

4.External events risks :

Nature disasters.

War or terrorism.

Sabotage.

Crime.

5. Legal risks:

Breaching if regulatory requirement.

Unenforceable contracts/ law suits.

Adverse judgements.

Executive illegal transaction.

Failure to fulfill fiduciary duties.

6. Reputation risks :

Negative publicity leading to decline in customer base, costly litigation, or reduction

current and prospective earnings and capital.

Effect of other risk.


RISK MANAGEMENT ____________________________________________________________________________________

CONTINGENT RISK :-

Contingent risks are not new in themselves. Bank have traditionally stood ready to provide

certain types of guarantee which involved underwriting the obligation of the third party and

which created contingent liabilities for the guarantor bank. But in recent year, contingent risks

have become more important as banks have increased off balance sheet business in a search for

fee based income without the constraints involved with on-loaning business. New type of

business create new type risks. Contingent risk which is on account of the contingent liabilities

such as guarantee and other commitments of funds arising out of committed facilities, give rise

to credit risk, liquidity risk and interest risk.

If the barrower fails to raise funds ( credit risk), it may activate banks`s commitment. It may

involve liquidity risk as the bank can not know in advance when it obligation will materialize.

The committed bank`s own barrowings rate may change adversely, in between the giving of the

commitment and its exercise, thus narrowing or even eliminating the interest margin.

Measures to control the contingent risk :

Proper selection of barrower.

Appropriation ceiling on off balance sheet commitments/exposure

Ceiling on the period for which commitment is given, as longer the period, greater is the

risk involved.

ACTION POINTES FOR IMPLEMENTING OF RISK MANAGEMENT

POLICY IN THE BANK :

1) In terms of NABARD guidelines NB. DoS. HO. POL/219/J.1/2005-06, Circular No

67/DoS-09/2005 dated 06.04.2005 we have furnished detailed concepts of the risk

management policy to be adopted in the bank.


RISK MANAGEMENT ____________________________________________________________________________________

2) For implementation of this policy the action points are as under. These action points are

drawn up as per the policy guidelines and also check list provided by the NABARD

circular.

3) The bank has been practicing certain system in turn with the risk management policy

already. In the checklist we have furnished the status/the present practice for information.

a) Action points :

i. Adoption of the risk management policy by the bank by placing the matter before

the Board.

ii. Sending the policy to the sponsor bank for information and guidance

iii. Constitution of sub- committee of the board for reviewing the risk management

practices of the bank.

iv. Constitution of risk management committee in the bank by co-ordinating with the

concerned wings.

v. Reconstitution of existing ALCO committee and revising existing ALM system

vi. Circulation of the guidelines among the branches/ offices.

Formation of the sub- committee of the board for implementation of risk

management policy and for reviewing the risk management practices of the

bank.

1) As per the NABARD guidelines on the implementation of the Risk management, it is

suggested that the sub committee of the board shall be constituted in order to ensure risk

management process in the bank.

2) Accordingly we proposed the constitution of the sub-committee in the policy.

3) We propose the constitution of sub- committee of the board as under:

Board of director—Nominated from NABARD.

Board of director—Nominated from Sponsor bank.


RISK MANAGEMENT ____________________________________________________________________________________

Chairman/ Representative of the chairman.

4) The role and responsibilities of the sub—committee will be in tune with the policies as

advised & RBI from time to time, which will be as under;

i. Implementing of the risk management policy in bank.

ii. Periodically review i.e once in quarter, the process of the risk management function.

iii. Placing a review and action taken to the Board of directors once in six months.

iv. Suggested measures to be adopted by the bank to mitigate the risk as a when necessary.

v. Reviewing the functions of risk management committee and ALCO committee

periodically.

vi. Advising the bank specific action plan to mitigate high risk areas.

Formation of risk management committee at Head Office

1) As per the guidelines Risk management shall be constituted in order to assist the sub-

committee of the board to prepare and review the functioning of the risk management

function at various level of the bank. For the purpose of committee of the following

functionaries of the bank can be constituted :

a. General manager, credit wing & G A Wing – chairman of the committee.

b. Senior manager, G A Wing-- convenor.

c. Senior manager , credit wing—member.

d. Senior manager, inspection Wing – members.

e. Officers, accounts section—member.

The role and responsibilities committee will be in tune with the policies as advised by

NABARD & RBI from time to time, which will as under;

Periodical review i.e – monthly meeting.

Placing a review and action taken to the risk management sub committee.

Implementation of the policy guidelines.

Periodical review of the risk rating for each segment.


RISK MANAGEMENT ____________________________________________________________________________________

Risk weightage to various types of activities.

Review of market condition and advising the top management.

Issue of necessary guidelines from time to time

Placing a periodical not to the chairman of the bank on various aspects of the risk

management

Suggesting the changes in risk management policies of the bank, if any to the sub—

committee.

Framing the ground rules for implementing the risk management policy.

Assisting the ALCO committee in addressing the mismatched in assets and liabilities of

the bank.

All connected matters.

SUGGETIONS:-

After studding in detail the concept of risk management policy in pragathi gramin bank the

following are suggestion for the further improvements

Bank should adopted risk rating mechanism to all the accounts

The group exposure norms are to be further improved in order to ascertain the quantum of

risk in credit group management.

The bank should take the lead by obtaining membership of credit rating agencies like Icar

etc.

For the purpose of information system.

Bank can check the credibility of a former like the proper identification and also his/ her

reputation in the village

Banks have to find out original reasons for the loan.


RISK MANAGEMENT ____________________________________________________________________________________

Proper identification of the guarantor should check by the bank and his/her wealth also, so

that he/she can’t mislead the bank

Sarpanch of the village should also inquire before the disbursement of the loan amount

Agriculture loan comes in priority sector, so banks are bound to achieve the targets set by

government. In this situation government has to relax some norms about the priority sector.

The stocks and receivables are to check randomly by the bank, so that the banks are aware of

position of the firms.

Banks have to be assure that the collateral security should not disputed asset and neither any

other loan is taken on that security.

Banks have to make a separate department, whose duty is only inquire the personnel

goodwill in the city apart from the financial asset.

In the export related loan, banks have to check the authenticity of the firm with the export

house.

Banks should have to consider the market condition of economy before disbursement of loan

in case of export and import.

Banks also have to consider market conditions of that product, which going to export or

import.


RISK MANAGEMENT ____________________________________________________________________________________

The recovery process is very slow, so the governments have to update the process which is

fast and effective.

And last not the least, the bank officers shouldn’t forget ethics doing the job.

FINDINGS :

365days services given to the customers

Majority of the respondents those who are taken loan and opened their a/c in the Pragathi

gramin bank is because of the good services in rural area what they are providing.

Respondents are ready to recommend others to open an a/c with this Bank, because of its

good response to customer requirements and maintaining good relationship with costumers.

Pragathi gramin bank is improving day by day because of its customized products and

services provided by it to satisfy its customers.


RISK MANAGEMENT ____________________________________________________________________________________

Conclusion:-

As per our study pragathi gramin bank is one of the well managed bank with lot of the vision and

rural development as a mission to achieve this mission the bank as successfully implemented

various prudential measures.

One of such measure is implemented action of Risk Management policy.

Pragathi gramin bank is successfully implemented the risk management concept as applicable to

the financial institution namely, As for the credit risk management is concerned bank as in place

the credit risk management policy the bank periodically review takes a measures or credit

assessment as under credit risk

Thus pragathi gramin bank as successfully implemented to Risk management policy effectively.

To conclude, it can be stated that the PRAGATHI GRAMIN BANK has been following well-

established systems, policies, and procedures with respect to Risk management. The Bank has

recovered the loans in a systematic manner,

However, as suggested, the Bank should consider some additional strategies and policies to face

challenges of the competitors in future, to improve the quality of its service of lending and

recovery.

Apart from the said conclusions, large advances and more attention needs to be paid for

strategies planning by employees with self set goals educating borrowers.

In sum the present, Risk management assignment has been very useful in getting firsthand

experience with respect to the management of in the Banks, with an insight into one of the

important segments of recovery.

Which I have discussed in detail in the earlier pages, thus finally the Risk Management concept

in pragathi gramin bank is one of the modern and highly balanced and effective risk management

tools.


RISK MANAGEMENT ____________________________________________________________________________________
