A STUDY OF CREDIT RISK MANAGEMENT IN ICICI BANK
A STUDY OF CREDIT RISK MANAGEMENT.doc (Size: 1.02 MB / Downloads: 283)
The basic function of a bank is the acceptance of deposits from public and lending funds to public/corporate and this business of lending has brought trouble to individual banks and entire banking system. It is, therefore, vital that the banks have adequate systems for credit assessment of individual projects and for evaluating risk associated therewith as well as the industry as a whole. As banks move in to a new high powered world of financial operations and trading, with new risks, the need is felt for more sophisticated and versatile instruments for risk assessment, monitoring and controlling risk exposures.
With margin levels going down, banks are unable to absorb the level of loan losses. Most of the banks have developed internal rating systems for their borrowers, but there has been very little study to compare such ratings with the final asset classification and also to fine-tune the rating system. Also risks peculiar to each industry are not identified and evaluated openly.
Banking system in India is one of the most important ingredients in the Indian financial market. Banks are the biggest purveyors of credit, and they also attract most of the savings from the population. Banking industry, dominated by public sector banks, has so far acted as an efficient partner in the growth and development of the Indian economy. Driven by the socialist ideologists and the welfare state concept, public sector banks have long been the supporters of agriculture and other priority sectors.
The Indian banking has come from a long way from being a sleepy business institution to a highly proactive and dynamic entity. This transformation has been largely brought about by the large dose of liberalization and economic reforms that allowed banks to explore new business opportunities rather than generating revenues from conventional streams (i.e. borrowing and lending).
REVIEW OF LITERATURE
Financial sector is of pioneering importance for growing economies and any variation in its performance can affect the economy in either way. Many researchers have disclosed the fact that the financial development of the country contributes to the growth of the economy. Also, researchers have found that the firms in countries which are more financially developed, have active financial market, and large intermediary sector, are able to get more financial debt than the firms in the other countries and that is the reason why they are able to develop much rapidly (Demirguc-Kunt and Maksimovic, 1998). Similarly, Rajagopal (1996) made an attempt to overview the bank’s risk management and suggests a model for pricing the products based on credit risk assessment of the borrowers. He concluded that good risk management is good banking, which ultimately leads to profitable survival of the institution.
ABOUT ICICI Bank
ICICI Bank, formerly Industrial Credit and Investment Corporation of India, is India's largest private sector bank in market capitalization and second largest overall in terms of assets. Bank has total assets of about USD 100 billion (at the end of March 2008), a network of over 1,399 branches, 22 regional offices and 49 regional processing centres, about 4,485 ATMs and 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 and specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management. ICICI Bank is also the largest issuer of credit cards in India. ICICI Bank has got its equity shares listed on the stock exchanges at Kolkata and Vadodara, Mumbai and the National Stock Exchange of India Limited, and it’s ADRs on the New York Stock Exchange (NYSE).
INDIAN BANKING INDUSTRY
The Banking sector in India is all set to witness path breaking changes. While the decade of 90s has witnessed a sea change in the way banking is done in India, Technology has made tremendous impact in banking then provisioning norms for NPAs have considerably reduced banks net NPAs and also made them strong financially. The future trends in Indian banking can be captured through following points.
In this paper, an attempt has been made to study the ‘Credit Risk Management Framework’ of ICICI BANK and also to arrive at a model that can help other indian banks to manage their credit risk in a better way. From all the above calculations it is now very easy for the banks to identify their future defaulters.
Hence the paper helps the banks in increasing its efficiency. The banks through the help of this paper can identify their defaulters and then can lay down their strategies accordingly. The ratio analysis done in this project gave us some valuable insights regarding the banks, it helped in clearly viewing the solvency, profitability, liquidity, activity and leverage positions of the banks. The paper can be of immense use in the Indian scenario as it takes into consideration the current positions of the Indian banks. It gives some valuable insights to the banks as to how to enhance their performance in the present situation.