Credit Risk Managment

CREDIT RISK MANAGEMENT

"Ships are safe in harbour

but they are not meant for that
banking is business of taking
informed and calculated risk"

The business of banking means

"accepting of deposit for the purpose of onward lending"

Risks in Business

Risk can be defined as any uncertainty about a future event that threatens the organisation's ability to
accomplish its mission. Business is a trade off between risk and return. There can be no risk-free or zero
risk oriented business. Risk in its pragmatic sense, therefore, involves both threats that may be
materialised and opportunities which can be exploited.

Credit Risk and Default

Credit Risk is the risk of loss to the Bank in the event of Default.

Default arises due to counterparty's inability and/or unwillingness to meet commitments in relation to
lending.

Credit risk is the potential loss that a bank borrower or counter party will fail to meet its obligation in
accordance with the agreed terms

TYPES OF THE CREDIT RISK

A) Transaction risk
B) Portfolio risk
a) Grade risk a) concentration risk
b) default risk b) intrinsic risk

1) non payment
2) delayed payment

Credit risk may be in the following forms:

* In case of the direct lending

* In case of the guarantees and the letter of the credit
* In case of the treasury operations
* In case of the securities trading businesses
* In case of the cross border exposure