6.

Risk Management, Basel Accords, CIBIL, Fair

Practices Code for Debt Collection, BCSBI,
Banker Customer Relationship
� CREDIT RISK
� MARKET RISK
� INTEREST RATE RISK
� LIQUIDITY RISK
� BUSINESS RISK
� OPERATIONAL RISK
� LEGAL RISK
� FOREX RISK
RISK MATRIX
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Risk Management
Major risks in Banking Sector:
* Liquidity Risk
* Interest Rate Risk
* Credit Risk
* Market Risk
Operational Risk
Liquidity Risk: Bank is strong. But when you go to the bank there
is no cash with them. This is liquidity.
Short term assets are not sufficient to cover short-term liabilities.
Long Term solution is ALM. or asset liability management Short
term liabilities to be covered by short term assets, Medium term
liabilities to be covered by medium term assets and Long Term
Liabilities to be equal to long term assets. Any deviation in ALM may
result in liquidity crisis
Interest Rate Risk : is the risk where changes in market interest
rates might adversely affect a bank's financial condition.
Credit Risk: Risk of possible default by the borrower or
counterparty in meeting commitment
Market Risk: is the possibility of an investor experiencing losses
due to factors that affect the overall performance of the
financial markets in which he or she is involved. Market risk, also
called "systematic risk," cannot be eliminated through
diversification, though it can be hedged against in other ways.
Operational Risk: Risk of loss due to inadequate or failed internal
process, people, systems or external factors. Exp. Internal &
external frauds, Negligence, data loss etc.
For Managing Risks (Guidelines issued by RBI)
ALM guidelines: Liquidity Risk & Interest Rate Risk
? Basel II guidelines: Credit Risk, Market Risk & Operational Risk
CIBIL (Credit Information Bureau (India) Ltd
� The Banks can now scout better client by accessing the mountain of
card usage & retail loans data that would be available with CIBIL-
Full information about borrower's credit history is readily available
and it helps banks to take quick decision.
� It can offer differential products at a differentiate price i.e at lower
rate of interest than otherwise it would have done.
� with lower interest rate for persons with good credit history, credit
uses can be expected to rise
CIBIL (Credit Information Bureau (India) Ltd
� CIBIL is the first entrant in the country. CIBIL was incorporated in
Aug. 2000 based on the recommendation made by the Siddiqui
committee
� It recommend commercial Buereau operation in May 2004
� It prepared credit information report for individual as well as
cooperate entity
� CIBIL is owned by trans union international incorporation, three non
banking financial Corporations (NBFC's) and ten commercial banks
in India.
CIBIL (Credit Information Bureau (India) Ltd
� -CIBIL has more than 500 members including more than 200 co-
operative banks. The CIBIL credit score varies from 300 to 900
� CIBIL in 2008, loans granted to borrower with a score of over 800
were 26% of total lending but in 2013 it went up to 62%
� CIBIL score of 900 is the least risky while a score of 300 is extremely
risky.
BANKER-CUSTOMER RELATIONSHIP
The relationship between a banker and a customer depends upon
the nature of services provided by the banker.
Bank's Customer- �his dealing with the banker must be relating to
the business of banking.
Debtor-Creditor (Bank is a Debtor and Customer is a Creditor)
When Customer deposit money with his bank, the customer
becomes a lender and the bank becomes a borrower.
Bank- Debtor
? Customer-Creditor
Creditor-Debtor (Bank is a Creditor and Customer is a Debtor)
When the bank lends money to the customer, the customer is the
borrower and the bank is the lender.
Bank-Creditor
Customer-Debtor
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Bank as a Trustee
? If a customer keeps certain valuables or securities with the bank for
safe keeping or deposits a certain amount of money for a specific
purpose.
Bank- Bailee (also a Trustee)
Customor- Bailor
BAILEE-BAILOR RELATIONSHIP
When a customer deposits certain valuables, bonds, securities, or
other documents with the bank, for their safe custody
Bank- Bailee (Trustee)
Customer- Bailor
AGENT-PRINCIPAL RELATIONSHIP (Bank is Agent and Customer is
Principal)
Ancillary services provided by bank is remittance, collection of
cheques, bills etc on behalf of the customer.
? Payment of electricity bills, telephone bills, insurance premium,
club fees, etc by bank on behalf of the customer.
Bank- Agents
Customer- Principal
LESSOR AND LESSEE (Bank as a Lessor and Customer as a Lessee)
Bank provide safe deposit lockers to the customers who hire them
on lease basis.
Bank- Lessor (Licensor)
Customer-Lessee (Licensee)
Note: Bank not responsible for any loss that arises to the lessee.
INDEMNIFIER AND INDEMNIFIED (Bank is Indemnified or
Indemnity Holder and Customer is Indemnifier)
A contract by which one party promises to save the other from loss
caused to him by the conduct of the promisor himself or the conduct
of any other person.
Section 124 of Indian Contract Act, 1872
Transaction of issue of duplicate demand draft, fixed deposit
receipt etc.
Transaction
Bank Customer
Articles left by mistake
Trustee Beneficiary
Deposit in the Bank
Debtor Creditor
Loan from Bank
Creditor Debtor
Safe Custody
Bailee Bailor
Locker
Lessor Lessee
Collection of cheque
Agent Principal
Purchase of a draft
Debtor Creditor
Payee of a draft
Trustee Beneficiary
Pledge
Pawnee Pawnor
(Pledgee) (Pledger)
Mortgage
Mortgagee Mortgagor
Standing Instruction
Agent Principal
Sale/purchase of securities on behalf of customer Agent Principal
Money deposited but instruction not given for its disposal Trustee Beneficiary
Shares given for sale
Agent Principal
Hypothecation
Hypothecatee Hypothecator
Fair Practice Code for Debt collection
prezted code for Debe con
Demand for lenders liability law-
The securitization & reconstruction of financial assets &
enforcement of security Inters act was enacted in India in 2002. The
act allowed banks to take possession of Assets of defaulting
companies without going through the cumbersome legal process.
On the basis of recommendation of working group on the lendrs law
constitute by govt. of India- RBI in consultation with the govt. &
some banks & financial institution, finalized a set of code called the
fair practice code as per guidelines of implemented from Nov. 1,
2003
Loans & their processing
Loan application form in respect of priority sector advances up to
Rs. 2 lakh should be comprehensive. It should include information
about the fee/charges, refundable
Banks and financial institution shall give acknowledgement for
receipt of all applications
Banks /financial institution should scrutinize the loan application
within a reasonable period of time.
Small borrowers seeking loans up to Rs. 2 laks the lenders should
convey in writing the main reason in which the opinion of the banks
after due consideration.
Appraisal of terms/condition
(a) Credit facilities are arrived after due negotiations
(b) Convey borrowers the sanction limit along with terms &
conditions on record.
(c) Should clearly stipulate that the credit facility solely at discretion
of the lenders.
(d) Under consortium arrangement, participating lender should
evolve procedures to complete appraisal of proposal in time
bound manner.
(e) They should not use margin & security stipulation as a substitute
for due diligence on credit worthiness of borrower.
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Disbursement-Post-Disbursement supervision
(a) Loans up to Rs. 2 Lakh should be constructive with a view to taking
care of any lender related genuine difficulty that the borrower may
face.
(b) Before taking a decision to recall payment or performance seeking
additional security, Lenders should give notice to borrowers.
(c) Lenders should release all securities of receiving payment of loans
or realization.
Banking code & standards board of India (BCSBI)
Has been registered as a separate society under the society
registration act 1860 on 18.2.2006
ORBI proposed setting up of an independent banking code and
standards of India on the recommendation of committee on
procedure and performance audit on public services (CPPAPS)
headed by SS Tarapore.
Autonomous body, to monitor of access the compliance with codes
and minimum standard of services to individual customers to which
the banks agreed to.
Independent banking industry, ensure that the customer of banking
services got, what they are promised by the banks.
Codes & Banks commitment to customers
To draft a comprehensive fair practice code all the area of
customers service for uniform adoption by banks.
Set up a working group to draft a comprehensive fair practice code
covering all the areas of customers service for uniform adoption by
banks.
Function of BCSBI
It is to ensure adherence to the code of banks commitment to
customers
The code is not only meant to provide protection to the individual
customers but is also expected to generate awareness in the
common man about the right as a customers of banking services
Initiative by BCSBI
i. Provides faculty support to training establishrnent of banks
ii. Participate in on location workshop held by for member banks to
increase coverage.
iii. Associate with customer awareness programs conducted banking
ombudsman.
iv. Provide credit counseling service in mumbai.
V. Publishes quarterly news letter entitles (customers mattes)
Grievance Redressal
Have a help desk helpline at the branch and display at each branch
Name and conduct number of code.
Have a code compliance officer at each controlling office above the
level of the branch
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Initiative by BCSBI
i. Provides faculty support to training establishment of banks
ii. Participate in on location workshop held by for member banks to
increase coverage.
iii. Associate with customer awareness programs conducted banking
ombudsman.
iv. Provide credit counseling service in mumbai.
v. Publishes quarterly news letter entitles (customers mattes)
Grievance Redressal
Have a help desk helpline at the branch and display at each branch
Name and conduct number of code.
Have a code compliance officer at each controlling office above the
level of the branch