ORIENTAL BANK OF COMMERCE, HEAD OFFICE, DELHI.

Submitted in partial fulfillment of the requirement of Master of Business Administration-IB (MBA-IB)

BACKGROUND: The Credit risk management can be termed as a continuous, independent and professional assessment of ability of the borrowing entities with reference to their specific obligation, of repayment of principal and interest in time, preferably from the income generated by the activity which is being assisted and conduct of their loan accounts on the sanctioned conditions. Credit risk management can be thought of as an important tool of managing the credit related affairs to achieve the organisational objectives of earning better yield from deployment of funds by not allowing the loan assets to becoming non-performing advances, which involve extra prudence on the part of the bankers. It is the rational handling of a situation after properly understanding all the issues/risks involved, so as to avoid the losses which may arise because of existence of some elements unfavourable to the transaction proving to be profit earning one. Credit risk management of the risk begins with a in scientific the loan

identification

involved

transactions along with the nature and frequency of such risk factors, understanding and analysing the causes of the risk, formulating strategies and taking actions to avoid the risk and continuously monitoring

the

situation

to

ensure

that

the

risk

avoidance

succeeds to a large extent. Broadly, the process of credit risk management

comprises the following functions: Risk identification, Risk measurement or quantification, Risk control, Risk monitoring. RISK IDENTIFICATION : The risk identification

involves the understanding of the nature of various kinds of risk, the circumstances which lead to this situation and causes due to which the risk can arise. In order to have effective identification system in place, it is important that the risks should be categorised in various categories, so that while formulating the risk management strategies, the focus should be on the exact risk factor. RISK QUANTIFICATION : Risk quantification is an assessment of the degree of the risk which a particular transaction or an activity is exposed to. Though the exact measurement of risk is not possible but the level of risk can be determined with the help of risk rating models. When an organisation, irrespective of its size or an activity, is considered for extending financial support, the financing banks or institutions are

required to examine a number of aspects concerning the activity/business being conducted or proposed to be undertaken. Based on such information and its analysis, the officials can come out with preliminary findings about the performance and prospects. The underlying objective of such studies would be to find the possibility of the likely set back which the organisation may suffer in future cash generation, of assets and liability management which may affect adversely, the borrowers obligation to meet his commitment. This project on Credit Risk rating model for Large Corporates provides details about the model which can be made use of to quantify the risk. RISK CONTROL : Risk control, mitigation and risk aversion is the stage in the risk management where the financing institutions take steps to control the risk with the help of various tools.

Transactional through securing suitable proper the terms

risk

is

generally of by the putting

controlled borrower, in place proper

selection and

transaction

conditions,

documentation and security and adequate follow up and monitoring at the post sanction stage. Moreover, exposure ceiling on maximum exposure to be taken for a single or group borrower.

Intrinsic risk can be controlled by understanding the various risk factors and remedies associated with a particular industry, activity, business line to which the unit belongs and this may involve collection of information about the industry, analysis of trends and making assessment of the future prospects.

The concentration risk can be controlled by continuously monitoring the portfolio and putting up exposure ceilings on borrowing activities, industries, geographical region etc.

Myth: The belief that by obtaining collateral security, the risk can be mitigated or controlled. This approach is required to be re-examined and it needs to be clearly understood that securing a loan to cover prospective default by obtaining the collaterals amount to underwriting the transaction and is different from determining the risk cause and then taking steps to eliminate the cause that result in a default by the borrower due to genuine difficulties. These two different aspects cannot substitute for each other.

Collateral security does not play any role to maintain the viability of the operations of the activity and in ensuring return of the borrowed money from generation of cash. Much more important role is

normally played by the borrowers good intention, integrity, quality of management affairs of the business and capacity. RISK MONITORING : The risk monitoring has to be a regular exercise to be undertaken on an ongoing basis for taking a view of : a) Change in the position of the supported organisations. b) No diversification of funds. c) Modify information requirement and their periodicity and nature. d) To determine cost to be fixed for the borrowers in terms of interest or other charges.

MOTIVATION : Credit risk management enables banks to identify, assess, manage proactively, and optimise their credit risk at an individual level or at an entity level or at the level of a country. Given the fast changing, dynamic world scenario experiencing liberalization, risk the pressures of and the globalisation, robust credit consolidation policies and

disintermediation, it is important that banks have a management procedures which is sensitive to these changes.

The quality of the credit risk management function will be the key driver of the changes to the level of share holder return. Industry analyst have demonstrated that the average shareholder return of the best credit performance US banks during 1989-1997 was 56% higher than their peers. OBJECTIVES: A credit risk model seeks to determine, directly or indirectly, the answer to the following question: Given our past experience and our assumptions about the future, what is the value of a given loan? Equivalently, what is the risk that the promised cash flows will not be forthcoming? The importance of credit risk modeling should be seen as the consequences of three factors. First, banks are becoming increasingly quantitative in their treatment of credit risk. Second, new markets are emerging in credit derivatives and the marketability of existing loans is increasing through securitisations and the loan sale market. Third, regulators are concerned to improve the current system of bank capital requirements especially as it relates to credit risk.

SCOPE:

The credit risk models are intended to aid banks in quantifying, aggregating and managing risk across geographical and product lines. The output of these models also plays increasingly important roles in the banks risk risk based may pricing result in and active portfolio risk management and capital structure decisions. Credit modeling better internal measurement system, and may have the potential to be used in the supervisory oversight organisations. of banking

REVIEW OF LITERATURE
8

The stability of the banking industry around the world has been observed as periodical since the Great Depression. dramatically Financial over the markets last have changed years, twenty-five

introducing more competition for and from banks. Banks are the financial institutions responsible for providing liquidity to the economy. This responsibility is, however, the main cause of their fragility. The lending operations in banks and financial

institutions, by their nature, carry an element of risk of non-payment by the borrowers/counterparties. The presence of such element of risk cannot and should not, restrict these institutions from undertaking the lending operations, since there are ways and means, to mitigate risk. Bank for International Settlements, Basel, Switzerland had issued draft guidelines on Credit Risk Management during 1999 and Reserve Bank of India also came out with its first set of guidelines, it has been suggested that bank should put in place, proper credit risk management system. It has been emphasized in these guidelines that while the credit risk strategy of the bank should give recognition to the goals of credit quality, earning and growth, it is also essential that the lender must determine the acceptable risk/reward

trade-off for its activities, factoring in the cost of capital. Basel II uses a "three pillars" concept (1) minimum capital requirements (addressing risk), (2) supervisory review and (3) market discipline to promote greater stability in the financial system . T he B as e l I ac c o r d d e al t wi t h o n l y p ar t s o f e ac h o f t he s e p i l l ar s . Fo r e x a mp l e : wi t h r e s p e c t t o t h e f i r s t B as e l II p i l l ar , o nl y o ne r i s k , c r e d i t r i s k , was d e al t wi t h i n a s i mp l e ma n n e r wh i l e mar k e t r i s k was an af t e r t h o u g h t ; o p er at i o n al r i s k was n o t d e al t wi t h at al l .

The first pillar

The first pillar deals with maintenance of regulatory capital calculated for three major components of risk that a bank faces: credit risk, operational risk and market risk. Other risks are not considered fully quantifiable at this stage. The credit risk component can be calculated in three different ways of varying degree of sophistication, namely standardized approach, Foundation IRB and Advanced IRB. IRB stands for "Internal Rating-Based Approach". For operational risk, basic there indicator are three different or BIA,
10

approaches

approach

standardized

approach

or

TSA,

and

advanced

measurement approach or AMA. For market risk the preferred approach is VaR (value at risk).

As the Basel 2 recommendations are phased in by the banking industry to it will more move from standardised and specific requirements refined

requirements that have been developed for each risk category by each individual bank. The upside for banks that do develop their own bespoke risk measurement systems is that they will be rewarded with potentially lower risk capital requirements. In future there will be closer links between the concepts of economic profit and regulatory capital. Credit Risk can be calculated by using one of three approaches 1. Standardised Approach 2. Foundation IRB (Internal Ratings Based) Approach 3. Advanced IRB Approach The standardised approach sets out specific risk

weights for certain types of credit risk. The standard risk weight categories are used under Basel 1 and are 0% for short term government bonds, 20% for
11

exposures

to

OECD

Banks,

50%

for

residential

mortgages and 100% weighting on commercial loans. A new 150% rating comes in for borrowers with poor credit ratings. The minimum capital requirement (the percentage of risk weighted assets to be held as capital) remains at 8%. For those Banks that decide to adopt the standardised ratings approach they will be forced to rely on the ratings generated by external agencies. Certain Banks are developing the IRB approach as a results.

The second pillar

The second pillar deals with the regulatory response to the first pillar, giving regulators much improved 'tools' over those available to them under Basel I. It also provides a framework for dealing with all the other risks a bank may face, such as systemic risk, pension risk, concentration risk, strategic risk, reputation risk, liquidity risk and legal risk, which the accord combines under the title of residual risk. It gives banks a power to review their risk management system.

The third pillar

The third pillar greatly increases the disclosures that the bank must make. This is designed to allow the market to have a better picture of the overall risk

12

position of the bank and to allow the counterparties of the bank to price and deal appropriately. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. Investors are compensated for assuming credit risk by way of interest payments from the borrower or issuer of a debt obligation.

Credit risk is closely tied to the potential return of an investment, the most notable being that the yields on bonds correlate strongly to their perceived credit risk. The higher the perceived credit risk, the higher the rate of interest that investors will demand for lending their capital. Credit risks are calculated based on the borrowers' overall ability to repay. This calculation includes the borrowers' collateral assets, revenue-generating ability and taxing authority (such as for government and municipal bonds). Credit risks are a vital component of fixed-income investing, which is why ratings agencies such as S&P, Moody's and Fitch evaluate the credit risks of thousands of corporate issuers and municipalities on an ongoing basis. Market risk is defined as the risk of losses in onbalance sheet and off-balance sheet positions arising

13

from movements in market prices. The market risk positions subject to capital charge requirement are: (i) The risks pertaining to interest rate related instruments and equities in the trading book; and (ii) Foreign exchange risk (including open position in precious metals) throughout the bank (both banking and trading books). Operational risk is defined as the risk of loss

resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk. Legal risk includes, but is not limited to, exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements.

Probability of Default
The Probability of Default is the likelihood that a loan will not be repayed and fall into default. This PD will be calculated for each company who have a loan. The credit history of the counterparty and nature of the investment will all be taken into account to calculate the PD figures. Many banks will use external ratings agencies such as Standard and Poors. However, banks

14

are also encouraged to use their own Internal Rating Methods as well.

Risk-Based Pricing
Risk-based pricing, in the simplest terms, is alignment of loan pricing with the expected loan risk. Typically, a borrowers credit risk is used to determine if a loan application will be accepted or declined. That same risk level may also be used to drive pricing. This means charging a higher interest rate for a higher risk transaction and a lower rate for a lower risk transaction. While all large banks have some form of risk-based pricing, small to medium- sized banks are now investigating how to formally leverage this pricing strategy. A balanced pricing strategy is comprised of three critical elements. First, the bank must have solid credit quality. A seasoned bank executive recently commented, Regardless of the pricing, a bad loan is a bad loan is a bad loan. If the borrower defaults, the net result is a charge-off that negatively impacts credit reserves and bank earnings. The second important component is profitability. Pricing for closed loans must result in the net spread required for the portfolio to cover expenses and generate desired return. Many banks have found that pricing more aggressively will generate more loans but are they profitable loans? The final component of a balanced pricing strategy is portfolio growth. There is a constant
15

challenge to grow the portfolio to increase earnings year-over-year. Credit risk is the primary financial risk in the banking system and exists in virtually all income-producing activities. How a bank selects and manages its credit risk is critically important to its performance over time; indeed, capital depletion through loan losses has been the proximate cause of most institution failures. Identifying and rating credit risk is the essential first step in managing it effectively.

Functions of a Credit Risk Rating System

Well-managed credit risk rating systems promote bank safety and soundness by facilitating informed decision making. Rating systems measure credit risk and differentiate individual credits and groups of credits by the risk they pose. This allows bank management and examiners to monitor changes and trends in risk levels. The process also allows bank management to manage risk to optimize returns. One of the basic purposes of risk rating of a loan transaction is to price the credit according to the degree of risk involved. While fixing the price i.e. rate of interest, besides taking into account those factor, which are part of risk rating model, other strengths

16

and weaknesses of the loan transaction should also be taken into account by the lender. In addition to the risk rating, the following factors can also impact the determination of risk premium in respect of a borrowing transaction: Value of realisability of collateral, Market forces i.e. interest rates offered by the competitors, Perceived value of account, Future business potential, Portfolio/ industry exposure. Besides other strategic reasons may also play

important role in pricing by the lenders. There is however, need for continuously comparing the price quoted by competitors for borrowers perched on same rating/quality. But it must be kept in mind that an attempt at pricecutting for market share can result in mis pricing of risk and adverse selection. Over the past decade, commercial banks have devoted many resources to developing internal models to better quantify their financial risks and assign economic capital. These efforts have been recognized

17

and encouraged by bank regulators. Recently, banks have extended these efforts into the field of credit risk modelling. However, an important question for both banks and their regulators is evaluating the accuracy of a models forecasts of credit losses, especially given the small number of available forecasts due to their typically long planning horizons. Using a panel data approach, we propose evaluation methods for credit risk models based on cross sectional simulation. Specifically, models are evaluated not only on their forecasts over time, but also on their forecasts at a given point in time for simulated credit portfolios. Once the forecasts corresponding to these portfolios are generated, they can be evaluated using various statistical methods. Large corporate is defined as the one with turnover of more than Rupees as One Hundred by Crores ( Rs 1,000,00,000) declared audited financial

statements in the last fiscal year. The LC credit risk scoring model evaluates a company across five broad risk domains. The four basic parameters which are assessed by the model include Financial risk, Management Risk, Business Risk and Industry Risk. These four parameters are assessed to evaluate the inherent

18

 Protective factors Marketing strategies Competitive edge Level of technological development Operational efficiency Competence Effectiveness of management Hedging of risks Cash flow trends Financial flexibility and liquidity Past record of debt servicing Sensitivity to possible changes in environment and government policies. At the very end, the model analyses a domain called Conduct of Account (CoA) which is an indicator of the historical extent of adverse credit behaviour, or the lack of it, as exhibited by the firm.

19

INDUSTRY PROFILE
Banking in India originated in the last decades of the 18th century. The oldest bank in existence in India is the State Bank of India, a government-owned bank that traces its origins back to June 1806 and that is the largest India, commercial which in bank in the country. took over Central these banking is the responsibility of the Reserve Bank of 1935 formally responsibilities from the then Imperial Bank of India, relegating it to commercial banking functions. After India's independence in 1947, the Reserve Bank was nationalized and given broader powers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. B an k s b an k s in In d i a ar e c at e g o r i z e d b an k s ab o u t i nt o an d no n coo v er

s c h e d u l e d b an k s an d s c h e d u l e d b an k s . S c h e d u l e d c o mp r i s e s b an k s . of c o mme r c i al T he r e ar e b an k s o pe r at i v e b r an c h e s 6 7, 00 0

Scheduled

s pr e a d

In d i a. Du r i n g t h e f i r s t p h as e o f fi n a n c i a l r ef o r ms , t he r e was a n at i o n a l i z at i o n o f 14 ma j o r b an k s i n 1 9 6 9 . T hi s c r uc i al s t e p l e d t o a s hi f t fr o m C l as s

20

b an k i n g t o Mas s b an k i n g . S i n c e t h e gr o wt h o f t he b an k i n g industry in In d i a h as be e n a c o n t i n u o u s pr o c e s s . A s f ar as t he p r e s e n t s c e n ar i o i s c o n c er n e d , t h e b an k i n g i n d u s t r y i s i n a t r an s i t i o n ph as e . T h e Pu b l i c for Se c t o r t h an Banks 78 p er ( PS Bs ) , cent wh i c h of t o t al ar e the f o u n d at i o n o f t h e In d i an Ban k i n g s ys t e m ac c o u n t mo r e b an k i n g ar e industry as s e t s . Un f o r t u n a t e l y they

b u r d e n e d wi t h e xc e s s i v e No n Pe r f o r mi n g as s e t s ( NPA s ) , mas s i v e ma n p o w e r an d l ac k o f mo d e r n t ec h n o l o g y . On t he o t h e r h an d t he Pr i v a t e Se c t o r Ban k s i n In d i a ar e wi t n e s s i n g i mme n s e p r o g r e s s . T he y ar e l e ad e r s in In t e r n e t b an k i n g , mo b i l e b an k i n g , p h o n e b an k i n g , A T Ms . On t h e o t h e r h an d t he Pu b l i c S ec t o r B a n k s ar e s t i l l f ac i n g t h e pr o b l e m of of unhappy t he e mp l o y e e s . s ec t o r in T h er e the h as wak e been of a t he d ec r e as e o f 2 0 pe r c e n t i n t h e e mp l o y e e s t r e n g t h p r i v at e V o l u n t ar y Re t i r e me n t S c h e me s ( V RS ) . A s f ar as f o r ei g n b an k s ar e c o n c er n e d t h e y ar e l i ke l y t o s uc c e e d i n In d i a . In d u s l a n d B a n k was t he f i r s t pr i v at e b an k t o b e s et up in In d i a. an d IDB I, IN G V y as a Ban k , Ban k S BI Lt d ,
21

C o mme r c i a l

In t e r n at i o n al

Dh an a l ak s h mi B an k Lt d , Kar u r Vy s y a Ban k Lt d , B an k S ec t o r B an k , B an k of Raj a s t h a n Lt d et c ar e t he s o me Pu b l i c Ban k , Pr i v at e S ec t o r Andhra Banks. Or i e n t al B an k s B an k , from

i nc l u d e Pu n j ab Nat i o n a l b an k , V i j a y a Ban k , UC O Allahabad et c .

A NZ Gr i n d l ay s B an k , AB N- A MRO Ban k , A me r i c an Ex p r e s s B an k Lt d , Ci t i b an k e t c ar e s o me fo r e i g n b an k s o pe r at i n g i n In d i a. The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate. The total assets of all scheduled commercial banks by endMarch 2010 is estimated at Rs 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side.

22

COMPANY PROFILE
Oriental Bank of Commerce, India was established in the year 1943 on 19th February in Lahore. After partition, every Oriental rupee to Bank its of Commerce departing shifted its Registered Office from Lahore to Amritsar paying customers.

Oriental Bank of Commerce was nationalised on 15th April in 1980. Then OBC bank had 307 branches with Rs. 282.61 crores as deposits and as advance Rs. 152.69. Oriental Bank of Commerce is an India based bank engaged in offering various banking products and services. It offers deposit products namely saving accounts, current accounts, term deposit, suvidha deposit, tax saving term deposit and variable

23

progressive deposits; loans products such as housing loans, car / vehicle loans, to traders, education doctors, small loans, and personal defense services banking loans, loans professionals, and medium premium foreign

personnel, such as

enterprises, and women; and also offers various other NRI banking Internet services, services, services,

remittances, DMAT services and cash management services. The Bank is headquartered at New Delhi, India. The National Institute of Bank Management (NIBM), rated OBC Bank as "Customer Friendly" bank.

Oriental Bank of Commerce Fact File

Amongst the strongest banks in India High Capital Adequacy Ratio Consistent Profit-making Bank One of the Lowest Spreads in Banking Industry Total Working crosses the 35700 crore mark CRISIL Ratings The Highest Productivity per Employee NPA - One of the lowest

Performance Highlights of the Bank:

(a) Total business of reached Rs.1,67,434 Bank as at end-March 2009 crore i.e. an increase by

24

Rs.34,250 crore (a growth of 25.72%) from a level of Rs.1,33,184 crore as at end-March 2008. As at endmarch 2009, Deposits and Gross Advances stood at Rs.98,369 crore and Rs.69,065 crore, registering a growth of 26.35% and 24.83%, respectively. (b) The CD ratio of Bank stood at 70.48% as of March 2009 as against 71.43% as of March end 2008, which is a result of higher growth in deposits vis--vis advances during the fiscal 2008-09. The Advances portfolio of the Bank is well diversified and balanced. Further, Bank has ensured that the productive and the needy sectors of the economy continue to get the required credit. (c) The Priority Sector of (PS) Advances Net of Bank Credit constituted 40.91% Adjusted Bank

(ANBC) as against the requirement of 40%. In value terms, PS Advances increased by Rs.3,561 crore (a growth of 19%) to reach a level of Rs.22,321 crore as at end March 2009 from Rs.18,760 crore as at end March 2008. (d) Total advances to Agriculture Sector stood at Rs.8,621 crore, out of which advances to Direct Agriculture constituted Rs.4,651 crore and the residual of Rs.3,970 crore was to the Indirect Agriculture Sector.

25

(e) Banks exposure to Small and Medium Enterprises (SME) increased to Rs.6,941 crore from Rs.6,228 crore, thus growing by 11.45% during 2008-09. (f) Loans for Education and for Housing increased to Rs.790 crore and Rs.7,014 crore from Rs.583 crore and Rs.5784 crore respectively, thus recording a growth of 35.51% and 21.27%, respectively, during the year 2008-09. (g) The Net Profit of Bank increased to Rs.905.42

crore during 2008-09 from a level of Rs.840.94 crore during 2007-08. Operating Profit of the Bank as at end March 2009 recorded a growth of over 38% to Rs.1,685 crore from a level of Rs.1,219 crore as at the end of the preceding year. During the same period, Net Interest Income increased by 18.7% to Rs.1,997 crore from Rs.1,682 crore. (h) Bank made a recovery of Rs.841 crore during 200809, as a result of which Gross NPA stood at a level of Rs.1,058 crore or 1.53% of Gross Advances as against 2.31% during 2007-08. Similarly, Net NPA of the Bank improved to 0.65% as at end March 2009 as against 0.99% as at end March 2008. The coverage on NPA has increased to 58.19% as at March end 2009. (i) Bank has become Basel II compliant w.e.f.

31.03.2009 and Capital Adequacy Ratio (CAR) of the

26

Bank stood at 12.98%, well above the minimum requirement of 9% stipulated by RBI. (j) In view of good performance of the Bank, the Board of Directors have proposed a dividend of 73% as against 47% paid during the previous year.

PERFORMANCE OF ORIENTAL BANK

(Rs. In crore) 2008-09 7403.45 98368.85 68500.37 22320.86

Performance at a glance For the financial year ended Capital and reserves Total deposits Advances Priority sector 2004-05 3327 47850.33 25299.2 11177.24 2005-06 5170.78 50197.46 33577.24 13399.14 2006-07 5600.31 63995.97 44138.47 15955.2

Amount 2007-08 5775.9 77856.7 54565.83 18759.83

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of which: 1) Agriculture 2) Small scale industries 3) Others Total assets/ liabilities Total income Total expenditure Net profit for the year before write-off Net profit for the year after write- off No. of branches (in actuals) No. of employees( in actuals) 3679.75 2349.51 5147.98 54069.45 4077.1 3105.02 972.07 726.07 1130 14563 4480 2913.58 6005.56 58937.37 4671.69 3868.52 803.16 557.16 1148 14962 5732.28 3364.09 6858.83 73936.27 5768.16 4941.34 826.81 580.81 1273 14730 6930.05 5015.05 6814.73 90705.32 7454.84 6613.9 840.94 353.22 1323 14804 8620.82 5576.33 8123.71 112582.59 9927.37 9022.37 905.42 905.42 1401 14656

SWOT ANALYSIS
Strengths
1. Amongst the few Public Sector Banks where 100% business is routed through the Core Banking Solution. All offices of the Bank are connected to the centralized network thereby offering one stop seamless service to customers.

28

2.

The

quality

of with

manpower banks

has on

improved rigorous

significantly

focus

training. In fact, last year bank spent on training almost double the amount spent in the previous 25 years. 3. During the year, Bank upgraded the version of Retail Online Internet Trading Banking of shares thereby etc. providing new additional facilities of Online NEFT, e-Commerce, 44,000 customers have been registered for Internet Banking, taking the total base to 1.98 lakhs. 4. Bank has procured handling is has which web of package Civil and at for the centralized Pensions 5. e-Tax Defence Service to the

implemented been

Branch, Delhi. facility to provided Taxes, the customers 6. Bank has deposit Direct online highest

through Net Banking. been maintaining standards of Corporate Governance by adopting best industry practices. The Bank has been adhering to the corporate governance guidelines laid down by SEBI and RBI. 7. With its customers, bank share a long and enduring relationship that is built over the years on trust and an abiding hope that the Bank will

29

always partner for the fulfillment of their dreams in a professional manner.

Weaknesses
1.

The weakness is that bank have been considered a predominantly north-based bank for far too long. It need to expand its presence vigorously.

2. The age of the staff is also slightly adverse. Today the average age of the staff is 45-plus. Bank have to make sure that it replace the vacancies arising out of natural wastages with people who are far younger and technologically capable.

Opportunities
1. As at end-March 2009, the bank has crossed a total business of Rs.1,67,000 crore and has set a target of crossing another milestone of Rs.2,00,000 crore by March 2010. 2. By March 2010, the Bank plans to have a branch network of 1500 branches.
3. The joint venture company Canara HSBC Oriental

Bank of Commerce Life Insurance Company Ltd has started its operation from June 16, 2008 and this venture is going to be a booster dose for increasing the other income of the Bank. 4. Process of new recruitments and internal

promotions is being undertaken in a time-bound

30

manner in order to get ready for taking benefit of the opportunities available.
5.

Bank took a major step towards improving profitability by focusing on low cost funds through mobilisation of CASA deposits.

6. Another focused

important lending

initiative to Large

was

directed

at

Corporates,

Mid-

Corporates and Retail lending through trifurcation of hitherto Credit Department.

Threats
1. The global recession is taking its toll on the Indian economy. Indian economy is going through tough times as the turmoil in various developed economies like US, UK & European countries is having its indirect impact on it. Various sectors of the economy such as real estate, automobile, IT industry & export-oriented firms are facing dips in their profits, job cuts, thinning of margins. 2. There are reports of significant declines in output of automobiles, commercial vehicles, steel, textiles, petrochemicals, construction, real estate, finance, retail activity and many other sectors. All this is putting pressure on the operations in the banking sector.

31

3. The level of NPAs in the banking industry is showing signs of moving up. The asset quality of the banks is deteriorating as the credit ratings in various sectors are being degraded. The NIM is also under pressure due to low level of demand deposits.
4. Interest rates are showing declining trend and

spread management is going to be crucial factor in near future in order to overcome the challenging period year-on-year basis.

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