Title of the Project A Study on Risk Management at Union Bank of India About the Bank Union bank of India was established on 11th November 1919 with its headquarters in Mumbai. The bank has been playing a very proactive role in the economic growth of India and it extends credit for the requirements of different sectors of economy, i.
e. Industries, exports, trading agriculture, infrastructure and the individual segments. The bank has deployed credit to super economic growth and to earn from well diversified portfolio of assets. Bank was rated as the number one among Indian banking in India in increasing shareholders wealth during 2004-2005 according to study by ASSOCHAM.
About the Topic The study is mainly on Risk Management in case of Union Bank of India, RPD branch, Belgaum. Risk Management subject is a key subject which plays an important role in deciding the overall performance of the bank. Therefore, the subject of Risk Management was chosen for the project work. Accordingly the project was undertaken at UNION BANK OF INDIA, RPD BRANCH, BELGAUM. Statement of Problem In broader sense it emphasizes on the need and the importance of risk management.
It is a system which can reduce NPAs and credit risk. During the last few years the bank is performing well in reducing net NPAs. The aspect might be internal feature of the bank. Scope of study Scope of my study was restricted only to banks 3 years data. Need For Study This study will help to know the recent norms of Risk Management. This study helps to know how Risk Management helps to control over risks related to banking Sector and what might be the risk measurement and management tools. Objectives of Study To understand various risks involved in banking environment.
To Study the credit risk involved in the lending and sourcing of fund and to gain an insight into the credit risk management activities of the bank. To analyze Risk rating process for SME in Union Bank of India and find out the problems in the same. Parameters for credit risk management (operational, financial and management risks). To know the existing and the revised measurement tools of credit rating for the credit limits. To know the performance comparison of Union Bank of India for past 3 years. Methodology Primary Data Views of the concerned officials were gathered by directly interacting with them, and such data was found very useful while analyzing and drawing conclusions.
Secondary Data Official web site of Union Bank of India and other Web sites. Annual reports and relevant text books on the subject matter Limitations The study is based mostly on secondary data. The study is limited only for risk management mechanism in UBI. The study was limited only for Credit Risk mechanism under Risk Management because of time constraint it was not possible to focus on other risks. RISK MANAGEMENT The fundamental objective of bank management is to maximize shareholders wealth.
This goal is interpreted to mean maximizing the market value of firms common stock. Wealth maximization, in turn requires the managers evaluate the present value of cash flows under uncertainty with large, near term cash flows preferred when evaluated on a risk adjusted basis. Risk Management It is the process by which managers identify, assess, monitor, and control risks associated with a financial institutions activities. The complexity and the range of financial products have made risk management more difficult to accomplish and to evaluate. In larger financial institutions, risk management is used to identify all risks associated with particular business activities and to aggregate information such that exposures can be evaluated on a common basis. A formal process enables these institutions to manage risks on both a transaction basis and by portfolio in light of the institutions exposures in a global strategic environment. The objective of risk management To reduce the cost of risk Components of cost of risk include Expected cost of losses Cost of loss control Cost of loss financing Cost of internal risk reduction Cost of any residual uncertainty Types of Risk The Federal Reserve Board has identified six types of risk Credit Risk Liquidity Risk Market Risk Operational Risk Reputation Risk Legal Risk Credit Risk Credit risk is associated with the quality of individual assets and the likelihood of default. It is extremely difficult to assess individual asset quality because limited published information is available.
In fact, many banks that buy banks are surprised at the acquired banks poor asset quality, even though they conducted a due diligence review of the acquir5ed bank prior to the purchase. Loans typically exhibit the greatest credit risk changes in general. Economic conditions and a firms operating environment alter the cash flow available for debt service. These conditions are difficult to predict. Similarly, an individuals ability to repay debts rivalries with changes in employment and personal net worth. For this reason, banks perform a credit analysis on each loan request to assess a borrowers capacity to repay.
Banks evaluate their general credit risk by asking three basic questions what is the historical loss rate on loans and investments What are expected losses in the future How is the bank prepared to weather the losses Credit risk measures focus predominantly on these same general areas. Managers typically focus their attention initially on a banks historical loan loss experience because loans exhibit the highest default rate. Ratios (as a percentage of total loans and leases) that examine the historical loss experience are related to gross losses, recoveries, and net losses. Liquidity Risk Liquidity risk is the current and potential risk to earnings and the market value of stock holders equity that results from a banks inability to meet payment or clearing obligations in a timely and cost effective manner.
This risk can be the result of either funding problems or market liquidity risk. Funding liquidity risk is the inability to liquidate assets or obtain adequate funding form new borrowing. The inability of the bank to easily unwind or offset specific exposures without significant losses from inadequate market depth or market disturbances is called market liquidity risk.
This risk is greatest when risky securities are trading at high premiums to low risk treasury securities because market participants are avoiding high risk borrowers. Liquidity risk is greatest when a bank cannot anticipate new loan demand or deposit withdrawals, and does not have access to new sources of cash. Liquidity risk measures indicate both the banks ability to cheaply and easily borrow funds and the quantity of liquid assets near maturity of available-for-sale at reasonable prices. Market Risk Market risk is the current and potential risk to earnings and stockholders equity resulting from adverse movements in market rates prices. The three areas of market risk are interest rate risk equity or security price risk, and foreign exchanges risk. Traditional interest rate risk analysis compares the sensitivity of interest income to changes in assets yields with the sensitivity of interest expense to changes in the interest cost of the liabilities.
The purpose is to determine how much net interest income will vary with movements in market interest rates. A more comprehensive portfolio analysis approach compares the duration of assets with the duration of liabilities using duration gap and market value of equity sensitivity analysis to assess the impact of rate changes on net interest income and the market value (or price) of stockholders equity. Duration is an elasticity measure that indicates the relative price sensitivity of different securities. Equity and security price risk examines how changes in market prices interest rates, and foreign exchange rates affect the market values of any equities, fixed-income securities, foreign currency holdings, and associated derivative and other off-balance sheet contracts large banks mush conduct value at risk analysis to assess the risk of loss with their portfolio or these trading assets and hold specific amounts of capital in support of this market risk. Small banks identify the exposure by conducting sensitivity analysis.
Foreign Exchange Risk arise from changes in foreign exchange rates that affect the values of assets, liabilities, and off-balance sheet activities denominated in currencies different from the banks domestic (home) currency. It exists because some banks hold assets and issue liabilities denominated in different currencies. When the amount of assets differs from the amount of liabilities in a currency, any change in exchange rates produces a gain or loss that affects the market value of the banks stockholders equity. This risk is also found in off-balance sheet loan commitments and guarantees denominated in foreign currencies. This risk is also known as foreign currency translation risk.
Most banks measure foreign exchange risk by calculating measures of the net exposure by each currency. A banks net exposure is the amount of assets minus the amount of liabilities denominated in the same currency. Operational Risk Operational risk refers to the possibility that operating expenses might vary significantly from what is expected, producing a decline in net income and firm value. The Basel Committee defines operational risk as the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Legal and Reputation Risk Legal risk is the risk that unenforceable contracts, lawsuits, or adverse judgments could disrupt or negatively affect the operations, profitability, condition, or solvency of the institution. Reputation risk is the risk that negative publicity, either true or untrue, adversely affects a banks customer base or brings forth costly litigation, hence negatively affecting profitability. Capital or solvency Risk Capital risk is not considered a separate risk because all of the risks mentioned previously will, in one form or another affect a banks capital and hence solvency.
It does, however, represent the risk that a bank may become insolvent and fail. A firm is technically insolvent when it has negative net worth or stockholders equity. Thus, capital risk refers to the potential decrease in the market value of assets below the market value of liabilities, indicating economic net worth is zero or less. If such a bank wants to liquidate its assets, it would not be able to pay all creditors, and would be bankrupt. A bank with equity capital equal to 10 percent of assets can withstand a greater percentage decline in asset value than a bank with capital equal with the banks assets. The greater equity is to assets the greater is the amount of assets that can default without the bank becoming insolvent.
RISK RATING The bank has developed a comprehensive Risk rating model based on which risk rating is assigned to borrowers. The following risk grades are allocated. RATINGRISK NOMENCLATURECR1Lowest RiskCR2Minimal RiskCR3Moderate RiskCR4Satisfactory RiskCR5Acceptable RiskCR6Watch ListCR7Risk ProneCR8High RiskCR9SubstandardCR10DoubtfulCR11Loss The bank shall adopt discriminatory time schedule for renewal/ review of credit limits of Rs.10 lacs and above based on the Credit rating assigned as under. The minimum hurdle rate for new borrowers in CR5 RISK RATINGPENDENCY OF REVIEW/ RENEWALCR118 monthsCR 2 to CR5Annual (12 months)CR 6 to CR8Half yearly (6 months) Management of Risk Management of Risk begins with identification and its quantification. It is only after risks are identified and measured we may decide to accept the risk or to accept the risk at a reduced level by undertaking steps to mitigate the risk, either fully or partially.
In addition pricing of the transaction should be in accordance with the risk content of the transaction. Risk Management Processes Management of risks may be sub-divided into following five processes. Risk Identification Risk Measurement Risk Pricing Risk Monitoring and Control Risk Mitigation 1. Risk Identification All transactions undertaken would have one or more of the major risks i.e. liquidity risk, interest rate risk, market risk, default or credit risk and operational risk with their manifestations in different dimensions. Although all these risks are contracted at the transaction level, certain risks such as liquidity risk and interest rate risk are managed at the aggregate or portfolio level.
Risks such as credit risk, operational risk and market risk arising from individual transactions are taken cognizance of at transaction level as well as at the portfolio level. Risk Identification consists of identifying various risks associated with the risk taking at the transaction level and examining its impact on the portfolio and capital requirement. As we would see later risk content of a transaction is also instrumental in pricing the exposure as risk adjusted return s the key driving force in management of banks.
2. Risk Measurement Risk Management relies on quantitative measures of risk. The risk measures seek to capture variations in earnings, market value, losses due to default etc., arising out of uncertainties associated with various risk elements. Quantitative measures of risks can be classified into three categories. Based on Sensitivity Based on Volatility Based on Downside potential Sensitivity Sensitivity captures deviation of a target variable due to unit movement of a single market parameter. Only those market parameters, which drive the value of the target variable, are relevant for the purpose. Market risk models use sensitivities fairly widely.
Volatility It is possible to combine sensitivity of target variables with the instability of the underlying parameters. The volatility characterizes the stability or instability of any random variable. It is common statistical measure of dispersion around the average of any random variable such as earnings, mark-to-market values, market value, losses due to default etc. Volatility is the standard deviation of the values of these variables. It is feasible to calculate historical volatility using any historical data, whether or not they follow a normal distribution. Alternatively, implicit volatility may also be computed using option prices if quoted in the market using Black and Scholes option pricing formula. Implicit volatility has an advantage as it is forward looking since option price being quoted is also forward looking.
The calculation of historical mean and volatility requires time series. Defining a time series requires defining the period of the observation and the frequency of observation. 3. Risk Pricing Risk Pricing implies factoring risks into pricing through capital charge and loss probabilities. This would be in addition to actual cost incurred in the transaction. The actual cost incurred are cost of funds that has gone into the transaction and cost incurred in giving the services, which are incurred by way of maintaining the infrastructure, employees and other relevant expenses.
Pricing should consider the following Cost of deployable funds Operating expenses Loss probabilities Capital charge It may be noted that pricing is transaction based. This is one of the key reasons for risk measurement at transaction level. 4. Risk Monitoring and Control The approach to risk management centers on facilitating implementation of risk and business policies simultaneously in a consistent manner.
In order to achieve its objective, bank put in place the following An organizational structure Comprehensive risk measurement approach Risk management policies adopted at the corporate level Guidelines and other parameters used to govern risk taking including detailed structure of prudential limits, discretionary limits and risk taking function Strong MIS for reporting, monitoring and controlling risks Well laid out procedures, effective control and comprehensive risk reporting framework Separate risk management framework independent of operational departments with clear delineation of responsibility for management of risks Periodical review and evaluation 5. Risk Mitigation Risk reduction is achieved by adopting strategies that eliminate or reduce the uncertainties associated with the risk elements. In banking, we come across a variety of financial instruments and number of techniques that can be used to mitigate risks. The techniques to mitigate different types of risks are different. For mitigating credit risk banks have been using traditional techniques such as collateralization by first priority claims with cash or securities or landed properties, third party guarantees etc. Banks may buy credit derivatives to offset various forms of credit risks. For mitigating interest rate risk bank use interest rate swaps, forward rate agreements or financial future. For mitigating forex risks banks use forex forward contract, forex options or futures.
For mitigating equity price risk, banks use equity options. Revised Rating Model for Small Borrowers With Credit limits above Rs. 10 lacs to Rs 100 lacs. (I.
P. Agencies) INVESTMENT GRADENON INVESTMENT GRADE CREDIT QUALITYRATING NUMURICAGGREGATE SCORE CREDIT QUALITY RATING NUMURICAGGREGATE SCORELowest risk CR 190Risk prone CR 751-55Minimal risk CR 281-90High risk CR 850 belowModerate risk CR 371-80Sub standard CR 9Default – NPASatisfactory risk CR 466-70Doubtful CR 10-Acceptable risk CR 561-65Loss CR 11-Watch list CR 656-60 RATING OF THE BORROWER Evaluation of Financial RiskParametersRating ScoreCurrent Ratio- Liquidity Ratio Current Assets 13.44 —————— ———– 1.07 Current Liabilities 12.
54 1.33 and above 51.25 and above41.17 and above31.10 and above21.00 and above1Less than One0Debt Equity Ratio Solvency Ratio Total Debt 12.54 ————- ———- 5.
69 Tangible Net worth 2.153.00 and below 4Above 3.00-4.003Above 4.
00-5.002Above 50Sales Performance (Sales or contract receipts or gross receipts performance vis -a- vis projection, Indicates achievement level)Achievement Above 100 375 to 100250 to 751Below 500Net Profit vis a vis projection Achievement Above 100 375 to 100250 to 751Below 500Net Profit Margin Net profit 152.00 ———— ———– Net Sales 163.93 Above 74Between 5 to 73Below 51Loss 0Return of Capital Employed (capital employed means Tangible net worth Long term Liabilities) Net profit after tax 1.52 ———————– ——x100 Capital Employed 2.1515 and above412 and above310 and above27 and above1Less than 70 Debt service coverage ratio applicable in case of term loans Measures firms ability to pay interest and installment of Term Loan Profit after tax Dep Int of TL ————————————— Installment Interest on T. LAbove 2 41.5 to 231.
10 1.51Less than 1.100Interest service coverage Ratio (Measures firms ability to pay interest Profit before Interest, tax and Dep —————————————— Int payable on Outside liabilities including Bank LoanSub Total30 MANAGEMETN RISKExperience of management/ promoters regarding the business the management / promoters/ proprietors understanding of the business environmentVery high 5 years4High 2 years 5 years3Moderate 2 years2Absent 0Composition of ManagementPromoter owners/ director highly qualified professionals or employing qualified professionals well diversified management4The owners are not well qualified but carry business acumen. The key areas are being handled by competent professionals.3Business managed by family members/ concentrated in a few hands2Business/ management dependent on one or two individuals no delegation1Succession planning for key positionsYes2No 0Labour relations i.Strike Yes/ No ii.Amicable settlement of disputes Yes/No Cordial ( No history of strike)3Adequate (few instances)2In adequate0Honoring financial commitment ( to banks / financial inst/ creditors/ government) Honored on time4Honored but delayed within acceptable period of the 1 month2Honored but delayed beyond acceptable period1Not honored 0Market reputation of the promoters/ Management (where market report is adverse such proposals should not be entertained)Excellent image3No adverse factors1Sub Total20 Evaluation of market/ Industry riskMarket potential Demand situation consider market/ demand position for the product being or proposed to be sold by the borrower in the area of operation Favorable3Neutral2Unfavorable0Competitive Situation Consider the following No of competitors Presence of big competitors Competitive advantage enjoyed by the borrower over others in terms of Cost Technology Brand name Market ShareFavorable3Neutral2Un favorable0Raw material availability and procurement arrangement continuous availability of Raw material is having bearing on the quality price of the final product/ service Consideration the following Continuous availability of key raw material Availability of substitutes for raw material High3Moderate2Low1 Selling and distribution arrangement Exclusive and strong network for selling and distribution4Selling and distribution arrangements are important to ensure that the company is able to access its key market and service its customers.
Fairly strong selling and distribution arrangement3No selling and distribution arrangement and the company depends on third party21Technology advantage Consider the following Advance technology Upgraded Technology Conventional Technology Need to improve Technology Rating to be decided on the basis of technology appropriate to the activity undertaken.320Sub Total15 Summary Financial Risk630Management Risk620Market/ Industry Risk516Total1766 II.RATING OF THE FACILITY A.Compliance of sanction termAll sanction term complied with including documentation/ mortgage/ROC/ Second charge3All sanction terms complied except second charge1Submission of stock statement/ QPRTimely submission2Submitted within 30 days from due date1Belted submission beyond 300Submission Audited Balance Sheet Profit and loss A/c Final DataSubmitted within 5 months from the closure of the accounts2Submitted within a period of 5and 8 months from the closure of the accounts1Delay 8 moths0Repayment schedule only for term loansUp to 5 years25yaers1403Margin given on Term Loan (For term loan only)25 to 40220 to 251200Turnover in the A/c Consider only Credit Turnover in the running A/c facility relating to business.(sales proceeds)Turnover Commensurate with sales904Turnover 70 to 903Turnover 60 to 701Turnover 600 B. Operation in the AccountOperation in the account Top class No occasion of excess and return of cheques4Satisfactory rare occasions of excess and return of cheques3Average occasional excesses and return of cheques1Below Average frequent excess and return of cheques0 Commitments under DPGL/ Term Loan and payment of interest on cash credit/ overdraft etc.
Timely payment4Irregular overdue up to one month from due date3Irregular/ Overdue beyond one month up to 2 months2Delay beyond 2 monthsSub-Total 24 RISK MITIGATORS Availability of Collateral Security and quality of Collaterals Notes Marks to be allotted only if the formalities of documentation/ Creations of securities are completed in all respects.More than 100 of the total Exposure3Between 50 to 100 of the exposure2Less than 50 of the exposure 1No Collateral Security 0Availability of Guarantee Promoter Directors Guarantee/ Third party GuaranteeGuarantee available- means if more than Double the exposure2Guarantee not available0Sub Total5 III.BUSINESS ASPECTSLength of satisfactory relationship with Union Bank Under length of relationship it is now clarified that marks can be allotted if any group/ associate concern dealing with the bank are floating a new venture the relationship value of the group/ associate concern can be taken in to account.Above 10 years3Above 5 years 10years21-5 years11 years0Income value to the Bank Interest, commission, exchange, etc from the account as to total fund based limits1028 10180Sub Total5 SUMMARY IRating of the Borrower66IIRating of the Facility24IIIRisk Mitigations5IVBusiness Aspect5 Total 100 Note The total score under the model is 100. Where one or more parameters are not applicable, the score obtained under the applicable parameters should be converted into terms and appropriate grade/ rating is assign.
Presently, the entire facility rating is treated as not applicable for new borrower. However, marks may be allotted for proposed margin and repayment schedule for term loans as margin and repayment schedule are among other things, main pre-condition for sanction of the facility. CREDIT RISK MANAGEMENT Credit management is the management of the credit portfolio of bankers and financial institutions. The expression Credit refers to short term loans and advances as well as to medium/ long term loans and off balance sheet transactions.
Management includes within its preview pre-sanction, appraisal sanction, Documentation, disbursement and disbursal and post lending supervision and control. The main functions of the Banks are mobilization of the resources i.e. deposits, especially low cost deposits and exploitation thereof in the most profitable manner within the frame work stipulated by the Reserve Bank of India. The major portion of the deployment of resources is through credit dispersion and safety of these funds and returns thereon are of paramount importance. Banks are having their separate loan policies designed for the sanction of credit facilities without compromising the quality of assets. Credit management is no longer Rule of the Thumb game. In a highly competitive and deregulated environment banks and financial institutions have to evolve better system and procedures to manage the credit needs of highly demanding customers, particularly in the corporate and retail sectors.
The developments of the past decade have totally changed the prospective of management of credit. Credit management now includes Capital adequacy norms. Risk management including Asset Liability Management (ALM). Exposure norms. Risk pricing policy and credit risk rating. Asset classification, income recognition and provisioning norms. Appraisal, Credit decision making and loan review mechanism. Types of Credit facilities The credit or lending has been divided in to two broad categories i.
e. as follows Fund Based Non Fund Based Fund Based Fund based means actually the cash is credit to the customers Account. In fund based there are two types Working Capital Working capital for any enterprise refers to the total amount of circulating funds required for the continuous operations of the unit on an ongoing basis. It refers to the total funds required for financing the minimum total current assets to remain viable operate above the breakeven level to earn profits. A firm should have adequate working capital i.
e. as much as needed by the firm. It should neither be excessive nor inadequate. Both situations are dangerous. Excessive working capital means the firm has idle funds, which earn no profits for the firm. Inadequate working capital means the firms does not have sufficient funds for running its operations which ultimately result in product ion interruption and lowering down the profitability. The working capital facility is short term in nature for a period up to 12 months. This facility is provided through- Cash Credit Over Drafts Term Loans Term Loans means loans are payable after 1 year to 10 years.
It is availed for acquisition of Fixed Assets, setting up of Business units, Expansion/Modernization etc. These are financed by way of term loan is repaid by the borrowing concerns in installments out of profits earned. The schedule of repayment and duration of loan are fixed on the basis of the assessed ability of the undertaking to generate surpluses for making repayments. B.
Non-Fund based In this type of loan the actual fund in not transfer to the customer account, but the bank will give the guarantee, if in case any default from the customer the bank will give the amount. The non-fund based limits are normally of two types Bank Guarantees There is no standard formula for assessment of bank guarantee limits. However, details such as the nature of the guarantee, the purpose of the guarantee and the particulars of the contract period for which guarantee is sought and amount of the guarantee are to the collected first and these have to be considered viewed from the aspect of creditworthiness of the customer and his relationship with the banker and decision has to be taken as regards sanction of the limits requested by the customer. This facility is required by the Borrower to meet following transaction Participate in tenders for expanding market.
Security deposit for participating in tenders expanding market. For giving Guarantee for performing contracts. To avail concessions in duty. Letter of Credit The borrowers have to acquired fixed assets purchase different types of raw material finished goods make payment for services in the course of business. The suppliers allow the buyers to make purchases with the help of LCs issued by the bankers. The LC is issued on documents against payment or documents against acceptance. Commandments of Credit According to Golden and Walker, it has identified Ten Cs for credit i.
e. Five for Good Credit and Five for Bad Credit Five Cs for good Credit Make sure that your borrower is of upstanding character. Be sure that your borrower has capacity to repay your debt. Underwrite all debt understanding that business and economic conditions can and will change. Make sure that your borrower is adequately capitalized. Make sure that collateral does not drive lending decisions. Five Cs for bad Credit Complacency Carelessness Communication breakdown Contingencies Competition It is advisable to ensure that First Five Cs dominating credit decision and second Five Cs have not set in. Components of Credit Management The credit management generally involves the following major components Pre-sanction Process Post-sanction Process 1.
Pre-sanction Process In general words pre-sanction means Taking the precaution before the activity is carried out. The pre-sanction process involves some activities like Appraisal and Analysis of information given by borrower by exercising due diligence. Proper assessment of need based limits as per laid down norms policies of Bank. Sanction. Pre-sanction visit to the applicants place Pre-sanction visit to the applicants place shall be undertaken to confirm the existence of the unit as well as the assets offered as prime/ collateral security and their acceptability. The visit shall also be used to understand the trade practices/ manufacturing process of the unit/ interact with the employees/ other relevant persons to collect purposeful information.
After undertaking credit investigation and collecting information form var4ious sources as explained above a due diligence report shall be prepared covering aspects like character, capacity and Credit worthiness of the constituent. A due diligence report shall invariably be submitted along with all NBG / regular credit proposal Loan tracks from other banks Efforts to be made to obtain confidential option form the existing banker in all new connections. Efforts shall also be made to gather full information on the credit facilities sanctioned, conduct of account, submission of data/ information etc. The bank may also examine the account statements of the previous banker to confirm satisfactory past dealings and operations.
Industry prospects The bank shall ascertain information like present state and future prospects of the particular industrial activity in which the constituent is engaged duly taking into account the market environment demand-supply position/ major competitors/ market share/ position of the constituent in the respective industry. Financial Statements The bank shall analyze the financial statements of the constituent/ income/ wealth tax returns/ assessment orders of the constituent/ guarantors. These statement documents shall throw light on growth in sales, profitability, cash accrual, tangible net worth position, investment in associates, term liabilities, repayment commitment under term loans in relation to cash accruals, details of contingents liabilities including guarantee obligation etc. The information gathered as above shall enable the bank to decide whether to finance or not.
Market Information Opinion about the applicant/ associate shall be collected by making market enquiries with people in similar line of business/ buyers/ suppliers/ competition/ employees/ etc, and market information reports appearing in the local press/ news papers/ business magazines/ contacts with government officials/ businessmen/ Banker-colleagues/ credit rating agencies. CREDIT ADMINISTRATION The norms for disposal of credit proposal and credit refusal, the bank is complying with the guidelines relating to issue of acknowledgement for receipt of proposals and time norms for processing and disposal as contained in the fair practices code formulated by the bank, which is in force. Borrowers Standards Financial strength/ Bench Mark Ratios The financial strength of the borrower client shall be adequate, in relation the project size/ volume of operations proposed to be undertaken and risks involved therein. Though it is very difficult to evolve industry-wise bench marks for current and debt equity ratio, profitable ratio and debt service coverage ration or any other specific ratios, in general, current ratio of 1.17 and above, Debt Equity Ratio 21, Total Outside liabilities to Net worth Ration of 41 will be considered as reasonable requirements for any new connection, Relaxation may however be considered on merits of the case. The aforesaid benchmarks/ norms shall however not be applicable to any scheme specially formulated as per laid down procedure. For e.g.
Union Rent will be out of the purview of the financial discipline as CR/DER/DSCR etc, are not applicable for financing of future rent receivables under the scheme. However in respect of SSI and capital interval industries, relaxation in DER would be considered. Reserve Bank of India has withdrawn the ceiling on bank credit to NBFCs. However as a matter of prudence the bank shall restrict the lending to 3 times the Net Owned Funds NOF in respect of financing of NBFCs.
METHODS OF ASSESSMENT Assessment of Working Capital Requirement The working capital assessment depends upon the level of business, segment of the borrower, prevailing guidelines of RBI, trade industry practice prevailing and other objective factors. The assessment shall be based on a total study of borrows business operations, the processing and production cycle of the industry, financial and managerial capability of the borrowers and other parameter relating to the unit and the industry. The assessment of the working capital of the borrower can be done under anyone of the following four methods Turnover Method. Flexible Bank Finance.
Method Cash Budget Method. Net Owned Fund for NBFCs. Turn over Method 20 of the projected realistic turnover for limits up to Rs 1 crore for all advances and up to Rs 5 crores for SSI advances. Flexible Bank Finance Method This is an extension of maximum permissible bank finance method (MPBF).
In this method current ratio is taken at 1.17. this method is applicable for A/c with credit limits of Rs 1.00 crores and above for other advances Rs 5.00 crores for SSI advances. The assessment of credit requirement should be made based on the projected turnover, level of inventory, receivables and sundry creditors in relation to past performance, market developments and individual outlook. Cash Budget Method This method is adopted in the case of specific industries/ seasonal activities such as software development, construction industry, film industry, sugar, fertilizers etc.
the required finance is worked out from the projected cash flows not from the projected values of assets liabilities. Besides cash flow, other aspects like borrowers projected profitability, liquidity and fund flows are also to be analyzed. Net Owned Fund Method This method is used for the assessment of credit needs of Non-Banking Finance Companies NBFC on Net Owned Funds Method based on the formats prescribed by RBI. Assessment of Term Loans Requirement The assessment here includes the projected appraisal cost of project, means of finance and the sources from which such loan is expected to be liquidated is net cash generation form year to year. All this needs a detailed appraisal of the project to establish its long-term viability. The technical and economic viability of the project is examined and analyzed with reference to the following Whether cost of the project is acceptable.
Arrangements made for raising Debt/ Equity. Capital Structure, Debt Component project implementation schedule. Break Even Point in terms of sales value and percentage of installed capacity in a normal production year. Cash Flow and Fund Flow. Industry profile and Prospects. Technical feasibility, promoters strength. Assessment of Non fund based limits Letter of Guarantee (LG) The requirement of letter in line with working capital requirement guarantee facility should be in line with the borrowers business requirement. The Borrowers past performance, purpose of the Letter of Guarantee limit and capacity to meet the commitment is ascertained.
Adequate cash margin and securities considering the Borrowers dealings experience is obtained. The financial Guarantees are issued with 100 cash margin as far as possible. The following precautions are taken for issuance of LG Guarantees are issued for definite period Guarantees are issued for definite purpose are enforceable on the happening of a definite event. Guarantees are issued for Genuine Trade/ Business transactions. The format and working of LG should be sample, unambiguous. A limitation clause should always be inserted specifying the extent of monetary liability and expiry date. Letter of Credit (LC) The borrowers have to acquire fixed assets purchase different types of raw materials finished goods make payment for services in the course of business.
The suppliers allow the buyers to make purchases with the help of LCs issued by the bankers. The LC is issued on documents against payment of documents against acceptance. The financial position of the customer the resources from which the bills under letter of credit would be retired should be enquired into.
The sanction of Letter of Credit transactions should be precise and definite with regard to quantum, type of credit like DA DP revolving or specific purpose for which credit is to be established, type of documents to accompany the bills for negotiation. Before granting a letter of credit facility, a credit report of the beneficiary is obtained. All import LCs is subject to Export Import policies including exchange control regulations including the Foreign Exchange management Act (FEMA) etc. Examination of proposal for sanction of Credit facilities The proposal for credit facility is to be thoroughly examined by the Bank and relevant information is to be recorded. Generally the credit proposal contains the following basic information Borrowers standard/ background Constitution of the borrower Nature of the Business Total Capital Credit report on borrower guarantors Search report Nature and extent of credit facilities required Security offered being primary collateral and other terms of sanction i.e. Margin, interest etc.
Purpose and period of advance Source or repayment Guarantees offered Facilities enjoyed with other banks Connected A/Cs credit facilities enjoyed with the bank Prudential exposure norms Analysis of financial statements Comments on assessment of limits Project level of Sales Comments on the level of inventory and amount of receivables Working capital assessment Non fund based limits assessment Term Loan/ Deferred payment Guarantee limit (DPGL) assessment Consortium arrangement Any other relevant matter Recommendation for sanction/ decline of the limits. POST SANCTION PROCESS The post sanction process means Analyzing the things after sanctioning the loan. It involves various factors such as Documentation No document no loan Disbursement Verification of end use post sanction inspection Follow up Supervision Monitoring and control Basically, as long as the borrowers operations and availment of credit are on projected and approved lines with adequate cash generations and reasonable asset formation, the business and consequently, banks advances also remain healthy. Any imbalance to the above is of concern to the bank and it would affect the banks advance. Hence documentation, follow up functions are primarily aimed at detecting and locating the above imbalances. 1.
DOCUMENTATION In credit management, the importance of proper documentation can at best be placed only next to a sound credit appraisal system. Documentation is one of the key areas bank has to take care, because the documents constitute the primary evidence of the contract between the bank and its constituents, keeping in view the importance of documentation, resting with Guide on Documentation. Besides advising the branches regarding documentation, Central Office in no uncertain terms has time again reiterated that Advance should not be disbursed without obtaining Stipulated Documents. DOCUMENTATION STANDARDS In credit management, the importance of proper documentation can at best be placed only next to a sound credit appraisal system. A good documentation system will in turn facilitate better compliance of sanction term and an efficient disbursement standard. In respect of every credit facility approved by Bank, prescribed documents detailed in Guide on documentation and amended from time to time shall be obtained and proper execution, certification, vetting and safe custody of the documents shall be ensure. Branch shall proper tamping of the documents, registration of charges, insurance cover, etc.
It shall be ensured that documents are kept in force from time to time and proper revival letters/ debt etc balance confirmation is obtained periodically. The assistance of law officer at RO/ Corporate Office shall be obtained wherever necessary. Documents in respect of advance above Rs.10 lacks, up to Rs 1 Crore are to be vetted by law officer attached to RO/ZO and documents in respect of advance above Rs.1 crore are to be vetted by approved advocates before release of limits. Specimen of credit appraisal proposal for sanction of working capital, term loan and letter of guarantee limits. Reporting System for Excess over Sanction Limits The scheme of delegation of loaning power not only covers the sanction of regular limits but also covers discretionary powers for sanction of excesses, adhoc and meeting temporary credit requirement.
Inspection of Collateral Security/ Plant Machinery The inspection of assets charged to the Bank including Collateral securities is to be inspected at least once every year. SUPERVISION MONITORING Regular close monitoring can minimize the incidence of slippages. Deterioration in asset quality is rarely sudden except when unexpected environmental economic changes occur. Normally several warning signs surface long before an asset becomes non-performing. Preventing slippages for Technical Reasons In view of clarificatory guidelines by RBI making Income Regulation and Asset classification norms more stringent, Branches shall ensure that the account does not slip to NPA category on account of the following technical reasons Review/ renewal or regular/ adhoc credit facility is not done within 180 days from due date of review / renewal of account. Drawings allowed against stock/ book debt statements older than 180 days. Delegation of Power Bank has put in place Scheme of Delegation of Loaning powers, with the approval of the Board for each delegate, looking to the multi-tier structure, specific business requirements and RBI directives.
All delegates shall strictly adhere to the operative guidelines governing the exercise of Delegated Authority. Multiple Baking Arrangements Under Multiple Banking Arrangements each bank is free to negotiate term and conditions, including margin, rate of interest, etc. As such where the borrower enjoys working capital facilities from more than one Bank, details about the borrowing should be obtained from other banks for assessment of limits at the time of sanction as well as renewal/ enhancement etc.
Group Approach The concept of Group and the task of identification of the borrowers belonging to specific industrial group have been let to the perception of banks by RBI and the guiding principle is Commonality of Management and Effective Control. Credit Approval Grid In line with guidelines issued by Reserve Bank of India on the Risk Management system the Bank had introduced the Credit Approval Grid approach. Sanctions/ Renewals proposals and Adhoc sanction will be routed through the Credit Approval Gird.
The Credit Approval Grid has thereafter been introduced at FFMO/ ZO and RO level also. All new connections above Rs.50 lacs which were earlier being routed through NBG are now required to be placed before the appropriate grids at these offices. DISBURSEMENT Before allowing the borrower to avail the limits, the bank must obtain proper documents adequately stamped strictly according to the term of sanction from the borrowers Guarantors. Securities/ mortgages are duly created as per the term of sanction.
In order to ensure that the borrowed funds are utilized for the purpose for which the same are taken and to prevent diversion of funds, advances should be disbursed in a phased manner, depending upon the actual requirements of the borrower. Ex if a working capital limit has been sanctioned in addition to a term loan for a factory, working capital limit should not be released till the factory is ready and in position to start the manufacturing or any other activity for the purpose for which the finance is obtained. It the advance is required to buy fixed assets, direct payments to the suppliers may be made by debit to the borrowers account or at least invoices may be verified with the relative fixed assets at the time of regular post-sanction inspection of the factory. If a crop-loan advance is sanctioned to an agriculturist, it may be disbursed in a phased manner in cash and in kind as stipulated, only to the borrower and not to a third party, according to the scale of finance for different agricultural operations as worked out. If any irregularities are observed such as a frequently return of cheques drawn on the account, frequent return of bill drawn by/ or on the party, frequent excess drawings or account remaining inoperative for long, failure to restore the margin, adverse market report on the party, etc, the account must be reviewed and appropriate steps taken to safeguard the Banks interest.
CREDIT MONITORING To ensure that the funds are utilized for the sanctioned purpose/ complying with terms and conditions/ to avoid time lag and cost over runs/ to detect easily warning signals and system of sickness for initiating timely action for recovery of rehabilitation. In October 1988, the RBI introduced the post-sanction scrutiny of large borrowal limits working capital limits of Rs 10 Crore and term loan limits of Rs 5 Crore sanctioned by banks. RBI subjects such proposals sanctioned by the banks to close scrutiny and if they consider the limits sanctioned as unjustified they may reduce the limits. Under CMA, RBI, gives various directions to banks and borrowers with a view to ensuring credit discipline. Some of such important provisions are as below Borrower should maintain reasonable estimates of current assets, current liabilities and working capital. Should maintain classification of current assets and current liabilities as per banks guidelines. Should maintain minimum current ratio of 25 except for export industry and for new units.
Quarterly information system (QIS) should be submitted in time. Should submit annual audited accounts in time and bank should review them annually. Ad hoc limits may be sanctioned for periods not exceeding 3 months, subject to report to RBI. Bill financing should be for at least 75 of credit sales. Bank should forward a copy of Board Memo sanctioning the credit limit to RBI along with the balance sheet of the co. and CMA data with 15 days of sanction.
Now from December 1997, the above system is discontinued and RBI should be reported on monthly basis in the form I/V/VI. CREDIT MONITORING BY KANNAN COMMITTEE The committee has suggested that monitoring through periodical statement of stocks/ bank debts/ coupled with physical verification of securities business site of the borrower to be the basic credit monitoring tool of the banks. The borrower should also give data relating to production, sales and other assumption on which working capital assessment is made by the financing bank. Annual verification of current assets including compliance of pollution control requirement (whichever applicable) by borrowers auditors in respect of borrowers with working capital limit over Rs 5 crore should be insisted.
Alternatively, the company may also engage Chartered Accountant/ Chartered Engineer as may deem fit for the purpose. Prior approval should be obtained for investment of funds outside business by way of ICD, investment in associate concerns, etc., or in other outside investment violation of this condition by the borrower should invite penal interest or recall of advance from the bank. Effective credit monitoring is of vital importance to restrict slippage of Accounts to NPA Category. The Bank officials should have clear up to date position of each loan A/c. MONITORING PROCESS Any monitoring information, which in the opinion of its recipient, could impact adversely credit quality, will require him to initiate immediately monitoring process. Each of the monitoring information could have different and varied connotations. Depending upon the background and past behavior on the one hand and also current status on the other, the monitoring information requires analysis/ interpretation to initiate monitoring process.
Various committees on credit disbursements The following are the various committees for credit disbursements Tandon Committees (1974) Chore Committee (1979) Laxminarayan Committee (1973) Consortium Arrangements for working capital lending Nayak Committee Vaz Committee (1993) Shetty Committee For Consortium Advances Kannan Committee (1997) Stages of Monitoring There are three distinct stages of monitoring Pre Disbursement During Disbursement Post Disbursement 1.Pre Disbursement Not withstanding the credit sanction, disbursements will depend totally upon the compliance to various aspects such as Acceptance of terms, conditions and stipulation by the borrowers. Ability of all relevant documents, including creation of mortgage etc., as collateral security and letters of guarantee by guarantors. Compiling total information on the borrowers others activities, which might have come to the knowledge at, branch level, subsequent to submission of credit proposal.
Carrying out pre disbursement inspection of the unit. Maintenance of records to fulfill Banks requirements. 2.During Disbursement Disbursements in loan accounts are different from running accounts. All disbursements, whether in loan account or running accounts, will be related to actual/ actual/ acceptable performance for the business and should never deviate from the basic objective of safety of Banks exposure. The disbursements should be done taking into account extent of exposure and also progress of the project/ business activity.
The aspect for monitoring of loan Accounts Project schedule vis–vis actual implementation. Adequacy of arrangements to finance cost overruns. Impact of time overrun on timely cash generations of the project.
Verification of end-use of funds with reference to verifiable records such as invoices, account books, registers, records, inspections of the unit etc. Verification of Performa invoices with market enquires. Payment of margin amount through the bank.
C.A certificate or progress certificate from architect/ contractor etc. Running Accounts Availability of Drawing power Compliance to sanction terms/ stipulation.
Stock inspection/ security inspection details, regular movement of goods, actual sales keeping pace with projections, change in credit periods from suppliers etc. The limit sanctioned is not a commitment to extend funds to the borrower under any circumstance. It is only a financial contract to make available funds of due performance of various business objects set out in the proposal. Banks disbursements depend upon due performance/ compliance of/ with borrowers own commitments. Therefore, the credit disbursement has to be used as an effective monitoring tool to ensure that there are only normal and acceptable credit risks. 3.Post Disbursement Under this stage the following factors are to be ensured Ensuring compliance to all sanction terms/ stipulations Undertaking regular check/ supervision of account operations.
Obtaining regular stock/ security statements. Undertaking periodical inspection of unit, stock and securities. Arranging stock audit by outside agency whenever applicable. Scrutiny of monthly, quarterly, half yearly monitoring statements i.
e. MSOD, QPR etc, provisional/ audit statements. Undertaking periodical review of the accounts. Follow up for receipt of Audited statements of accounts even when account is not due for review. At each of the above stages, meaningful monitoring is required needs to be conducted in a systematic manner. Properly study and alertness in assessing the borrowers performance and requirements will ensure success of monitoring at the three states mentioned above CREDIT MONITORING SYSTEM IN UNION BANK OF INDIA Bank is having a very well laid out system in the area of credit monitoring, supervision and effective control over the credit portfolio. Various credit monitoring tools are available with bank range from weekly returns to monthly, quarterly and half yearly returns at of MIS, systems of review/ renewal.
Procedure for post disbursement reporting in case of fresh advances, sound Audit system etc. Goals of Credit Monitoring Credit monitoring is a logical stage next to the sanctioning of limits and involves a systematic sequencing of activities such as of execution of documents, creation of securities, registration of charges, obtaining operational data, fixation of drawing powers, inspection etc. The broad objectives of credit monitoring or post sanction supervision and follow up can be summarized as under Understanding the current financial position of the borrowers from time to time. Confirming that the credit is in compliance with the sanction terms. Ensuring that the customer is using the loan for the intended purpose. Ensuring that the projected cash flows are being realized by the borrowers. Identify potential problems loan accounts well in time and initiate corrective measures. Incidentally, the experience gained in monitoring financed units can be made use of for upgrading subsequent quality of appraisal.
Monitoring Tools Operations as reflected in various accounts maintained with the bank throws own many significant pointers like Cash Credit Hyp/ SOD (Book Debt). Unusual debits- diversion. Frequent bouncing of cheques- poor cash flow. Delayed retirements of bills- liquidity crisis. Is the frequently return of sales bills due to poor quality of products Drop in the market share Slackness in market Accommodation Is the poor turnover in the account due to Routing the sale through some other bank Cash sales Drop in production Does the poor utilization of limited mean. Does the limited swing in the account mean over trading Term loan Check Points Whether Interest and Installments are paid regularly. Bills purchase limit.
Mode and Promptness in payments. Mode of adjustment of returned/ overdue bills. Bills of sister concern and unrelated transactions. Free payment Purpose of ledger supervision To ensure financial discipline. To avoid leakage of income. To ensure account is operated as per norms. To check intentional/ unintentional errors.
Stock Statement Substantial portion of bank credit is extended in the form of cash credit against the hypothecation of stock in trade and the book debts. As the possession of the securities in such cases lies with the borrower, it is essential that such security should be monitored from time to time to ensure the safety of our advance. Any lapses in monitoring such securities on the part of the bank may induce the customer to miss utilize it, ultimately adding up to NPA of the bank. of late, we note laxity and lack of circumspection in the matter of stock inspection and it has become a perfunctory exercise leading to erosion of security. Inspection should be carried out periodically without fail in an intelligent and effective manner without considering the same a route affair and in causal way. REMEDIAL MONITORING ACITON Accounts in which irregularities surface will require usually an action plan in one of the following ways The some of the remedial steps to be initiated in the account in which irregularities are surfaced are Immediate discussion with the borrower and guarantors. Advising the borrower to stop operation with other banks. Increasing the margin requirements on primary securities.
Increasing rate of interest rates of outstanding portion. Advising borrowers to bring in more funds to set right out of order position. Sale of unwanted surplus assets. Restriction on declaration of dividend. Restriction of reconstitution of firms. Asking for additional collateral or guarantees. Reducing the limit.
Disposal of certain saleable securities such as share certificates, encashing surrender value of LIC policy, margin in the shape of FDRs etc. Requesting debtors to pay directly to the bank (where the book debts are hypothecated). Recalling advance/ filling of suit. EXTERNAL MONITORING INFORMATION Credit Monitoring is an exercise of continuous vigil, keeping a watchful eye on the account operations, environment, internal and external to the unit/ business of borrower. While supervision of account operations plays a crucial part in ensuing proper conduct of account within the ambit of the of the assumptions made while sanctioning limits, gathering market information through various sources will help to have suitable solutions to the problems faced in the accounts. Some of the external sources of information are Market information Newspapers-periodicals-media reports. Sources information from borrowers employees. Information from borrowers customers, creditors.
Sales/ Income tax/ Excise Dept. Request for modification in terms and conditions. Change in key personnel/ management. Change in government policies.
Reference from other bankers regarding other connected accounts of the borrower. Frequent requests for excess or modification in terms and conditions of sanction. Balance Sheet of Three Years (Amt in Crores) YearMar 08Mar 07Mar 06Capital 505.12505.12505.
12Reserves and Surplus 6,842.584,684.754,053.04Deposits 103,858.6485,180.2274,094.30Borrowings 4,760.
494,215.533,974.40Other Liabilities Provisions 8,401.258,194.066,547.
02TOTAL124,368.08102,779.6889,173.88Cash Balances with RBI9,454.745,917.574,387.27Balances with Banks money at Call Short Notice643.102,508.
872,003.24Investments 33,822.6327,981.7725,917.65Advances 74,348.2962,386.4353,379.96Fixed Assets 2,200.
40825.00810.42Other Assets 3,898.923,160.
88Contingent Liabilities 62,517.4041,703.7640,508.44Bills for collection3,177.
021,728.814,116.48 Gross Advances Years2003-042004-052005-062006-072007-08Rs in Crores28921.740105.0853379.9662386.
4374348.29Change in 31.4638.6733.
1016.8719.17 Interpretation Bank is showing consistent growth in advances during the last 5 years in line with growth in GDP and Gross Credit off take of the industry. The corporate policy for consistent growth has been put in place through introduction of various new products to suit retail as well as corporate needs.
Gross NPAs (Non- Performing Assets) NPA Amount Changes2005-0620981.562006-0718730.962007-0816570.17 Interpretation This consistent reduction in NPA is made possible through proper Cash recovery from the Management and strong credit management policies. Bank is having separate section to control and reduce slippages and to active maximum recovery in NPAs. Ratio of Gross NPAs to Gross Advances YearGross NPAGross Advance change2005-062098546443.
842006-071873636582.942007-081657758782.18 Interpretation The Ratio of Gross NPAs over Gross Advances are decaling during the last 3 years. It indicates effective Credit/ NPA Management adopted by Union Bank of India.
Advances to various sectors during the year 2008 Agriculture3811472SME267704Tertiary3610853 Interpretation Bank had achieved the total Advances of Priority Sector as on March 2008 Rs.30029 Crores, of Which Rs 11472 crores is for Agriculture, Rs.7704 is for Small and Medium Enterprises and Rs.10853 is for Tertiary Sector to a percentage of 38, 26 and 36. Quarterly Working Results June, September and December for the year 2008 2007 Year200806200706Var200809200709VarType1st Qtr1.
001st Qtr1.00()2nd Qtr2.002nd Qtr2.00()Sales Turnover2,533.
272,238.3926.49Other221.67215.372.93283.26287.26-1.39IncomeTotal2,754.882,289.4820.333,114.532,525.6523.32IncomeTotal711.4579.522.76762.11512.8348.61ExpenditureOperating2,043.481,709.9819.52,352.422,012.8216.87ProfitInterest1,723.191,339.8828.611,855.961,582.0417.31Gross Profit320.29370.1-13.46496.46430.7815.25Depreciation00N.A.00N.A.Tax92145-36.55135155-12.9Reported228.29225.11.42361.46275.7831.07PAT Year200812200712Var200803200703VarType3rd Qtr3.003rd Qtr3.00()4th Qtr4.004th Qtr4.00()Sales Turnover3,261.692,422.3034.652,602.432,094.9324.23Other392.1383.742.18310.67241.7928.49IncomeTotal3,653.792,806.0430.212,913.102,336.7224.67IncomeTotal620.71610.511.67619.08641.18-3.45ExpenditureOperating3,033.082,195.5338.152,294.021,695.5435.3ProfitInterest2,133.341,670.5127.711,768.521,252.5841.19Gross Profit899.74525.0271.37525.5442.9618.63Depreciation00N.A.00N.A.Tax22816042.54.37214.38-97.96Reported671.74365.0284.03521.13228.58127.99PAT Interpretation of Highlights of Quarter Ended June Q1 FY 09 Total Business 21.48 YOY CASA Growth 33.69 YOY SME Advance 40.93 YOY Gross NPA 2.08 Net NPA 0.15 September Q2 FY 09 Total Business 23.92 YOY Gross Advances 26.17 YOY NIM 3.01 Gross NPA 1.98 Net NPA 0.14 December Q3 FY 09 Total Business 28.33 YOY Operating Profit 34.28 Net Profit 83.84 FINDINGS The bank unveiled its new blue and red logo on 1st September, 2008. The rebranding initiative has been undertaken with one objective in mind to maximize customer convenience and satisfaction. The bank operating profit grew by 28.94 YoY to Rs 2508 and 17.41 QoQ to Rs 620.71 crores in FY 2008. The bank net profit surged to record growth of 64.14 YoY to Rs.1387 crores and 128.51 QoQ to Rs.521 crores in FY 2008. The bank has taken up 100 CBS project during the year 2007-08. The bank is presently having shortage of Staff Credit policy and proper monitoring tools has improved the level of performance there by reducing the NPA level. This has directly contributed to growth in profit there by adding value to shareholders. SUGGESTIONS Union bank of India should continue to maintain strong Recovery policy in order to reduce risk. Union bank of India should come out with new policies to provide loan to general public. It helps to cover more areas and it can reach more people. Union bank of India should continue to maintain good relationship with customers and in providing necessary services to face competition and challenges of other commercial banks. Bank has better goodwill in the market it will help them to enter in to new market like Mutual fund and Insurance Sectors. Bank must enhance its value added activities and must build a strong value chain in the market by which its relation will grow with the customers. The bank should utilize the available upgraded technology and improve the customer relation through the constant customer support and often serve the customers requirements. CONCLUSION The study conducted on Risk management and Risk rating tools at Union Bank of India RPD Branch, Belgaum Banks play vital role in developing and progressing the economy of the country. In India, where more of the population is dependent on agriculture, banks emphasize more on agriculture lending as compared to other sectors. Union Bank of India is doing well as compared to other Banks. Products designs are always based on customers. Bank is in the growth path showing consistent growth in Deposits and Advances. The UBI is effectively managing its risks by adopting various risk measurement tools and it will help to analyze the borrower ability. The measures initiated by the bank to manage credit risk have helped in reducing the ratio of NPA which in turn has contributed in improving its profit margin over the years. BIBLIOGRAPHY WEBSITES HYPERLINK http//www.rbi.orgwww.rbi.org HYPERLINK http//www.unionbankofindia.comwww.unionbankofindia.com HYPERLINK http//www.Google.comwww.Google.com MAGAZINES AND JOURNALS Annual reports of Union Bank Bank Circulars BOOKS Principals of Banking Indian Institute of Banking and Finance (IIBF) Risk Management Indian Institute of Banking and Finance (IIBF) WEEKLY REPORT Name of the Student Jagadeep R. Patil Name of the Organization Union Bank of India Belgaum Title of the Project Risk Management USN 5VX07MBA25 DateWork Done22/12/2008 To 27/12/2008 Visited the organization and discussed about the details of the project (procedure and what has to be studies during the project). A study on Company profile and organization study was taken up during this week.29/12/2008 To 03/01/2009Discuss with the Senior Manager regarding the Fund and Non Fund based Credits. Gone through the Bank Circular about the Risk management.05/01/2009 To 10/01/2009 Discuss about the loan policies and their Limits12/01/2009 To 17/01/2009Gone through the different types of loan proposal and various Risk Rating tools for lending loans.19/01/2009 To 24/01/2009Collect the annual report of the bank of the year 2007-08, out of balance sheet prepared graphs.26/01/2009 To 31/01/2009Final report was prepared and submitted to the bank. An application was given for providing project certificate and feedback from was collected from Mr. AnanthKumar, Branch Manager. Signature of the Student Signature of the External Guide Signature of the Internal Guide PAGE MERGEFORMAT 53 x-rGH-2edsh-T)sx)B-0fJ BjqryDu4O6 kNIxKLRrd9K/ AWks0i Kc([email protected] dWV9 [email protected])_Xfy6UfiVkR80X5D9 6 LNNvZsq1 P Hu4az Rt4eBYt,e8ud4 DjGjtcFxk pZh8uCrLeC9.5a_DrDe)[email protected]@.LdZsh [email protected] @-c [email protected] [email protected] pjpdrwEAm48Mt4JJJh.iqYy4hN D kss2T_ kgc_1HE.QM ynGf 4PAjj5jjvop35j5jjv,[email protected] P94y [email protected] [email protected] rtUgI.jjjjjj yk5fbbnC_YWW [email protected] [email protected] T-GxlomaY/kqUO [email protected] HBhYj2he(8gYf([email protected] [email protected]@6dpkF1wePs2 [email protected] r/[email protected] jj_j5zu/jj P [email protected] bTQ jj P [email protected] bTQ jj P [email protected] bTQ jj P jjjAZd_pApSR5UysM G7v9l9tb [email protected]_j5AxmK-ciYPT [email protected] PSz,PbLO(o.LC P )7g8 T-nIIP5 @v5em fJ jB4(B [email protected] [email protected] jG6/T(oj55/lw_mYemy1 j P4E9 j PHwjLyCjhzLmwdZw,F P94PsQ,sQbE3C [email protected] [email protected] [email protected] -2qI3CCCfxxuT0B PL [email protected] PwI PMMjO_G PQ [email protected] J 9JrxjSC,2qwws PS4j)P .HTWfm [email protected](QicD0,Jk(0(PoxESdTibB,mQEnf O XBw9E-v9zvyA.PPv.PFM @wgz52xVu(09j3QklYcy jF47LFnVBICZ,-xg,e W,pTBMobVE35HxnlIXO_EoD([email protected] X8pPM )1tA KK6q Xpy,fik IWPHZwP)[email protected] @52On45PvIi. 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