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    Risk Management of Sbi

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    Tanay Pandey
    The document provides an overview of risk management practices at State Bank of India. It discusses the bank's history and expansion into various business areas like housing, education, and car loans. It then covers key risks like credit risk, liquidity risk, and operational risk. It describes SBI's approaches to managing these risks through policies on lending, asset-liability management, and capital adequacy ratios in accordance with Basel standards. The document aims to educate about risk management principles and challenges faced in the banking industry.

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    Risk Management of Sbi

    Uploaded by

    Tanay Pandey
    3K views30 pages
    The document provides an overview of risk management practices at State Bank of India. It discusses the bank's history and expansion into various business areas like housing, education, and car loans. It then covers key risks like credit risk, liquidity risk, and operational risk. It describes SBI's approaches to managing these risks through policies on lending, asset-liability management, and capital adequacy ratios in accordance with Basel standards. The document aims to educate about risk management principles and challenges faced in the banking industry.

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    The document provides an overview of risk management practices at State Bank of India. It discusses the bank's history and expansion into various business areas like housing, education, and car loans. It then covers key risks like credit risk, liquidity risk, and operational risk. It describes SBI's approaches to managing these risks through policies on lending, asset-liability management, and capital adequacy ratios in accordance with Basel standards. The document aims to educate about risk management principles and challenges faced in the banking industry.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    3K views30 pages

    Risk Management of Sbi

    Uploaded by

    Tanay Pandey
    The document provides an overview of risk management practices at State Bank of India. It discusses the bank's history and expansion into various business areas like housing, education, and car loans. It then covers key risks like credit risk, liquidity risk, and operational risk. It describes SBI's approaches to managing these risks through policies on lending, asset-liability management, and capital adequacy ratios in accordance with Basel standards. The document aims to educate about risk management principles and challenges faced in the banking industry.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    The key takeaways are about the history and subsidiaries of SBI, as well as an introduction to risk management concepts like operational, credit, market, liquidity and other banking risks.

    The main risks faced by banks include credit risk, market risk, liquidity risk, operational risk, interest rate risk and foreign exchange risk. These risks can arise from factors internal and external to the bank.

    SBI monitors its liquidity position through regular structural liquidity gap analysis. It aims to manage its asset-liability structure to keep negative gaps within RBI limits. It also reports liquidity statements to RBI monthly.

    RISK MANAGEMENT

    Presented by: Arpit Gupta Anindya Majumdar Deepak Jaiswal Tanay Pandey

    State Bank of India-Brief History Largest and oldest bank of India Key numbers for fiscal year ending March, 2011: Sales: $32,570.0M One year growth: 9.6% Net income: $2,462.9M Income growth: (7.7%) Non-banking subsidiaries Apart from its five associate banks, SBI also has the following nonbanking subsidiaries: SBI Capital Markets Ltd SBI Funds Management Pvt Ltd SBI Factors & Commercial Services Pvt Ltd SBI Cards & Payments Services Pvt. Ltd. (SBICPSL) SBI DFHI Ltd SBI Life Insurance Co. Ltd. SBI General Insurance

    State bank Of India is expanding its Credit in the following focus areas1. 2. 3. 4. 5. 6. SBI term deposits SBI housing loan SBI car loan SBI recurring deposits SBI educational loan SBI personal loan

    SBI play important role in economic development of a country, like:1. Mobilise the small savings of the people and make them available for productive purposes. 2.Promotes the habit of savings among the people offering attractive rates of interests on their deposits.

    OPERATIONAL RISK MANAGEMENT


    Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This includes legal risk but excludes strategic and reputational risk. It is the risk remaining after determining financing and systematic risk. Operational Risk Management is a continual cyclic process which includes risk assessment, risk decision making, and implementation of risk controls, which results in acceptance, mitigation, or avoidance of risk.

    ORM
    Principles of ORM: Accept risk when benefits outweigh the cost. Accept no unnecessary risk. Anticipate and manage risk by planning. Make risk decisions at the right level. Levels of ORM: In Depth Risk Management Deliberate risk management Time Critical risk management

    OPERATIONAL RISKS FACED

    Infrastructure and technology failures covering computer systems, power, telecommunications, data and physical records. Human errors or failures through lack of resources, skills, training, policies, procedures, delegations, code of conduct, and poor management. Dependencies on third party key service providers such as the central and / or commercial banks, telecom and internet providers, and other outsourced operations, or resource failures from such incidents as a pandemic.

    WHAT IS RISK
    It is the potential that events expected or unexpected , may have an adverse effect on a financial institutions capital and earning .

    KEY BANKING RISK

    Credit Risk Market Risk Liquidity Risk Forex Risk Interest Risk

    CREDIT RISK

    Credit risk is the potential loss due to the nonperformance of a financial contract, or financial aspects of nonperformance in any contract. Counter party risk Bonds issued by corporations are more likely to be defaulted on, since companies often go bankrupt .

    CREDIT RISK BASICS

    A credit risk is the risk of loss that may occur from the failure of the counter party to make payments. Reduction in the ability of counter-party to make payments. Credit risk may be on account of : Default Risk Obligor cannot service debt obligations. Spread Risk Because of change in the credit quality of the obligor.

    BROAD PRINCIPLES OF CREDIT RISK MANAGEMENT IN BANKS.

    Basel committee on banking supervision has issued broad guidelines for best practices in credit management. Establishing an appropriate credit risk environment . Operating under a sound credit granting process . Ensuring adequate controls over credit risk. Role of bank supervisors in ensuring that banks have a effective system in place to identify measure monitor and control credit risk.

    CONTRIBUTORS TO CREDIT RISK

    Credit Corporate assets . Retail assets. Trading book and Banking book. Inter bank transactions. Settlements.

    LENDING POLICIES OF SBI

    Home Loan Interest Rates. Base Rates :- 9.75% Loan upto Rs. 30 Lacs @ 10% p.a. Loan above Rs. 30 lacs @ 10.15% p.a.
    1.

    2.EDUCATION LOAN INTEREST RATES


    FOR LOANS UPTO RS.4 LACS 3.50% ABOVE BASE RATE, CURRENTLY 13.25% P.A.
    ABOVE RS.4 LACS AND UPTO RS.7.50 LACS 3.25% ABOVE BASE RATE, CURRENTLY 13.00% P.A. ABOVE RS.7.50 LACS 2.00% ABOVE BASE RATE, CURRENTLY 11.75% P.A.

    3. SBI-CAR LOAN
    Tenure Rate of Interest

    For all tenure


    For all tenures (For NRI) Up to 3 years

    0.75% above Base Rate, i.e. 10.50% p.a.


    0.75% above Base Rate, i.e. 10.50% p.a 8.25% above Base Rate i.e. 18.00% p.a.

    Loan Against-Shares/ Debentures /Bonds Equity Plus Scheme 6.50% above Base Rate, currently 16.25% p.a.

    COMPOSITION OF RETAIL BANKING LOANS- 2012


    7%

    13%
    Educion Loans Auto Loans others home Loans

    54%
    26%

    GROWTH IN LENDING FOR Q1-2012


    Jun-12

    20.37

    21.3 Educaion Loans Auto Loans Others Home Loans 39.93

    3.57

    LIQUIDITY RISK
    Liquidity Risk arises from funding of long term assets by short term liabilities, thereby making the liabilities subject to rollover or refinancing risk. It refers to the inability of the bank to obtain funds to meet cash flow obligation. There are three dimensions of liquidity risk *Funding Risk *Time Risk *Call Risk

    INDICATORS
    Internal indicators

    Market indicators

    Higher rate of interest on deposits. Deteriorating asset quality. Large contingent liability. Net deposit drain Increased cost of borrowings. Excessive concentrations on certain assets and funding sources.

    Credit rating downgrades. Gradual but persistent fall in the share price of the bank. Reduction in available credit lines from correspondent banks. Increasing trend of deposit withdrawals.

    LIQUIDITY RISK MANAGEMENT


    The liquidity risk management is vital for smooth functioning of the bank. It must reflect the daily strategy and long term liquidity plans, and have as its major components: * The measurement of liquidity positions * Monitoring liquidity * Contingency planning. It involves making a structure for managing liquidity risk, setting up tolerance limit and making proper plans for measuring and managing liquidity risk. There are some ratios which helps in judging the liquidity positions of a bank.

    RATIOS

    Loan to total deposit


    2007 55.14 2008 68.84 2009 77.46 2010 77.55 2011 73.11

    Time deposit to total deposit


    2007 58.72 2008 52.45 2009 51.52 2010 53.04 2011 58.36

    Liquid assets to total assets


    2007 8.55 2008 9.02 2009 9.17 2010 9.35 2011 10.83

    CONTD.
    Deposit to total assets
    2007 76.87 2008 74.48 2009 74.94 2010 73.88 2011 75.97

    Prime assets to total assets


    2007 4.79 2008 4.51 2009 6.06 2010 7.66 2011 8.53

    Non performance loans to loans


    2007 6.15 2008 3.97 2009 2.96 2010 3.08 2011 2.87

    Risk adjusted margin


    2007 4.32 2008 4.63 2009 3.60 2010 3.29 2011 3.22

    Total loan loss provisions to loans


    2007 0.59 2008 0.60 2009 0.42 2010 0.48 2011 0.46

    SBIS LIQUIDITY RISK MANAGEMENT


    Risk Management committee of the board (RMCB) oversees the policy and strategy for integrated risk management relating to various risk exposures including market liquidity risk. The Bank monitors its liquidity position through a structural liquidity gap analysis carried out fortnightly in accordance with RBI guidelines on asset liability management.

    CONTD.
    RBI has asked banks to manage their assetliability structure such that the negative liquidity gap in the periods of 1-14 and 15-28 days does not exceed 20% of cash outflow in these same periods. Prepare the statement of structural liquidity on a daily basis . The statement of structural liquidity is reported to RBI once a month.

    BASEL II NORMS
    The SBI and its associate will require around Rs.1 lakh crore of capital over the next five years to meet basel III norms. CAR of SBI was less than 9% in 2011. Capital adequacy ratio mandates setting aside a certain percentage of capital for every rupee lent. Last year ,infusion of Rs.8000 crore was made.

    Banking is an art of striking a balance between risk and revenue


    [Swiss Banking Corporations Credit Manual]

    Thank You.

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