PROJECT REPORT (17MBAPR407)

“A STUDY ON CREDIT RISK MANAGEMENT AT PIRAMAL CAPITAL

AND HOUSING FINANCE LIMITED, BENGALURU”

Submitted By
MR RAGHAVA H
USN: 1AY17MBA38
Submitted to

VISVESVARAYA TECHNOLOGICAL UNIVERSITY, BELAGAVI

In partial fulfillment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION
Under the guidance of

INTERNAL GUIDE EXTERNAL GUIDE

MR.SHASHI KUAMR.C.R MR.NITESH KUMAR
Assistant Professor Sales Manager
Dept. of MBA, AIT PCHFL, Bengaluru

Department of MBA
Acharya Institute of technology, Soldevanahalli,
Hesaragatta Main Road, Bengaluru
March 2019
 Piramal
Capital & Housing Fincince

To whomsoever it rna

This is to certify that Mr. RAGHAVA .H USN : 1AY17MBA 38 ) , a MBA student from Acharva
Institute of TechnoloIV, Banraloro , has successfully completed Internship from 3rd January to 16tr.
February 2019,in our organization.

He was under the guidance of the undersigned and the topic of the project was

``CREDIT RIsl( MANAGEMENT.

We wish him all the best in his career ahead.

For Piramal Capital & Housing Finance Limited

±"Q\,ot8=Otl

Plramal Capital & Hoilsing I:inance Limited

(formerly Piramal Housing Finance Limited)
aN : u65999MH2oi7pic29io7i
Begistered office : 2nd Floor, Piramal Tower, Peninsula Corporate Park, Ganpatrao Kadam Mars, Lower Parel, Mumbai -400013
T +9122 6230 92001: +9122 61513444

pchf.in
 `apL ACIIARYA INSTITUTE
OF TECHNOLOGY
(Affiliated tovisvesvaraya Technological universlty, Belagavi, Approved byAI CTE, N ew Delhi and Accredited by N BA a nd NAAC)

Date: 09/04/2019

CERTIFICATE

This is to certify that Mr. Raghava H bearing USN IAY17MBA38 is

a bonafide student of Master of Business Administration coui.se of tlie

Institute 2017-19 batch, afflljated to Visvesvaraya Technological University,

Belagavi. Project report on "A Stuc!y on Credit Risk Management at

Piramal Capital and Housing Finance Ltd, Bengaluru" is prepared by liim

under the guidance of Prof. Sliashi Ki!mar C R. in part].al fulfl]]ment of the

requirements for the award of the degrc€. of Master of Busines;i

Administi.ation, Visvesvaraya Techno] c`gical University, Belagav i, Kai.nataka.

Signature of Intema] Guide

Signature of principal/Dean Academics

ACHADRrvDABgvaeesnitr.:TSLicT;€id#§mE.ERCHS%o;Q„
Bengalurir`1.6~i.

Acharya Dr Sarvepalll Fladhakrishnan Fioad, Soladevanahalli, Acharya PO , Bengaluru 560107. Karnataka, India . www acharya ac in/alt
• Ph +91-80-225 555 55 Extn 2102 . Fax +91-80-237 002 42 . E-mall. prlnclpalalt@acharya ac in
 DECLARATION

I, Raghava H, hereby declare that the Project report entitled "Credit RIsk Management" with

reference to "Piramal Capital and Hoiising Finance, Bengaluni" prepared by me under the

giiidance of Mr.Shashi kumar C R, professor of M.B.A Department, Acharya Institute of

Technology and external assistance by Mr.Nitesh Kumar, Sales Manager , Piramal Capital
and Housing Finance Limited, Bengaluni.

I also declare that this Project work is towards the partial fulfillment of the university

Regulations for the award of degree of Master of Business Administration by Visvesvaraya

Technolodcal University, Belagavi

I have undergone a summer project for a penod of Six weeks. I further declare that this

Project is based on the oriSnal study undertaken by me and has not been submitted for the

award of any degree/diploma from any other University / Institution.

Place: Bengaluru
Date: 11 I o H I a C)4 9
 ACKNOWLEDGEMENT

I wish to express my sincere thanks to our respected Principal, Dr. Prakash M R, beloved
Dean-Academics, Dr. Devarajaiah R M, and deep sense of gratitude to Dr. M M Bagali,
HOD, Acharya Institute of Technology, Bengaluru for their kind support and encouragement
in completion of the Project Report.

I would like to thank Mr.Shashi Kumar C R, Professor, Department of MBA, Acharya

Institute of Technology, Bengaluru and external guide Mr.Nitesh Kumar, Sales Manager,
Piramal Capital and Housing Finance Limited, Bengaluru, who gave me golden
opportunity to do this wonderful Project in the esteemed organization, which helped me to
learn various concepts.

Finally, I express my sincere thanks to my Parents, Friends and all the Staff of MBA
department of AIT for their valuable suggestions in completing this Project Report.

Place: Bengaluru Raghava.H

Date: USN: 1AY17MBA38

 TABLE OF CONTENTS
CHAPTER CONTENT PAGE
NO NO
EXECUTIVE SUMMARY
1 INTRODUCTION
1.1 Introduction 3
1.2 Industry profile 4
1.3 Company Profile 6
1.4 Promoters 8
1.5 Vision, Mission and quality policy 8
1.6 Product Profile 8
1.7 Area Of Operation 11
1.8 Infrastructure 11
1.9 Competitors 12
1.10 SWOT Analysis 13
1.11 Future growth and prospects 14
1.12 Financial Statements 15

2 CONCEPTUAL BACKGROUND AND LITARATUE

REVIEW
2.1 Theoretical background of the study 18
2.2 Literature Review 30

3 RESEARCH DESIGN
3.1 Statement of problem 35
3.2 Need for the study 35
3.3 Objective of the study 35
3.4 Scope of the study 35
3.5 Research methodology 36
3.6 Limitations of the study 36

4 ANALYSIS AND INTERPRETATION

4.1 Analysis and interpretation of data 39

5 FINDINGS, SUGGESTIONS AND CONCLUSION

Findings 50
Suggestion 50
Conclusion 51
BIBLIOGRAPHY 51
 LIST OF TABLES

TABLE PARTICULARS PAGE

NO. NO.

Table-1.12 Balance Sheet 15

Table-4.1 Table showing Total deposits 39
Table-4.2 Table showing investment position 40
Table-4.3 Table showing NPA 41
Table-4.4 Table showing Credit to deposit ratio 42
Table-4.5 Table showing investment to deposit ratio 43
Table-4.6 Table showing return on asset ratio 44
Table-4.7 Table showing gross advance ratio 45
Table-4.8 Table showing Net NPA against total advance 46
Table-4.9 Table showing substandard asset ratio 47
Table-4.10 Table showing doubtful asset ratio 48
 EXECUTIVE SUMMARY

The concept of credit risk management is the risk outstanding to uncertainty regarding the
counterparty’s ability to meet obligations. Because there are many types of counterparty’s
ability to meet the obligations. Because there are many types of obligations credit risk take
many forms. The object also tries to find the efficiency of credit risk concept in the co-
operative banks.

The project also tries to analyze the lending has been the prior function of banking and
exactly appraising barrowers credit worthiness has been the only method of lending
successfully, the method of analysis required varies in functions of types of lending being
considered, it actually helps in measurement of finance in complete detailed manner”

The major objective is to control the credit risk of the bank when they are issuing loans to
the required customers and also to giving some suggestions for proper utilization of loan
amount and repayment of the same.

The loan amount has covered different types of areas, where much covered is semi urban
and rural centre, it is very necessary to give to guide lines for customer regarding loans.

Non-performing assets affects thereby the management adversely. The freeze assets and
convert short term claims into long term. However, is that non-performing assets affects the
outsider’s perception of the bank. As a result, it would not have a very negative impact on
the bank.

1
CHAPTER – 1

2
INTRODUCTION
1.1. INTRODUCTION ABOUT THE PROJECT

Project is mainly done for the purpose to gain the practical knowledge to the students and
gain the knowledge and also the work experience on selected topic and provides an idea how
the theoretical knowledge should be applied on the practical working field. It also helps to
boost in your Resume on work experience and understand the organization structure.

The intern is relied upon to give data on the organization in which he or she worked
portrayals of the particular work finished and particular work finished and particular games
additionally recreational angles relevant to the assigned out assignments. The report likewise
gives data on your relational abilities and ought to show basic speculation aptitudes. Since a
net worth piece of your experience ought to identify with either games or diversion, that
ought to be exhibited in your report.

Piramal Capital and Housing Finance Limited which was comes under the NBFC’s which
provide financial facility to its customer with its various type of product and services. Many
customers were attracted by these types of financial companies which could provide very
high interest rate on the deposit comparing to the other bank or financial institution.

The aim of the company is to provide housing finance and non-housing loan at a lesser rate
of interest. The expected outcome of the company is to gain more customer with the
providing good customer services and better customer satisfaction.

3
1. 2. INDUSTRY AND COMPANY PROFILE

INDUSTRY PROFILE
Non-bank financial institutions (NBFCs) are financial institutions that provide different
banking services, but NBFCs do not have a banking license. They are not allowed to attract
deposits from the public.

The NFE was established in 1956. Companies registered in companies dealing with loans
and advances, acquiring stocks, shares, etc. NBFC operations are managed by the Indian
Reserve Bank (RBI) in accordance with India's Bank of India 1934 Act.

NBFCs are important and fast emerging segment in the Indian financial system. It is an
group of institution which performing the financial activities in a different way

The approaches to direct the capacities may identify with the managing an account.

We can say that the NBFC’S refers to the company with special reference to the financial
assistance and perform the basic activity of collection of deposits from its customers with its
own norms and criteria to be fulfilled according to the RBI act of 1997.

These kinds of firms are increasing in number as well as their growth rate is at the peak these
days. As the rate of return on deposits of these institutions are comparatively higher, more
customers approach them. It takes the part on various activities such as the leasing
equipment, home loans, consumer based finance activities and so on where the firms meet
the higher amount of difference between the cost of demand and supply.

There are different arrangement of these organization and they are the organizations which
gives the advance, Raise the venture firms, Leasing firms which incorporates enlisting
exercises, shared assets, organizations in regards to home advance arrangements for business
and private purposes.

How NBFCs different from Bank:

• Provide banking services to persons without banking licenses.

• NBFCs can not demand deposits.

• It is not part of the payment and settlement system

• NBFCs are not required to retain backup risks (CRR, SLR, etc.)

4
Advantages of NBFC’s:

• Financial decisions are taken quickly.

• Less rules and regulations.

• Transaction value is low.

• Compare the interest rates of other banks with high interest rates.

• Targeted customer service and fast service.

Role of NBFC’s:

As Recognized by the RBI the specific roles of a Non banking financial companies are:

 Substantially generate Employment.

 Increase the wealth creation.
 Develop the sectors like Transport and Infrastructure.
 Base economic development.
 Supplement to bank credit in rural segments.

Role of NBFC’s in Economic Development:

 Converts the savings into Investment.

 Helps to increase the capital stock of the Company.
 Creation of employment opportunity.
 Providing Long-term credit.
 Developing financial markets.
 Attracting the foreign customers.
 It breaks the circle of poverty by serving as an government instrument.

RBI has come up with new set of rules and regulations to secure the customer with their
deposits at financial institutions. If the firms are one among the NBFC’s, they need to be
divided into two main clauses; they are Loan and Investing firms as well as the finance
company regarding to equipment leasing and hire purchase activities.

5
Types of NBFCs

 Asset Finance Company(AFC): The main business of these companies is to finance the
5 5 5 5 5 5 5 5 5 5 5 5

5 assets such as machines, automobiles, generators, material equipment.

5 5 5 5 5 5 5

 Investment Company (IC): The main business of these companies is to deal in

5 5 5 5 5 5 5 5 5 5 5 5

5 securities.
 Loan Companies (LC) The main business of such companies is to make loans and
5 5 5 5 5 5 5 5 5 5 5 5 5

5 advances (not for assets but for other purposes such as working capital finance etc…
5 5 5 5 5 5 5 5 5 5 5 5 5

 Infrastructure Finance Company (IFC): The company, which has its net assets, at
5 5 5 5 5 5 5 5 5 5 5

5 least Rs. 300 Crore and 75% of Total Infrastructure Loan Facility, IFC, if it has an A
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 rating or above and has CRAR 15%.

5 5 5 5 5 5

1.3 COMPANY PROFILE

PIRAMAL CAPITAL AND HOUSING FINANCE LIMITED:

Piramal Capital and Housing finance Limited (PCHFL) are fully owned by Piramal
5 5 5 5 5 5 5 5 5 5 5

Enterprises Limited (Piramal Group Leading Company), registered as a Housing Finance

5 5 5 5 5 5 5 5 5 5

Company with the National Housing Bank (NHB) and dealing with various financial
5 5 5 5 5 5 5 5 5 5 5

services.

Piramal capital and housing finance go within NBFC. Managing a cash corporate
corporation account is an administrative body that allows the administration contracts to
disclose the rescue cash transaction, but does not include the importance of keeping it in a
legitimate strategy.

PCHFL continues the path of innovation in the product and process, in our forecast, in the
hospitality field, and to increase the effect of the rent lease. The Corporate Finance Board, on
the other hand, has grown to 118% of its health, most of which are high debt and project
financing, thus improving the overall risk of credit risk. In addition, we create the basis for
greater lending through lending to emerging corporations. Finally, our reductions in retail
financing offer a relatively short period of time, using the strength of our wholesale credit
and differentiated service relationship.

6
 PCHFL provides both wholesale and retail finance opportunities in all areas. In the real
estate cadastre, the form provides housing finance and other financial solutions throughout
the entire capital budget, beginning with early-stage private equity, structured debt, secured
debt, construction finance, and landline lease payments.

Piramal capital and housing finance provide both wholesale and retail financing in real estate
5 5 5 5 5 5 5 5 5 5 5 5 5

5 and non-real estate sectors. The real estate platform can provide a financing solution through
5 5 5 5 5 5 5 5 5 5 5 5 5

5 a full equity allocation, starting from early-stage equity, built-in debt, secured debt,
5 5 5 5 5 5 5 5 5 5 5

5 construction finance, and Flexi rental rents. In addition to real estate, wholesale business
5 5 5 5 5 5 5 5 5 5 5 5

5 also includes a separate vertical, called a corporate finance group, which aims to provide a
5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 wide range of companies, such as infrastructure, renewable energy, roads, industrial and
5 5 5 5 5 5 5 5 5 5 5

5 automated components. Total funds under this business are $ 5 billion.

5 5 5 5 5 5 5 5 5 5

 Company Name : PIRAMAL CAPITAL AND HOUSING FINANCE LIMITED

 Founder : AJAY PIRAMAL ( Chairman)

 Founded : 20TH September 2017

 Head Quarters : Mumbai

 Area Served : India

 Type of Company : Public Limited Company

 Industry : Financial Services

 Key People : Swathi Piramal, Nandhini Piramal, Anand Piramal

 No of Employees : 6,843

 Website : www.piramal.com

7
1.4. PROMOTERS
Brickex, which empanelled by the distributor base agents, later helped as an effective wave
of origin. As part of a unique integrated financing platform, which distributes both real estate
and corporate finance in a number of industries and across the entire capital, Brickex has
become a preferred partner for developers, distributors and investors. It was reinforced by a
unique platform offering a clear understanding of the market, the relationships with investing
investors, and consistently returning to investors who have faith.\

1.5. VISION, MISSION

 VISION: “ To be the most preferred financial Service partner for all stake holders by
embodying the value, knowledge, action, care and impact”.

 MISSION: “ Our ambition is to offer the full spectrum of financial service across
retail and wholesale verticals”.

1.6. PRODUCT AND SERVICES

CORPORATE FINANCE:
1. Real Estate Financing: Real estate financing is the main function of Piramal Capital and
Housing Financing (PCHF) and is part of the Group's financial portfolio since the beginning
of the financial services platform. PCHFL is able to finance the capital budget from early-
stage capital to debt repayment, construction financing, lease payment, property loan, as well
as large flats sale. PCHF has started a vertical housing finance, thus creating a one-stop
platform that provides full financial solutions to real estate companies.

2. Emerging Corporate Lending: Mortgage Corporate Lending (ECL) is vertical, financing

emerging and mid-term market sectors on a sectoral-agrarian basis. It is targeted transactions
that cover INR 10 to 100 crores in various industries, as well as from various automotive
dealers, auto support, manufacturing, pharmaceuticals, electronic surveillance and IT
services. Barrowers uses a range of competitive rates, with each individual pay schedule and
security that is usually not included in traditional wholesale credit channels.

8
3. Corporate Finance: This is an agrarian credit instrument in the area of Capital and
Piramal Housing Financing (PCHF), which provides retail solutions for non-real estate
business in areas other than infrastructure, renewable energy, energy, telecommunications,
entertainment, industry and automotive components. The Corporate Finance Group has a
dedicated team that combines experience and skills in identifying investment opportunities to
provide a host of financing solutions for companies in different fields.

The corporate finance group offers a wide range of products are as below:

 Structured Financing: It is designed for corporate level debt that should be used as
partial capital injection in branches, especially in the infrastructure sector.

 Senior Lending: It is designed for powerful companies that require a flexible

repayment plan with a turning point in their industry.
 Project Financing: It is envisaged to provide flexible capital for companies with high
growth potential for 2-3 years. This type of financing provides support for an
extension that will allow users to evaluate capital at higher prices.
 Loan against shares: It is envisaged to provide funding for a group that promotes
certain liquid stock.

INDIVIDUAL FINANCE
Retail Housing Loan: Retail housing loans mean secured finance for construction or
acquisition of buildings designed for individuals, groups of people, including cooperative
societies.

PCHFL provides financial assistance to meet the needs of low-income households and
lightweight customers, with PCHFL helping customers build or buy their dream.

PCHFL announced its new credit product Advantage. This new product is specially designed
for parents who can pay higher EMI in their initial year when their income is higher. In
subsequent years, when the overall household income is reduced, the customer may benefit
from the lowest EMI payment as revised in line with family income.

9
Table showing Product of PCHFL for Home loans

Product Type Purpose Loan Additional Conditions, if any

Amount
Ready Property Purchase of ready Min ₹ 20 -
Purchase property either from Lacks
builder or under resale
Under construction Purchase of under Min ₹ 20 -
Property purchase construction property Lacks
Approved under APF
Loan for home Home improvement/ Min ₹ 20 a. Approved plan and
improvement/ Renovation/extension Lacks construction estimate from the
Renovation/ on pre-owned architect must be provided.
Extension property b. Construction must be
completed with-in 18 months of
first disbursement
Refinance for Refinance of amount Min ₹ 20 a. Amount to be refinanced
property purchase paid for ready Lacks should have been paid in last 6
property, Direct months and proof supporting the
purchase or resale same has to be submitted

 Loan against Property: Loan against property is a kind of finance to the

customer by the way of mortgage of existing property to the financial institution
for barrowing a loan for some other purpose .

PCHFL give a loan against both residential and as well as on the commercial
property. The PCFHL can offer up to 75% of the current market value of the
property as loan against property. Interest rates starting from 10% per annum.

 Self Construction Finance: Construction Loan is a short term loan used to

finance homes or other real estate projects. Builder or areceive long-term funding.
Since they are considered quite risky, construction loans usually have higher
interest rates than traditional mortgage loans. PCHFL finances the construction of
independent homes, luxury homes, houses and other structures. PCHFL provides
funding up to 90% property (including land parcel). This is subject to your
regulatory rules and payment options.

10
  Affordable Housing: Affordable housing refers to housing units that are affordable
by that part of the society, whose income is below the average family income.

RATE OF INTREST

Table 2.1: Table showing the rate of interest PCHFL on their Products.

LOAN TYPE RATE OF INTEREST (%)

1.Retail Housing Loan 8.7 % Per annum
2.Loan against Property 10% Per annum
3.Self Construction Finance 8.7 % Per annum
4.Affordable Housing -
5.Real Estate financing -
6.Corporate Financing -

1.7. AREA OF OPERATIONS:

Within a year of its Launch, Piramal Capital and Housing Finance Limited (PCHFL) have
expanded from single branch to 2 branches in Mumbai, 3 in Delhi, Bangalore, Pune, Nashik
and Ahmadabad.

In the nearest term, Piramal plan to expand their branch network to Chennai, Hyderabad,
Jaipur, Nagpur, Surat, Vadodara, Navi-Mumbai and Indore.

Piramal aim to open morethan 20 branches by 2020. Piramal has disbursed over INR 2400
crores of housing loans over this period which validates the aspirations and the unique
competitive advantage of a housing finance company working alongside on existing
wholesale lending business.

1.8. INFRASTRUCTURE FACILITY

 Piramal capital and housing finance is maintaining standards and new quality
technology.
 PCHFL have good infrastructure with all the basic facilities.
 PCHFL adopted centralized and automated processing technology to customer
friendly procedures.

11
1.9. COMPITITORS OF PIRAMAL CAPITAL AND HOUSING FINANCE LIMITED

COMPITITORS OF PCHFL:

1. HDFC ( Housing Development Finance Corporation)

2. ICICI (Industrial credit and Investment Corporation of India)

3. PNB (Punjab National Bank)

4. AXIS

1. HDFC (Housing Development Finance Corporation)

Company Type : Public Limited Company
Industry : Banking and Financial Services
Head Quarters : Mumbai
Key people : Aditya Puri
Products : Consumer and Corporate banking, Finance and Insurance.
No of Employees : 94,907

2. ICICI (Industrial credit and Investment Corporation of India)

Company Type : Public Limited Company
Industry : Banking and Financial Services
Head Quarters : Mumbai (Founded in 1994)
Area of Service : Worldwide
Key people : Girish Chandra Chathurvedi
Product : Retail and Corporation banking Investment banking.
Mortgage Loan.
No of Employees : 81,548

3. PNB (PUNJAB NATIONAL BANK)

Company Type : Public Limited Company
Industry : Banking and Financial Services
Head Quarters : New Delhi
Key people : Sunil Mehta0 (MD & CEO)
No of Employees : 70,801
Product : Retail and Corporation banking Investment banking.

12
 4. AXIS
Company Type : Public Limited Company
Industry Type : Banking and Financial Services
Head Quarters : Mumbai (Founded in 1993)
Area of Service : Worldwide
Key People : Sanjeev Mishra
No of Employees : 59,600

1.10. SWOT ANALYSIS

STRENGTH

 Strong parentage of Piramal Enterprises Limited.

 Strong and Experienced management team.
 Effective and strong channel of promotion.
 Good relationship with Customers.
 The customized service to its customers.
 Improved technology and analytics to drive towards a quicker turnaround time in
both underwriting and disbursement.

WEAKNESS

 Sectoral and customer concentration and relatively unseasoned portfolio.

 The rate of interest is High.
 The company does not act as bank order to increase portfolio.
 The company is very strict compared to others it follow rules and regulation with the
company’s norms.

13
OPPERTUNITIES

 Piramal capital and housing finance have the good assets quality over the
NBFC’s.
 PCHFL have better and faster processing service which provide faster loan
service to customer.
 Accepting the lower CIBIL score and balance risk by charging high rate of
interest.
 The requirement of paper work is Less.

THREATS

 Modernization in government banks gives competition to NBFC’s and private banks.

 Investment of foreign banks in Indian market.
 Low rate of interest and low rate of fee charged by the banks.
 Changes in the regulation and company norms due to recession.
 NBFC’s and new bank are increasing in India.

1.11. FUTURE GROWTH PROSPECTS

 PCHFL is to be on the created one of India's largest financial services businesses.

 PCHFL is planning to adopt customized and built to suit technology platform that
spans the entire whole finance business to avoid data duplication and reduce
paper work.

 PCHFL’s aim is to offer financial services for both retail and wholesale sector.

 The company is planning to expand its business across the India.

 PCHFL is trying to provide customized loan facilities to its Customer.

14
 1.12. FINANCIAL STATEMENT

PARTICULARS 2014 2015 2016

Capital and Liabilities
Share capital 350179012 431659372 509943272
Reserves and surplus 631696731 714423015 809718606
P& L account 103496563 110928872 132688678
Deposits 7360992441 9759647834 11442734762
Interest payable on Deposits 52574318 63939024 64593818
Suspense account 5817016 1939810 23373582
Other liabilities 265498272 336828381 424257857
Branch accounts 3108042967 4278450722 4912163460

Total 11878297320 15697817030 18319474035

Assets
Furniture 13204353 28759609 34367406
Vehicle expense 504255 2366495 1720844
Computer Expense 968165 6749867 4924878
Building Expense 19954906 19743031 30750954
Generator Cost 836094 654342 741439
Branch accounts 3107457983 4278554135 4895743860
Cash in Hand 35856397 56001034 46078963
Cash at Bank 209859934 265383552 352792966
Investment 00000002998493046 3829712243 4192502243
Loans and Advances 005265017038 6925527605 8427611387
Other assets 000226145149 284365117 332239095
Total 11878297320 15697817030 18319474035

15
 PARTICULARS 2017 2018
Capital and Liabilities
Share capital 586528122 696007507
Reserves and surplus 979067911 1115013545
P& L account 156503697 164259217
Deposits 12801616010 15213770258
Interest payable on Deposits 61414809 33014392
Suspense account 14673386 6808804
Other liabilities 501070758 583562050
Branch accounts 4960852327 6507742607
Total 20061727020 24320178380

Assets
Furniture 34933911 33048994
Vehicle expense 1075193 501581
Computer Expense 3830477 3817532
Building Expense 30549541 62385993
Generator Cost 800237 689235
Branch accounts 4961400323 6505861020
Cash in Hand 48859938 77414864
Cash at Bank 517478249 566182668
Investment 4971704743 6482294597
Loans and Advances 8955698152 9962014392
Other assets 535396256 625967504
Total 20061727020 24320178380

16
CHAPTER – 2

17
THEORITICAL BACKGROUND OF THE STUDY

2.1. INTRODUCTION TO CREDIT RISK MANAGEMENT

Credit helps the individuals to meet their expectations at a specific purpose if time and cost
of that need can be paid further. Credit risk for non-default debt that may result from gossip
which does not require payment. Credit risk refers to the likelihood of a loss associated with
a penis that does not fulfil any kind of debt. Economic advancement and globalization have
led to the importance of risk management.

Risk management is not a process, it is the main component of banking activity.

Each bank and financial institution should create a risk-adjusted effective return on equity
methodology and receive credit risk management systems.

Usually, the main risk for the financial institution has come from crediting. As a financial
institution entered new markets and sold new products, the other risk would have market
risks to begin the management's attention. In recent years, financial institutions have
developed tools and some methodologies for market risk management.

Credit risk management in financial institutions was one of the most important issues - credit
5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 risk concerns that share good customers with bad clients. For this reason, leading financial
5 5 5 5 5 5 5 5 5 5 5 5 5

5 institutions use advanced quantitative models and tools to predict predictive events and
5 5 5 5 5 5 5 5 5 5 5

5 make decisions on effective lending decisions. Today, with the help of computers and
5 5 5 5 5 5 5 5 5 5 5 5

5 technology, such decisions are made quickly, accurately and without human judgments.
5 5 5 5 5 5 5 5 5 5

5 Meanwhile, banks should not only share their equity in order to make more investment.
5 5 5 5 5 5 5 5 5 5 5 5 5

5 With recent failures in the financial sector, it becomes increasingly evident that banks and
5 5 5 5 5 5 5 5 5 5 5 5 5

5 other financial institutions should invest more in their financial risk models and internal
5 5 5 5 5 5 5 5 5 5 5 5

5 rating systems.
5

Meaning of Credit:

The word credit comes from the Latin word CREDO. Payment before receiving goods or
customer services based on the belief that payment will be made in the future. It is a trust
between buyer and seller.

18
Forms of Credit:

1. Cash credit: Cash is a credit facility to withdraw money from current bank accounts
without limiting the credit balance, but restrictions imposed by the borrower.

2. Long term loan: Long-term loans are loans that are paid for one year or more, usually on a
monthly basis.

3. Purchase bills: From the sales document vendor, the buyer has been asked what the
payment is for.

4. Bank guarantee: A bank guarantee means a loan institution that provides the debtor's
obligations.

Meaning of Risk:

An Aptitude or loss of threat or any adverse event caused by external or internal factors those
results in certain losses, such as financial loss

Types of Risk are:

1) Market Risk: The risk of losing market position from the variation in the market
estimation exchanging portfolio because of market development.

2) Credit Risk: The risk arises from the barrower when failed to repay the required
repayments.

3) Operational Risk: Operational risk is the prospect of loss, which depends on fraud, failed
procedures, or employee mistakes.

4) Liquidity Risk: The risk that a company or a bank cannot meet a short-term financial
requirement. This usually happens because it is unpredictable that the exchange of securities
without cash is not going to result in capital loss or income.

19
Advantages and Disadvantages of Credit Risk Management:

The advantages of Credit risk management include:

5 5 5 5 5 5

• Credit risk management allows forecasting and forecasting, as well as measuring the
5 5 5 5 5 5 5 5 5 5 5 5

5 potential risk factor in each transaction.

5 5 5 5 5

• Banks can benefit from some credit models that can serve as a valuable tool that can be
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 used to determine the level of credit risk measurement.

5 5 5 5 5 5 5 5

• Always have better methods and strategies for transferring loans, prices and hedging
5 5 5 5 5 5 5 5 5 5 5 5

5 options.

The disadvantages of Credit risk management include:

5 5 5 5 5 5

 Deciding on how good a risk you are cannot be entirely scientific, so the bank must
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 also use judgments.

5 5

 Cost and Control associated with operating a credit scoring system.

5 5 5 5 5 5 5 5 5

 With the existence of different models, it is hard to decide which to use, more often
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 than not, companies will take a one model fits all approach to credit risk, which can
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 result in wrong decisions.

5 5 5

Credit Risk:

The risk is arises through credit or amount of money lent by the seller with a mutual
understanding between the buyer and the seller and result in the loss to the seller.

In other words, possibility of losses associated with decline in the credit quality of barrowers
or counterparties.

Credit risk is a threat to theorists concerned with the fraud that does not give the parts. Such a
case is known as the default risk.

Another risk of credit risk is the initial occurrence. Credit risk or default option involves the
failure or desire of a customer or partner to perform tasks relating to freight forwarding,
exchange, assistance, settlement, and other budget-sharing.

20
Credit risk is the debt risk arising out of the impossibility of a borrower or a partner to meet
its obligations. The credit risk of a financial institution comes from its lending activities:
unpaid loans and leases, trade accounts, derivative assets and completed loan commitments,
which include credit commitments, credit cards and financial guarantees. It also has other
activities such as receipts, interbank transactions, commercial financing, retail payments, and
investments.

Managing Credit Risk:

It is important to formulate and apply credit policies and processes related to credit risk
5 5 5 5 5 5 5 5 5 5 5 5 5 5

management. Credit risk management strategies, including credit policy development and
5 5 5 5 5 5 5 5 5

risk monitoring, are the responsibility of the business unit and senior management and board
5 5 5 5 5 5 5 5 5 5 5 5 5

5 of directors.
5

Financial institutions should define a credit limit for risk control in all credit-related
activities. Production, geographical, product, consumer and country sectors should be defined
using methods that are used to calculate the effects on those boundaries and are part of a
credit policy. We also need to take into account the spread of spheres or regions, as the lack
of company or industry can affect others as well. Largest financial institutions may take into
account multiple limitations for each borrower or loan group by product, functional unit and
borrower to manage the banking and commercial activities of borrowers or borrowers that
create credit risks properly. While a trend has been that many financial institutions control
common categories of those categories, many have not set the maximum limits for those
restrictions.

Commercial Portfolio Credit Risk Management:

Commercial portfolio credit risks can be managed on the basis of the borrower's risk profile,
the source of the repayment and the nature of the collateral, the current events and conditions.
Commercial credit risk management should start with the assessment of the credit risk profile
of the borrower or other party on the current trends in the industry, economy and
macroeconomic markets based on the factual analysis of the borrower's financial condition.
As part of the overall credit risk assessment, any risk exposed to a trade credit or transaction
should be attributed to risk assessment and subject to approval based on the approval

21
standards approved in the loan policy. Once the credit is established, the risk assessment
should be adjusted on an ongoing basis to reflect changes in the financial position, cash flow
or financial stability of the client, if necessary. Regular monitoring of the ability of a
borrower or another person to fulfil its obligations allows making adjustments that affect the
impact on the loan.

Risk assessment collections should be taken into account in measuring and assessing the
concentrations in the portfolios. Risk assessment is also a factor in determining the level of
economic capital and allowing credit losses.

In order to manage the relative risk within the trading portfolio, many financial institutions
use the credit portfolio size and relative credit risk for the use of credit facilities and the use
or distribution of securities and credit derivatives in branches or other financial institutions.
These actions may play an important role in risk mitigation. for risk reduction or when it is
determined that credit risk concentrations are undesirable.

Consumer Portfolio Credit Risk Management:

Credit risk management for a consumer loan should start with a preliminary signature and
5 5 5 5 5 5 5 5 5 5 5 5 5

5 continue at the borrower's lending period. Consumers and other common credit risk
5 5 5 5 5 5 5 5 5 5 5

5 assessment features. Statistical methods can be used to determine product prices, risk
5 5 5 5 5 5 5 5 5 5 5

5 appetite, operating procedures and criteria for balancing risks and rewards. Statistical
5 5 5 5 5 5 5 5 5 5

5 models can be obtained or developed using detailed information from external sources such
5 5 5 5 5 5 5 5 5 5 5 5

5 as the historical experience of credit bureaus. These models should be periodically checked
5 5 5 5 5 5 5 5 5 5 5 5

5 to ensure that they are statistically valid and reflect the performance of the institution's
5 5 5 5 5 5 5 5 5 5 5 5 5

5 customer base, especially when used for credit evaluation. When used, these models will
5 5 5 5 5 5 5 5 5 5 5 5

5 form the basis for an effective consumer credit risk management process and may be used
5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 for loan approval / easing decisions, collector management procedures, portfolio

5 5 5 5 5 5 5 5 5

5 management decisions, remuneration for lease and lease, and economic capital for credit
5 5 5 5 5 5 5 5 5 5 5

5 risk.

Accurate Calculations of Exposures:

Accurate estimates of border detection are important for credit risk management.
Methodologies will vary according to the types of products. The book balance for credit
products and current accounts is considered to be appropriate, and the corresponding

22
aberrations are included as part of the enemy's default explanation in primary radiation and
may result in loss of interest income. The current market value should be used for the issuer's
bonds and stocks, as well as the cost of trading as a means for unsettled trading. Exchange
rates and derivatives should be measured at market recovery costs plus additional value on
the basis of nominal value to reflect future negative movements of the foreign currency
exchange rate.

Concentrations of Credit Risk:

Portfolio credit risk should be assessed to ensure that the credit concentration does not result
5 5 5 5 5 5 5 5 5 5 5 5 5 5

in a risk-level or regulatory violation. Regular credit risk review and concentration measures
5 5 5 5 5 5 5 5 5 5 5 5

should be taken to limit boundary restrictions on products, industry, geography and customer
5 5 5 5 5 5 5 5 5 5 5 5

5 relationships. Additional measurement categories may be appropriate for specialized

5 5 5 5 5 5 5 5

5 branches, such as commercial real estate loans, geographical location, and type of property.
5 5 5 5 5 5 5 5 5 5 5 5

When disclosures exceed the set limits, it is necessary to encourage the growth process,
5 5 5 5 5 5 5 5 5 5 5 5 5

5 avoid possible conflicts and ensure that senior management is aware of all the deficiencies.
5 5 5 5 5 5 5 5 5 5 5 5 5

Periodic revision of the defined limits is appropriate to ensure that the borders continue to
5 5 5 5 5 5 5 5 5 5 5 5 5 5

retain strategic risk appetite, provide a mix of targeted assets and recognize potential effects.
5 5 5 5 5 5 5 5 5 5 5 5 5

Examination of Credit Risk Management:

Regular expertise applies a number of methods to assess the credit risk of a financial
institution, including sampling of loans and review of the institution's credit management
processes. The complexity of the products and operations of the financial institution and the
overall risk management practices are taken into account. Design, implementation and
regulation of credit risk management practices and practice will limit unexpected effects.

Types of Credit Risk are:

 Country Risk : The risk of loss emerging from a sovereign state solidifying remote
5 5 5 5 5 5 5 5 5 5 5 5 5

5 money instalments or when it defaults on its commitments. This was the hazard is
5 5 5 5 5 5 5 5 5 5 5 5 5

5 conspicuously connected with nation large scale monetary execution.

5 5 5 5 5 5 5

 Concentration Risk: This is the type of credit risk which is associated with exposure
5 5 5 5 5 5 5 5 5 5 5 5 5

5 of any single group with the potential to produce large losses to threaten the core
5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 operations of a bank. 5 5 5

23
  Credit Default Risk: The risk of loss which arises from the debtor being unlikely to
5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 repay the amount in full or when the debtor is morethan 90 days past is the due date
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 of credit payment.
5 5

Successful Credit Risk Management Challenges:

 Inefficient data management: It is impossible to enter the correct data when

5 5 5 5 5 5 5 5 5 5 5

5 necessary, leading to problematic delays.

5 5 5 5

 No group wide risk modelling framework: Without it, banks can not create
5 5 5 5 5 5 5 5 5 5 5

5 complex and meaningful risk factors and get a big risk of group risk.
5 5 5 5 5 5 5 5 5 5 5 5

 Constant rework: Analysts cannot change the model of the change model that
5 5 5 5 5 5 5 5 5 5 5

5 results in duplication of efforts and negatively affects the bank's performance report.
5 5 5 5 5 5 5 5 5 5 5

 Insufficient risk tools: Without high risk, banks are unable to disclose portfolio
5 5 5 5 5 5 5 5 5 5 5

5 concentrations or portfolios, often considered to be a sufficient risk management

5 5 5 5 5 5 5 5 5 5

5 strategy.

Factors affecting Credit risk are:

Credit risk is depending upon both internal and external factors.

Internal factors are:

 Excessive depends on collateral without ascertaining its quality.

 Absence of technique of loan review.
 Lack of pricing procedure.
 Scarcity defined lending limits for loan officers.

External factors are:

 Policies of the company.

 Employee relationship.
 Expertise of Management.

24
Minimizing the Credit Risk:

 Risk based pricing: Risk-based price is a method used by lenders in mortgage and
financial services. It is used to measure interest rate risk and other credit risk
exposures.
 Credit derivatives: Credit derivatives is an instrument designed for separate and
transfer the credit risk of a barrower to an entity other than the lender. The lender and
the bond holder can safeguard their risk of credit by buying the derivatives.

 Diversification: The lender with less number of barrower facing the high degree of
Credit risk is called a concentration risk. Borrowers can reduce the risks by
diversifying the borrower who they are giving.

 Deposit Insurance: It is an measure taken by the government to fully or partially

defend the Bank's depositors, if necessary, from the losses caused by insolvency of
the bank's debts.
 Setting accurate credit limits.

 Covenants: Covenant is an type of an agreement related to a contractual condition on

the barrower to the loan agreement.
 Diversification: Lenders to a small number of barrowers face a higher degree of
5 5 5 5 5 5 5 5 5 5 5 5

5 unsystematic credit risk called concentration risk. Lenders reduce the risk by
5 5 5 5 5 5 5 5 5 5

5 diversifying the barrower pool.

5 5 5

 Tightening: Lenders can reduce credit risk by reducing the amount of credit
5 5 5 5 5 5 5 5 5 5 5

5 extended, either in total or to certain barrowers. For example a wholesaler sell its
5 5 5 5 5 5 5 5 5 5 5 5 5

5 product to troubled retailer may attempt to lessen credit risk by reducing payments.
5 5 5 5 5 5 5 5 5 5 5 5

25
ELOBRATIVE INFORMATION ON TOPIC:

Credit Risk Management:

Credit risk management is the loss of the bank's capital and loss of losses during this period
by understanding the practice of reducing losses. The process is a long-term challenge for the
financial institution. The financial institution should manage credit risk throughout the entire
portfolio and in individual loans or transactions. The success of banking organizations is
important.

Credit risk management is a practice of mitigating losses, understanding bank

correspondence and credit loss reserves anytime, a process that has long been a challenge for
financial institutions.

The global financial crisis and the credit crisis that followed the management of credit risk in
the regulatory focus. As a result, regulators began to seek more transparency. They wanted to
know that the bank has customer knowledge and credit risk.

Many banks re-establish their approach to credit risk to meet stringent regulatory
requirements and absorb maximum exposure to credit risk. However, banks, which consider
it a strict compliance exercise, are short-term. Better credit risk management greatly
enhances overall performance and provides competitive advantage.

Credit risk management process:

The credit risk management process is the method of building steps to isolate the lender from
potential risk arising from credit.

Following process explain the steps that are taken before Lending:

1. Appraisal of Credit: Before lending to any customer the information related to the
customer is need to be collected and that information should properly analyzed and checked.
If the customer or the barrower unable to prove is not eligible to get credit then the loan or
credit can be rejected at any time.

2. Sanctioning of Credit: A proper guidelines to be maintained in the sanctioning of credit.

After the customer is prove with a required incomes the process will continue. Customer

26
needs to follow the rules and regulations and guidelines related to that he is availing.
Customer is to know about the terms and conditions of the bank and the loan type.

3. Collection of documentation related to Credit: The financial institution collects the

information properties which are going to be involved in the loan or the securities against the
loan is raised.

4. Administration of the Credit: Financial institution must guarantee that their credit
portfolio is appropriately managed that is, advance understandings are properly arranged,
reestablishment notification are sent deliberately and records identified with credit are
frequently refreshed.

5. Disbursement: Loan amount can be sanctioned to the customer after the offer given by
the financial institution is dully signed and authorised by the customer and its one copy is
returned to the bank or financial institution.

6. Maintaining a credit portfolio: The credit created should be properly maintained in order
to identify the loss making units in the portfolio. Such a loss making units needs to be
properly administrated and measures to recover from such loss can identified.

7. Facing the problem related to the recovery of credits: In the time of credit lend to the
barrower cannot be recovered, losses arises in such situation. Further necessary changes
relating to the credit.

Elements of Credit Risk Management:

1. Building perfect credit risk environment:

Comes up with an environment which makes the process of maintaining the credit much
smoother and effective. A periodical review of the credit related policy is made by the
directors and necessary changes regarding is made.

2. Processing credit through an efficient credit granting process:

Before granting of the credit, the documents related to the customer and the collateral
properties are collected and analyzed. Further by taking the advice of the legal advisor the
extent of amount to be is decided.

27
3. Managing the credit administration, measurement Supervision and its monitoring:
Proper administration and regular monitoring of the customer to understand and know of the
use of amount lent to him. If any misuse of fund is identified then the customer can be held
liable and the credit sanctioned gets cancelled.

4. Having a proper control towards the credit risk:

Minimize the risk involving in the credit is the main and foremost aim of the bank or
financial institution. The periodical review has to be made and the result of such review
needs to be communicated to the higher authorities for making corrective actions.

5. Identifying the role of Supervisors:

It is essential and also very important to have a system to identify, measures and monitor the
credit risk and formulate a proper strategy and policy relating to granting of credit.
Supervisors need to focus on the restricted banks exposure and prudential norms.

Introducing Effective Credit Policy:

1. Introduction of Credit standards:

Establishing the standards for lending the credits to the individuals based on their financial
worthiness. Deciding upon the ability of such customer to repay the loan as agreed upon.

2. Defining the terms of the credit:

The decision in which each customer should offer a refund of the loan. It should be fixed by
the client's credibility analysis.

3. Fixing of collection procedures for recovery of credit:

The costs required to cover customer loans must be the same. The higher the collection cost,
the higher the amount that will be invested in receivables and vice versa.

28
Principles of Credit Risk Management:

• The Board of Directors of the Bank shall be responsible for periodic approval and review
of the Credit Risk Strategy.

• Supervisory management should take responsibility for implementing a credit risk strategy.

• The bank must disclose and manage a loan for all banking services and services.

Credit risk management as per RBI:

• Measurement of risk through credit assessment.

• Risk assessment through loan loss assessment.

• Risk price.

• Risk control through effective loan control and portfolio management mechanism.

Forms of Credit Risk:

• Non-payment by the parties of obligations on Treasury Transactions.

• Adjustment of trade in case of necessity.
• Incompatibility between foreign currency exchange rates in terms of boundary
obligations.

Measurement of Risk through Credit Rating:

• Measuring the risk by predicted forecasts, ie the amount of previous disasters that the bank
will be absorbed by the aforementioned skyscraper and the wonderful misfortune.

• Risk Assessment through Sustained and Controlled Risk, Powerful Credit Review and
Portfolio Management Mechanism.

29
2.2. LITRATURE REVIEW

1. Dhanjuman, Ibrahim, Kola, Badiya Yusuf, Kumshe & Hauwa Modu (2016) explain
that credit risk management and customer satisfaction. It illustrates the optimistic
relationship between credit risk management and customer satisfaction and does not
encourage bank management to pay interest on other customer satisfaction factors other than
receiving a loan. The bank should focus on its credit policy to make additional income.

2. Ahmed, Sufi Fizan, Malik & Qaisar Ali (2015) assess credit risk management and
prevent the introduction of microfinance banks. The value of the test shows that there is a
positive correlation between credit access and credit risk collection, but they are
insignificant in complex fronts

3. Ijaz & Maha (2015) start that inspection in credit risk management has significantly
moved from inference of credit risk to the evaluate of credit risk which is more critical
process for the bank. There is consistent augmentation in the zone of interest rate risk. In any
case, different parts of the region are not yet mindful of its fullest prospective.

4. Waemustafa, Waeibroheem & Sukri & Sriani (2015) set up that insecure sector
financing dogmatic capital and contract are very considerable to credit risk. For conventional
Banks, provisions made equipment causing of loan, debt of the bank to the total assets, size,
earn management and liquidity are the main factor influence credit risk.

5. Hameeda Abu, Hussain, Al Ajmi & Jasim (2012). examine the administration of risk
practice follow by the ordinary banks and initiate that the risk levels confront by banks are
higher in case of conventional bank. Hence, all over the country, residual and agreement,
functioning risks are seen to be higher if there must be an occasion to happen in
conventional bank.

6. Olaf Weber (2012) analyzed the amalgamation of environmental risks into the credit
management. The quantitative and qualitative analysis made propose that Canadian must
manage environmental risk in credit management in order to evade the financial risk.

7. Ronald W Scholz & George Michalik (2010) found that association between companies
environmental and financial performance exists. Bank pay sustainable notice to the role that
criterion pertaining to environmental course and sustainability play a vital role in the
progression of credit risk management. It shows that sustainability criterion can be used to

30
envisage the debtors financial performance and improve the predictive legitimacy in the
process of credit rating.

8. Dr. Yogieta S. Mehra (2010) analyzed the impact of banks' size and ownership rights on 5 5 5 5 5 5 5 5 5

5 the operational risk management practices used in banks through the questionnaire survey.
5 5 5 5 5 5 5 5 5 5 5

5 The study aims to explore the range of Indian banks' practices in risk management that are
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 needed to reach the Indian Bank Cross-Border (AMA) cross-cutting approach and to
5 5 5 5 5 5 5 5 5 5 5

5 conduct a comparative analysis with banks. AMA Complaints all over the world.
5 5 5 5 5 5 5 5 5 5 5

9. Bodla B S Varma & Richa (2009) analyse that for the credit risk management , a huge
part of the bank are exposed playing out a few performance similar to studying about
industry occasional credit calls, intermittent plant visits, creating MIS, credit scoring what’s
more yearly audit of records. In case the bank in India are refuse the exploitation of
subsidiaries items as risk supporting device.

10. Evan Gatev, Tilschuermann & Philip E Strahan (2007) the liquidity risk that the
banks are face which is recognized to transactions deposits and their prospective to spark
runs. In its place of the transaction deposits help the bank to hedge liquidity risk from loans
that are not used.

11. Jose M Pastor & Lorenzo Serrano (2006) the efficiency and credit risk of the every 5 5 5 5 5 5 5

5 banks in the euro area using one stage parametric method which allocate one identity
5 5 5 5 5 5 5 5 5 5 5 5 5

5 whether the activities towards the risk of the bank was more careful during the period of
5 5 5 5 5 5 5 5 5 5 5 5 5 5 5

5 investigation. The result indicate that the modification for risk is very important in case of
5 5 5 5 5 5 5 5 5 5 5 5 5 5

profit efficiency but not in case of cost efficiency.

5 5 5 5 5 5 5 5

12. Hasanbanu, S and Jeya Shree (2006) studying factors that affect public and private
sector borrowers. They have come to the conclusion that in India there is a vital area for
housing promotion and banks can play a vital role by promoting the construction of the
village by introducing more dynamic schemes.

13. Alfred Lehar (2005) set up a new method to compute and supervise the risk in the
banking system which can help the commercial banks. Standard tools and rules are required
by the bank to handle their internal risk which are functional at the level of banking system
to measure the risk of controller portfolio.

14. A Sinan Cebenoyan & Philip E Strahan (2004) examined that how dynamic
supervision of credit risk expose through the advance deals advertise which manipulate

31
capital structure, loaning, benefits and risk. Banks that rebalance their advance deals
advance portfolio exposure by both purchasing and offering credits, banks that exploitation
the advances in the bank, It recommends that the banks that enhance their capacity to
oversee acknowledge risk may work for more prominent use and may loan more cash to
unsafe barrowers.

15. Julpa Jagtaini, George Kaufman (2002) analyzed regardless of whether the
government wellbeing is seen by market as it is stretched out past. Stores to other bank
deposits and even in the deposits of bank holding organizations securities are evaluated by
the auxiliary market in connection shockingly chance for less promoted backers
recommending that propositions obliging banks to issue obligations may enhance advertise
and valuable in regulatory discipline.

16. Koshy George (2000) Together with paying salaries in Kerala, she conducted a study
and reviewed the percentage of home construction and home investment. It also examines a
socioeconomic accident due to the leakage of workers from other countries and the flow of
funds from other countries in the form of building materials imported from other countries.

17. Aron Chaze (2000) The HDFC article in the Financial Express article indicates that
HDFC has grown business volumes, but the stock market inspires little. In his opinion, the
impact of the low credit interest rate is absorbed and the spread of interests has begun to
improve.

18. Sensarma R & Jayadev M (1998) analyzed the credit risk management work over the
part 20 years. It taken into consideration the credit risk measurement of individual loan and
portfolio loan. It also focused on the new approach around the mortality risk to measure the
return on loans and bonds. It analyzed the risk return structures of portfolio of credit risk
exposed debt instruments.

19. Kenneth A Froot & Jeremy C Stein (1998) capital distribution and determination of
the capital structure of financial institutions. It came with peculiarities, as the banks with the
highest value have a good concern about risk management, and not all the risks facing the
bank can be protected in the capital market. This has shown how banking risk management
is an important factor in the risks that are not easily covered by the capital market.

20. Lazarus Angbazo (1997) by tentative the risks that are most risky and the banks will
have a higher impact on the interest rate risk, they will get the interest rate on the loan and

32
deposit to reach higher interest rates. The commercial bank reflects the default risk and
interest rate. The expected net cash flows only affect the default risk and not the interest rate.
Prepayments are reliable on their short-term assets and instruments of hedging and unpaid
balances. Regional managers of the Accounting Agency are dedicated only to the risk of
credit risk and not the default option.

33
CHAPTER – 3

34
3.1. STATEMENT OF THE PROBLEM
The Bank's profit is entirely dependent on loans and forecasts that lead to economic and
industrial growth. When the bailiff does not pay the amount he holds, the credit risk for the
bank increases. For many banks, loans and advances are the main source of credit risk
through banking operations. The Bank gradually collides with various budgetary instruments
with credit risk, except for advances, intermediary financing, exchange stages, exchanges,
securities, stocks, options, and debt consolidation, and secures and solves transactions.

3.2. NEED FOR THE STUDY

According to the study conducted by Piramal Capital and Housing Finance Limited, it helps
to understand the risk of lending by a banker or a financial institution to ensure that loan
loans are not used as a default and take the necessary measures to reduce the risk of lending
by a bank or financial institution purpose: The bank or financial institution should analyze
various aspects at the time of loan disbursement and profitability allocation.

3.3. OBJECTIVES OF THE STUDY

 To study various types Loans and Advances available in Piramal capital and Housing
finance.
 To study the trends in lending money by PCHFL.
 To evaluate the role of PCHFL in financing for barrower in Bangalore.

3.4. SCOPE OF THE STUDY:

The study provides a credit grants for both residential and non-residential customers, as well
as for recognizing the client's investment process for investment purposes, not in savings, but
in terms of home-based loans.

The test shows the organization's monetary information. The study involves the laws and
regulations of the company and the study shows the different products and services and their
respective interest.

35
3.5. RESEARCH METHADOLOGY:
It is a structure that manages and conducts research. It provides information collection and
thorough discussion. Helps to solve the problem and include new information.

With the help of the annual report provided by the company analytical research is done in
this study.

The design used analytical research design as the study and the findings were based on the
analysis of secondary data collected by analysis methods at the end of weight.

3.5.2. Sources of data collection:

The information gathering i.e., the idea for the project has been gathered remembering the
targets of the projects and based on the needs, important has been found.

Secondary Data

This is reviewing of relevant information, which is already collected and making inferences
based on information collected.

Source used to collect the data regarding the study are as follows:

 Historical records of Customer.

 Financial statement of Company.
 Income statement of the Company.

3.6. LIMITATIONS OF THE STUDY

 This study is limited to Bangalore branch of PCHFL

 The study involves the financial information only based on the 5 years of company
financial statement.

 The study does not contrast the development of the company with other NBFCs and
Banks. The study based on the in order provided by the Company.

36
CHAPTER SCEHME
 CHAPTER 1 - It explains about introduction of the study, Industry profile,
Company profile, Vision, Mission and Quality policy, SWOT analysis, Future
growth prospects etc…
 CHAPTER 2 -It deals theoretical background of the study and Literature
review of study.
 CHAPTER 3 – It explain about statement of problem, Need for the Study,
Scope of the study and Research methodology.
 CHAPTER 4 – It includes data analysis and interpretation of the study.
 CHAPTER 5 – The details about Findings, Suggestion and Conclusion.

37
CHAPTER – 4

38
DATA ANALYSIS AND INTERPRETATION

Total Deposits of PCHFL

Table 4.1. Table showing the total deposits of PCHFL

years Deposits Percentage

2013-14 73609 100
2014-15 97596 133
2015-16 114427 155
2016-17 128016 174
2017-18 1521138 207
Source: Extracted from the Annual report of PCHFL

4.1 Graph showing the total deposits of PCHFL

250

207
200
174
155
150 133

100
100

50

0
2013-14 2014-15 2015-16 2016-17 2017-18

Percentage Column1

Source: Table 4.1

Interpretation: The deposits if the PCHFL increased notably from 2014-18 can be analyzed
from the above graph. For calculating the ratios of the deposits 2014 taken has a base year.
In 2014 the deposit of the PCHFL is 73,609 which is increased to 1521138. This increased
ratio describes the trust of the customer towards the company.

39
Investment position of PCHFL

4.2. Table showing investment position of PCFHL

YEAR RESERVE AND OTHER PERCENTAGE

FUNDS IN LAKHS
2013-14 6316 100
2014-15 7144 113
2015-16 8097 128
2016-17 9768 155
2017-18 11123 176
Source: Extracted from Annual report of PCHFL

4.3 Graph showing investment position of PCFHL

RESERVE FUNDS (%)

12000 11123

9768
10000
8097
8000 7144
6316
6000

4000

2000
100 113 128 155 176
0
2013-14 2014-15 2015-16 2016-17 2017-18

RESERVE AND OTHER FUNDS IN LAKHS PERCENTAGE

Source: Table 4.2

Interpretation: From the above graph it is cleared that reserves and other funds invested by
the PCHFL increased 2014-18. In this analysis 2014 taken has base year and further
calculation is done. The percentage in 2014 is 100% and 113%,128%,155% and 176% in
2015,2016,2017 and 2018 respectively.

40
Total NPA of PCHFL

4.3. Table showing the total NPA 2014-2018

Particulars Year Year Year Year Year

2014 2015 2016 2017 2018
SUB STANDARD ASSESTS 2143.40 3224.06 4358.57 4826.05 5336.03
DOUBTFULL ASSETS 542.48 573.53 7.7.38 1134.24 1677.89
LOSS ASSETS 0 0 0 0 0
TOTAL NPA 2685.88 3797.59 5065.95 5960.29 7013.92
Source: Extracted from Annual report of PCHFL

4.3. Graph showing the total NPA 2014-2018

Total NPA
8000
7013.92
7000
5960.29
6000 5336.03
4826.05
5000
3797.59
4000
3224.06
3000 2685.88
2143.4
2000 1677.89
1134.24
1000 573.53
542.48
0 0 0 0
0
SUB STANDARD DOUBTFULL ASSETS LOSS ASSETS TOTAL NPA
ASSESTS

2014 2015 2016 2017 2018

Source: Table 4.3

Interpretation: The above graph shows the total NPA ratio of PCHFL, the sub-standard
asset ratio is more compare to the doubtful asset. There is no loss assets which describe the
company is not incurring any kind of losses due to lending money to the barrower in the
form of loan.

41
CREDIT TO DEPOSIT RATIO

4.4. Table showing the credit to deposit ratio of the PCFHL

YEAR TOTAL LOAN DEPOSIT CREDIT DEPOSIT

RATIO
2014 52650.12 73609.92 71.53
2015 69255.25 97596.48 70.96
2016 84276.11 114427.34 73.65
2017 89556.98 128016.16 69.96
2018 99620.14 152016.16 65.53

4.4. Graph showing the credit to deposit ratio of the PCFHL

CREDIT TO DEPOSIT
160000 152016.16

140000 128016.16

120000 114427.34
97596.48 99620.14
100000 89556.98
84276.11
80000 73609.92
69255.25

60000 52650.12

40000

20000
71.53 70.96 73.65 69.96 65.53
0
2014 2015 2016 2017 2018

TOTAL LOAN DEPOSIT CREDIT DEPOSIT RATIO

Source: Table 4.4

Interpretation: The above graph represents that in the base year credit deposit ratio is 71.53
which decreased to 70.96 in 2015 and in 2016 it increased to 73.65 in 2017 decreased to
69.96 and 65.53 in 2018.

42
Investment to Deposit Ratio of PCHFL

4.5. Table showing the investment to deposits ratio of the PCFHL

Year Reserve and other Deposits Investment

funds in Lakhs
2014 6316 73609.9 8.58037
2015 7144 97596.5 7.319936
2016 8097 114427 7.076106
2017 9768 128016 7.630287
2018 11123 152016 7.316985
Source: Extracted from Annual report of PCHFL

4.5. Graph showing the investment to deposits ratio of the PCFHL

INVESTMENT TO DEPOSIT
160000 152016

140000 128016

120000 114427
97596.5
100000

80000 73609.9

60000

40000

20000 7144 8097 9768 11123

6316
8.58037 7.319936 7.076106 7.630287 7.316985
0
2014 2015 2016 2017 2018

Reserve and other funds in lakhs Deposits Investment

Source: Table 4.5

Interpretation: The above graph describes the investment made by the Piramal capital and
Housing finance. Investment to deposit ratio was higher than the base year compared to the
rest of the year. From 2014 this ratio was higher and then it decreased 2015 and 2016 and
increased in 2017 and it decreased in the year 2018.

43
Return on Asset Ratio of PCHFL

4.6. Table showing the return on the asset ratio of the PCFHL

YEAR RETURN TOTAL ASSETS RETURN TO

TOTAL ASSETS
2014 103496563 11878297320 0.87308069
2015 110928872 15697817030 0.70665158
2016 132688678 18319474035 0.724303972
2017 156503637 20061727020 0.780110789
2018 174259217 17814317361 0.922062932
Source: Extracted from the Annual report of PCHFL

4.6. Graph showing the Credit to Deposit Ratio of the PCHFL

RETURN TO ASSET RATIO

103496563

174259217

110928872

156503637
132688678

2014 2015 2016 2017 2018

Source: Table 4.6Interpretation: The Return to assets of the PCHFL can describe by
seeing the above graph. It can be understand that the return on asset in the year 2018 is high
compared to the rest of the years.

44
Gross advance Ratio of PCHFL

4.7. Table showing Gross NPA to gross advance ratio

Gross NPA to Gross advance ratio = GROSS NPA /NET NPA

Particular GROSS NPA GROSS ADVANCE GROSS NPA

RATIO%
2014 2771.91 53211.71 5.21
2015 3959.48 70108.36 5.65
2016 5065.95 84276.11 6.01
2017 5960.29 89556.98 6.66
2018 7013.12 99620.14 7.04
Source: Extracted from Annual report of PCHFL

4.7. Graph showing gross NPA to gross advance ratio

Gross NPA Ratio (%)

7.04
2018 99620.14
7013.12

6.66
2017 89556.98
5960.29

6.01
2016 84276.11
5065.95

5.65
2015 70108.36
3959.48

5.21
2014 53211.71
2771.91

0 20000 40000 60000 80000 100000 120000

GROSS NPA RATIO% GROSS ADVANCE GROSS NPA

Interpretation: The gross NPA against Gross loans lent by the company to its customer
shown in the above graph. It reveals that the amount to which the loan lent by the bank
stands as NPA.

The NPA against gross loan increasing regularly which not a good sign for the company.
The company can focus on its credit policies on order to reduce the amount of loans turning
into NPA.

45
Net NPA Ratio

4.8. Table showing the net NPA against total advances

Net non-performing assets ratio = NET NOA/TOTAL LOAN

YEAR NET NPA NET ADVANCES NET NPA RATIO

2014 130.28 50149.16 0.26
2015 1072.05 66529.73 1.61
2016 2115.88 84276.11 2.51
2017 2325.49 89556.98 2.60
2018 2799.86 99620.14 2.81
Source: Extracted from Annual report of PCHFL

4.8. Chart showing the net NPA against total advances

Net NPA Ratio (%)

120000

99620.14
100000
89556.98
84276.11
80000
66529.73

60000 50149.16

40000

20000

130.28 0.26 1072.05 1.61 2115.88 2.51 2325.49 2.6 2799.86 2.81
0
2014 2015 2016 2017 2018

NET NPA NET ADVANCES NET NPA RATIO

Source: Table 4.8

Interpretation: The above graph shows the increase in Net NPA of PCHFL from the year
2014-2018. It was 0.26% in 2014 increased to 1.61% in 2015 and 2.51%,2.6% and 2.81% in
2016,2017 and 2018 respectively.

46
Sub-standard Asset Ratio

4.9. Table showing the substandard asset ratio

Substandard asset ratio = Total substandard assets / Gross NPA*100

YEAR substandard assets Gross NPA substandard assets

ratio
2014 2143.4 2685.88 79.803
2015 3224.06 3797.59 84.898
2016 4358.57 5065.95 86.037
2017 4826.05 5960.29 80.970
2018 5336.03 7013.92 76.078
Source: Extracted from Annual report of PCHFL

4.9. Graph showing the substandard asset ratio

Sub-standard Assets Ratio

8000
7013.92
7000
5960.29
6000
5065.95
5000
3797.59
4000

3000 2685.88

2000

1000
79.803 84.898 86.037 80.97 76.078
0
2014 2015 2016 2017 2018

substandard assets Gross NPA substandard assets ratio

Source: Table 4.9

Interpretation: In the above graph substandard asset ratio of PCHFL is 79.80% in 2014 and
it was increased to 84.89% in the year 2015 and 86.03% in 2016 and in the year 2017 and
2018 it was decreased to 80.97% and 76.07% respectively.

47
Doubtful Asset Ratio

4.10. Table Showing Doubtful Asset Ratio of PCHFL

Doubtful Asset Ratio = Total Doubtful Asset / Gross NPA*100

Year Total Doubtful Gross NPA Doubtful Asset

Asset Ratio
2014 542.48 2685.88 20.197
2015 573.53 3797.59 15.102
2016 707.38 5065.95 13.963
2017 1134.24 5960.29 19.030
2018 1677.89 7013.92 23.922
Source: Extracted from Annual report of PCHFL

4.10. Graph showing Doubtful Asset Ratio of PCHFL

8000
7013.92
7000
5960.29
6000
5065.95
5000
Total Doubtful asset
4000 3797.59
GROSS npa

3000 2685.88 AR

2000 1677.89
1134.24
1000 542.48 573.53 707.38

0
2014 2015 2016 2017 2018

Source: Table 4.10

Interpretation: The-doubtful-asset-ratio in-the year 2014 is 20.19% in the year 2015 it was
reduced to 15.10% and continued with the same trend in 2016 and in 2017 it was increased
to 23.92%, which depicts that the recovery technique of the bank is not up to the mark and
bank is under increased credit risk which is not positive remark for the bank.

48
CHAPTER - 5

49
SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION

5.1. FINDINGS

 The total deposits position is increased from year to year continuously. It is 100% in

the year 2013-2014, further it increased to 113% in 2014-2015 and 155% in the year

2015-2016. Then 174% and 207% in the year 2016-2017 and 2017-2018.

 There is a disparity in the revenue. It has improved from 2013-14 to 2017-2018.

 There is variety in the benefit position of the bank from year to year. It expanded

from 2013-14 to 2017-18.

 The trend of return on asset has been varied from year to year.

 The percentage of total non-performing asset has been continuously increased from

2013-14 to 2015-16. There is 0% loss in NPA in the year 2014-18.

 The overall performance of the company is satisfactory. It has successfully improved

financial position. It is working in order to strengthen its financial viability.

5.2. SUGGESTIONS

 The company should need to focus on diversifying its funds in order to make proper

utilization of funds.

 Risk assessment of the customer must be made by the banks before sanctioning loan

to them.

 The company need to adopt new technology in financial activities of the Company.

 They should also consider the current income and assets of the Barrower.

 Need to provide proper training for the staff.

 Credit rating of customer must be update periodically.

 Bank should follow the credit management policies in order to control credit risk.

 The performance and reports must be regularly reviewed in order to detect errors.
50
5.3. CONCLUSION

Credit risk management starts with the process and comes to an end by repaying the debt

along with interest. For managing the risk, banks or financial institution needs to focus on

credit scoring and credit rating aspects which improves process of credit lending and also

helps in identifying the credit worthiness of the bank.

51
BIBLIOGRAPHY

 AHMED SF, MALIK & QA (2015) Credit Risk Management and Loan
performance. Empirical Investigation of Micro finance banks of Pakistan.

International Journal of Economics and Financial Issues.

 ALFRED LEHAR. (2005) Measuring systematic risk: A risk management approach.

Journal of Banking and Finance. 29(10). P2577-2603.

 ALI FATEMI & IRAJ FOOLADI. (2006) Credit risk Management: a survey of
Practices. Journal of Managerial Finance. 32(3). P227-233.

 ALLEN W. (1996).Integrating credit and market risk management. The Journal of

Lending & Credit Risk Management. 78(6).p 14
 ARORA A. (1997). Commercial Bank Risk Management: An analysis of the process.

Journal of Financial Services Research. 12(2). P893-115.

 CHAHAL H, KAUR SAHI G & RANI A. (2008) Credit risk management system of

a commercial bank in Tanzania. International Journal of Emerging Markets, 3(3). P

323-332

 DANJUMA KOLA, IA MAGAJI & KUMSHE H M. (2016). Credit risk

management and customer satisfaction in Tier-one Deposits Money Banks. Evidence

from Nigeria. International Journal Of Economics and Financial Issues. 6(3). p 49.

 EVAN GATEV, TIL SCHUERMANN & PHILIP E. STRAHAN. (2009) Managing

Bank liquidity risk: How Deposits-Loan Synergies Vary with Market conditions. The

Review of Financial studies, 22(3), p 995-1020.

 FREEMAN M.C, COX P.R & WRIGHT B. (2006). Credit risk management.

Journal of Managerial Finance. 32(9). P761-773

 GHOSH, S K & MAJI S G. (2007). Special Supplement: Risk Management. Four

pillars of Support. Journal of the Banker.p.l.

52
  GIBSON M,S. (2007). Credit Derivatives and Risk Management, Economic Review

Federal Reserve Bank of Atlanta. 92(4).p 25-27, 29-41

 GUPTA K. (1991). Special report: Asset-Liability management taking an integrated

view of risk management. Journal of United States Banker. 101(12). P18.

 GUPTA P.K. (1990). Collateral, loan quality and bank risk, Journal of Monetary
Economics. 25(1). P021-42.
 HAMEEDA A H & A L-AMJI J.(2012) Risk Management practices of Conventional
and Islamic Bank in Baharain. The Journal Of Risk Finance. 13(3). P 215-239
 HASSAN A L & TAMIMI, H A. (2002). Risk management practices: An empirical
analysis of the UAE commercial banks.

Websites:

 www.pchfl.com
 www.moneycontrol.com
 www.investopedia.com
 www.linkdin.com

53
i^i
ACHARYA INSTITUTE OF TECHNOLOGY
DEPARTMENT OF MBA

PROJECT (17MBAPR407) -WEEKLY REPORT

ACHARYA

NAME OF THE STUDENT: RAGHAVA.H

INTERNAL GUIDE: Prof. SHASHI KUMAR C.R

USN: 1AY17MBA 38

COMPANY NAME: PIRAMAL CAPITAL AND HOUSING FINANCE

LIMITED.BENGALURU

I,XTERNAL INTERNAL,
WEEK)3-rd-lan2019 --9: WORK UNDERTAKENIndustryProfileandCompany GUIDE GUIDE
SIGNATURE SIGNATURE

Jam 2019 Proflle

Preparation of Research
Nthalkl\mcti
gr
I oth Jam 2019 -17'!`Jam2019

I 8th Jam 2019 -25lhJan2019

instrument for data
collection

Data collection
t\1``dQ}|rk``TT\Cc|

\,dcjl ck"mcl\
+
i`T

26th Jam 2019 - Analysis and finalization

2nd Feb 2019 of report
\\,,ie\| dy"-qH cfr
3rd Feb 2019 -9thFeb2019
Findings and S uggestions t\\itQ\| *"YY"`,
fr
Conclusion and Fmal Report \\;\(!\` kl,"`olJ|
( 1 ]0;hthFf:b22°ji99-

`he\*`:?,?
Fcc\o6SL

Company Seal College Seal trqu\:`\q