Introduction

Managing credit risk has always been the most risky business in the Banking
industry. If we look back into past, we will find that poor management of
credit risk was the main root behind most of the major Banking Disasters.
Being the oldest risk in the economy, it was not given much importance and
attention. It almost remained aloof to the advent of technology until the
1990s. With the introduction of Banking regulations, there is an awareness in
the industry now to identify, measure , monitor and control. Credit risk as well
as to determine that they hold adequate capital against this risl. Credit risk
not only affects the lenders but also any company that receives funds for
products or services.
As the market has turned increasingly competitive with the
mushrooming of new players, it is quite evident that companies are taking on
more credit risk. But for a more transparency market and healthy
competition, the Bank industry must turn credit risk into an opportunity. The
financial services industry / Banks must manage credit risk at both individual
and portfolio levels. However, individual management of credit risk requires
relevant and specific knowledge of the evalution of credit defaults by using
models and the advanced risk management methods.

Over the years, these models has evolved significantly and today
they are accepted by the industry as stable and accurate. The sad part of
the story is that the operation of these models requires a huge amount of
data. Thus, it is likely that only large banks will be capable of using the
advanced risk management practices.