MOCB SYNOPSIS

CREDIT RISK MANAGEMENT AT Punjab National Bank

Submitted to:

Submitted by:

Prof. Vinay Kr. DuttaMahakKhemka (191094) SahilSethi (191110) Shilpi Jain (191112) Tarun Kumar (191120)

Introduction
In course of banks, lending involves a number of risks. Unlike market risks, where the measurement, monitoring, control etc. are to a great extent centralized. Credit risks management is a decentralized function or activity. This is to say that credit risk taking activity is spread across the length and breadth of the network of branches, as lending is a decentralized function. Proper a sufficient care has to be taken for appropriate management of credit risk. Credit risk or default risk involves inability or unwillingness of a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions. The objective of credit risk management is to minimize the risk and maximize banks risk adjusted rate of return by assuming and maintaining credit exposure within the acceptable parameters. Punjab National Bank(PNB) has been a pioneer in devising methods for credit appraisal inbanking industry. It has the distinction of being the first Indian bank to have been started solely withIndian capital. The bank was nationalized in July 1969 along with 13 other banks. From its modestbeginning, the bank has grown in size and stature to become a front-line banking institution in India atpresent. PNB has framed Credit management and risk policy at the macro level. It is an embodiment of the Bank s approach to understand measure and manage the credit risk and aims at ensuring sustained growth of healthy loan portfolio while dispensing the credit and managingthe risk. This would entail reducing exposures in high risk areas, emphasizing more on the promising industries / productive sectors/ segments of the economy, optimizing the return bystriking balance between the risk and the return on assets and striving towards maintaining/improving market share. The purpose of this project is to explain, in a brief and general way, the manner in which risks areapproached by financiers in a project finance transaction. Such risk minimization lies at the heartof project finance. Efficient management of credit portfolio is of utmost importance as it has atremendous impact on the Banks assets quality & profi tability.

Objectives of the study:

y y y y To study broad contours of Credit Risk Management and Loan policy at PNB. To study Credit Appraisal for business units i.e. for Working Capital Loan and Term Loan. To study scoring methods and methods of credit risk measurement. To understand the basis of Credit Risk Rating and its significance.

SOURCES OF DATA Primary Sources

y y

Meetings with the Branch head and senior manager of PNB, Kirti Nagar Branch Interview with other functional head if possible.

Secondary Sources
y y y y

Banks Credit Rating Methods. Study of proposals and manuals. Financial Statement of PNB. Related Journal and research paper.

Methodology
The various products offered by banks to corporate clients for short term and long term finance will be studied and the criteria used by banks for sanctioning of loans will be reviewed through the data we get from the contact person in the bank. Also we will study the methods used by the bank (PNB) for credit risk management and loan portfolio management. We will also interview the contact person for getting any further infor mation regarding the credit rating models used by the bank.

Limitation
Since the primary information will be collected through the limited pe rson in a branch only of PNB, so it may be possibility that all the information may not be collected considering the limited time in the term project. Another issue may arise due to the confidentiality of the information

Review of Literature
To have conceptual knowledge of subject and to study pr evious works on the same topic, following articles were studied.

 http://www.mbaknol.com/business-finance/credit-risk-management-in-indianbanks/: This article is about various risks faced by banks and measurement of risk through credit rating/scoring.

 Retail Loan: A Risk Management Perspective by ShyamJiMehrotra: This article

discusses about various risks involved in retail loans and how they are managed.

 http://www.occ.gov/static/publications/handbook/lpm.pdf : This is all about Loan

Portfolio Management, various risks associated with lending, credit risk management information system etc.

 Building Credit Scorecards for Small Business Lending in Developing Markets by

Dean Caire, CFA: This tells about how to build scorecard for small business lending in developing credit markets.

 http://www1.worldbank.org/finance/assets/images/credit_risk_loan_portfolio_man
agemet.pdf: This discusses about credit risk, credit impact, bank lending policies, Loan administration process etc.