Ph.D.
Program-2023 (even semester)
(Department name - Management)
Research Title : Risk Managament – The
impact of Credit Risk Management in Indian
banking along with analyitcal view on the
credit risk assessment models
Tirlangi Kiran Kumar
Risk Management in Banks
● Risk is any unforeseen event resulting in the
loss.
● Risk Management is identification, assessment
and prioritization of risks by involving prudent
application of resources
● Application of resources is to control and
minimize the risk by controlling the probability
and impact of unexpected events
Risk Management in Banks
● Higher Risk – Higher rewards along with
higher loss as well
● Identification is figuring out future events both
internally and externally which causes risk to
the bank.
● Assessing the risk is to calculate the probability
of occurrence and potentiality of loss to the
bank
● Mitigation of risk is by reducing, sharing,
Risk Management in Banks
● Basel committee of Banking supervision has
accorded standardized bank regulations across
the globe starting in 1975 headquartered in
Switzerland.
● Basel 1 regulations proposed by G-10 countries
in 1992 and was primarily focused on credit
risk.
● Under Basel 1 norms, banks are required to
hold capital equal to or more than 8 percent of
risk weighted assets
Risk Management in Banks
● Basel II committee of Banking supervision has
accorded revised norms in 1998 and came up
with operational risk along with the credit risk
which has been proposed under Basel 1.
● Also envisaged for the three pillars as
mentioned below
Minimum capital requirement
Supervisory Review process
Market discipline
Risk Management in Banks
Pillar – 1 :
● Minimum Capital requirement is the
measurement of banks capital in relations to its
total risk weighted assets.
Total Capital of the bank
RWA’s (Credit risk +Market Risk+ Operational
risk)
Pillar -2:
Banks Should ensure that Internal Capital
Adequacy Assessment process is the
Risk Management in Banks
Pillar – 3 :
This pillar sets out the minimum disclosure
requirements for external reporting and regulators
expect bank to be transparent and should disclose
various information relating to its financial
aspects including its risk at periodical intervals.
BASEL -III Norms:
Basel III norms aims to build robust capital base
for banks and ensure sound liquidity and leverage
ratios in order to protect from any banking crisis
Risk Management in Banks
BASEL -III Norms:
Basel III norms aims to build robust capital
base for banks and ensure sound liquidity and
leverage ratios in order to protect from any
banking crisis in future
Came up with the capital conservation buffer of
2.5% with a total capital risk adequacy ration of
10.5% globally and 11.5% in India
Capital conservation buffer is to ensure that
banks maintain a buffer of capital that can be
used to absorb losses during the period of
Risk Management in Banks
Different types of risks
Credit Risk – Possibility of loss associated with
the diminution in the credit quality of the
borrowers.
Market Risk – Risk of adverse movements of
mark to market value of the trading portfolio
due to market changes during the period
required to liquidate the transactions
Operational Risk – Risk of loss resulting from
the inadequate or failed internal process, people
Credit Risk Management in
Banking
Credit Risk is the possibility that there is a
default in the repayment of credit availed by the
borrower or non – repayment or delayed
repayment of interest on the loans/advances.
Credit is the largest portfolio of the bank and as
such is most important to manage
Credit risk the major and one of the oldest risk
in the Banking segment.
Credit Risk Management in
Measurement ofBanking
Credit Risk :
Process of credit Rating through external
agencies and through internal rating of the bank
Quantification of credit risk is through
estimating the expected loan losses and
unexpected loan losses.
Credit/loan policy to be in place with regards to
particular bank and thereby embedding the
policy and procedures to analyze, manage and
Credit Risk Management in
Measurement ofBanking
Credit Risk :
Process of credit Rating through external
agencies and through internal rating of the bank
Quantification of credit risk is through
estimating the expected loan losses and
unexpected loan losses.
Credit/loan policy to be in place with regards to
particular bank and thereby embedding the
policy and procedures to analyze, manage and
Credit Risk Management in
Banking
Methods in Calculating the RWA’s of credit risk :
Standardized approach
Internal Rating Foundation Approach
Internal Rating Advanced approach
The Current research deals with the Standardized
approach as almost all the Indian banks are
dependent on the standardized approach for
measuring RWA’s of the credit risk.
Credit Risk Management in
Banking
Standardized approach:
Under standardized approach all the exposures of the
bank will have to be rated.
The credit rating will be given by an external credit
rating agencies and the credit exposures to be
classified in to individual claims and have to be given
risk wights depending up on the rating.
After arriving at Risk weights, risk mitigation in the
way of collateral securities will help arriving at lesser
provisioning.
Credit Risk Management in
Banking
Illustrative scenario of Risk Weighted assets:
It is evident that maximum portion of the
provisioning in balance sheet is done towards the
credit risk.
Credit Risk Management in
Banking
Illustrative scenario of Risk Weighted assets
allocation:
Credit Risk Management in
Framework: Banking
Credit risk policy sets out the principles, guidelines
and procedures for managing the credit risk. The
policy should be aligned with institutional overall risk
appetite
Credit risk governance framework outlines the roles
and responsibilities of various stake holders such as
board of directors, senior managers.
Credit risk identification and assessment process
involve the creditworthiness of the borrower,
assessing the creditworthiness and potential for
Credit Risk Management in
Framework: Banking
Credit risk measurement involves the quantifying the
likelihood and losses depending up on the rating
agencies and scoring models
Credit risk monitoring involves the tracking loan
performance, monitoring borrower credit worthiness
and conducting regular credit reviews.
Credit risk mitigation strategies include the
diversification of the loan portfolio, collateralization
of loans and use of credit derivatives.
Objectives of the Research
To Understand the nature and concept of credit risk
management of commercial banks
To Know the methods used in the assessing the Risk
weighted assets under credit risk
To compare and analyze the Risk weighted asset
allocation under standardized approach of the
commercial banks.
Credit Risk Management in
Framework: Banking
Credit risk reporting provides regular and timely
reporting of the institutional credit portfolio to
regulators and stakeholders and use of different
models in credit risk assessment.
Credit risk culture refers to the values, attitudes and
institution employees behavior's towards the credit
risk management.
A well designed credit risk management framework is
critical for the soundness of the bank and overall
stability of the banking system.
Need / Rational & scope of the study
The study of the credit risk management in commercial
banks in India is essential to understand the various
challenges and opportunities faced by the banking
sector.
With increased competition, advancements in
technology and regulatory reforms, it is crucial to
identify the effective credit risk management
frameworks and practices.
The study can provide insights in to best practice and
strategies for managing the credit risk in Indian banking
Need / Rational & scope of the study
It can also help in the identifying the areas of
improvement in credit risk management practices,
including risk assessment, risk monitoring, mitigation
and regulatory compliance.
Overall the study of the credit risk management in
commercial banks in India is critical to ensure the
stability and profitability of the Indian banking sector.
Also the focus on the standardized approach used in
assessing the RWA’s will be a path way for the
futuristic models implementation.
Research problem / Gap & Conceptual
model
The study is considered only for the standardized
approach method in assessing the Risk weighted assets
under credit risk.
The research data collected are from secondary data
from published information.
Review of Literature
The literature review provides an overview of credit
risk management in commercial banks highlighting the
various methods/models used in assessing the RWA’s of
credit risk.
It also discusses the importance of effective credit risk
management given the critical role the credit plays in
the profitability and sustainability of the banks
1. Singh and Thakur (2022)- Authors examine the credit
risk management of the Indian banks and the models
used in arriving at the RWA’s under the credit risk
Review of Literature
2. Raju and Reddy (2020)- Investigate the impact of credit
risk management and the practices of the Indian
commercial banks. The results shown the effective credit
risk management practices such as effective loan
monitoring and recovery strategies and by enhancing the
profitability of the banks.
3. Mishra and sharma (2022) – Authors identified and
assessed the provision norms under different models of
credit risk management and the outcome led to the
profitability of the bank along with the better risk
mitigation techniques.
Research Methodology / Technique
To achieve the selected objectives of the study, with the
support of secondary data has been utilized.
The secondary data has been collected from the banks
annual reports and from the website of Basel committee
of banking supervision.
References & Text Books
Risk management by mac Millan -2022
Credit risk management in commercial banks – By
Dr Anup Kumar Sharma (2020)
Credit risk management in Indian banks by Nayan J
Kumaraswamy
Conclusion
Credit risk Management is a crucial aspect of
commercial banking in India and it plays a
significant and role in ensuring the stability and
profitability of the banks.
The methods used in assessing the RWA’s under
credit risk and the provisioning realignment/change
with a better risk prospective will have a greater
profitability by utilizing the rest of the unallocated
capital towards the assets side of the balance sheet
of the banks and there by promoting the overall
economical growth to the country.
Thank you