CHAPTER 2

RESEARCH DESIGN

2.1 TITLE OF THE PROJECT:-

“A PROJECT REPORT ON THE CREDIT RISK MANAGEMENT AT

PRAGATHI KRISHNA GRAMENA BANK, CHINTHAMANI.”

2.2 INTRODUCTION:-

Risk can be defined as “any event or possibility of an event which can impair
business earnings or cash flow over short/medium/long-term horizon”. Risks arise
from a variety of sources, and affect the value of the assets held by any
corporation.

Credit risk is the risk due to uncertainty regarding the counterparty’s ability to
meet obligations. Because there are many types of counterparties-from individuals
to sovereign governments-and many different types of obligations credit risk takes
many forms. Institutions manage it in different ways.

Lending has always been the primary function of banking and accurately assessing
a borrower’s creditworthiness has always been the only method of lending
successfully. The method of analysis required varies in function of type of lending
being considered. “It actually denotes the measurement of finances in a detailed
manne
2.2 STATEMENT OF THE PROBLEM:-

Risk is inherent is any walk of life in general and in financial sectors in particular.
Until, recently due to regulated environment, bank could not afford to take risks.
But of late, banks are exposed to same competitions, and hence are completed to
encounter a credit risk.

With globalizations banks are not only facing internal competition but also at the
international level. The credit crisis encountered by the American economy has
percolated to the other economies also. Judicious management of deposits procured
from the depositors is important. This depends upon judicious deployment of funds
by banks.

In the period of such crisis it was imperative to make a study as to how the co-
operative bank has survived the crisis? What are the credit products offered by the
bank? How the products have affected the bank’s performance whether the bank
was able to minimize the risk? What measures are taken to minimize the risk? To
find answers to these questions the study was undertaken.

2.3 OBJECTIVE OF THE STUDY:-

 To study the different types of credit products offered by the bank.

 To study the criteria for giving the different types of loans.
 To study the measures taken by the bank to minimize the credit risk.
 To study and analyze the credit risk faced by the bank from each credit
product of the bank.
 To offer suggestions based on the findings of the study.
2.4 SCOPE OF THE STUDY:-

The study is aimed towards the credit risk of the Rajajinagars Co-operative bank
and the various methods adopted by them to avoid and eliminate risk if possible.
the scope of the study is limited to the credit policy while lending different types of
loans. The study does not deal with any other risk faced by the bank.

2.5 RESEARCH METHODOLOGY:-

Descriptive and Analytical method has been adopted to find out why such risks are
faced by the RAJAJINAGAR CO-OPERATIVE BANK.

 TOOLS FOR DATA ANALYSIS:-

Following various tools and techniques are used.

 Analysis of annual reports.

 Analysis of financial statements.
 Analysis of secondary data.
 SOURCES OF DATA:-
The universe of the study was financial institutions, with respect to focus on
banking sector and credit department. Methodology is based on Primary Data and
Secondary information.
  PRIMARY DATA:-
Primary data is collected through personal interviews with the manager and
officers and taking their perception with regard to the topic of the study. An
interview schedule prepared and use for this purpose.

 SECONDARY DATA:-
Annual reports of the bank are used as the prime source of secondary data. Apart
from the annual reports to study the general conditions prevailing in the economy
published articles in journals, magazines and Internet are used.

2.6 LIMITATIONS OF THE STUDY:-

 The study is limited to RAJAJINAGAR Cooperative bank.

 Because of time constraint, a detailed study could not be undertaken.
 Analysis of the study depends on the information supplied by the bank.
 Data is collected for the past four years only.
2.7 CHAPTER SCHEMES:-

 CHAPTER 1: INTRODUCTION:-
This chapter covers a brief introduction about the banking industry in general and
covers the theoretical aspect of credit risk management followed by banks.

 CHAPTER 2: RESEARCH DESIGN:-

This chapter contains the research design detailing the statement of the problem,
review of literature, objectives of the study, scope of the study, methods of
analysis, sources of data, limitations and chapter scheme.

 CHAPTER 3: BANK PROFILE:-

In this chapter the profile of bank – this includes history of bank, types of deposits
accepted and kinds of loans given and financial report of the bank.

 CHAPTER 4: DATA ANALYSIS AND INTREPRETATION:-

This chapter deals with the objective wise inferences drawn from the data collected
and tabulated.

 CHAPTER 5: FINDINGS, CONCLUSION AND SUGGESTIONS:-

This chapter covers the final summary, findings, suggestions based on the study
and conclusion.
5.2 SUGGESTIONS:-

1. Bank should make an unbiased assessment of the risks of the customer

before sanctioning a loan.

2. Suggest to adopt an Electronic Fund Transfer systems (EFT), Electronic

Clearing System (ECS) in all the branches..

3. Proper training should be given for the collection team.

4. The bank should update the credit ratings periodically.

5. The bank should thoroughly assess the financial performance of the

customers.

6. It is suggested to the bank to follow the similar kinds of credit management

policies also.

7. The bank should increase the number of branches to other areas for further

growth and to extend its customer base.

8. While sanctioning loans to customers past credit history is to be considered,

along with current income and assets.

9. Banks should identify and manage credit risk inherent in all products and

activities. Banks should ensure that the risks of products and activities new
 to them are Subject to adequate risk management procedures and controls

before being introduced.

10.The board of directors should have responsibility for approving and

periodically (at least annually) reviewing the credit risk strategy and

significant credit.

11.Banks must have a system in place for early remedial action on

deteriorating credits, managing problem credits and similar workout

situations.

12.The bank should implement a credit rating model in order to manage the

credit risk of the borrower.

13.The bank should compare the present year and previous year analysis of

financial statements in order to verify whether there is increase in the sales

and profit before lending the loan.

 5.3 CONCLUSION:-

1. Credit risk management has a huge impact on the bank’s balance sheet and
its asset and liability management by ensuring efficient credit risk
management; bank can limit the presence of non-performing assets in its
balance sheet. Non-performing assets affect the management adversely.
They freeze assets and convert short-term claims into long term.
2. Cash flows are affected thereby reducing liquidity of the bank. The main
point however, is that Non-performing assets affect the outsider’s perception
of the bank. Its credit worthiness decreases. As a result, it would not have
the same access to funds, as many people would want to deposit money in
the bank. All this would have a very negative impact on the bank.
3. In case of different credit sanctioned by bank, the bank has observed various
risks like business risk, industrial risk, financial risk, default risk the bankers
follow a strict methodology to deal with default borrowers.
4. Overall Pragathi Krishna Gramina Bank has well planned, designed and
managed credit risk policy for different type of credits.