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BY:AMAN LUTHRA BBA(G) 6TH SEM ROLL NO.

: 045

OBJECTIVE OF THE STUDY


To study broad outline of management of credit,

market and operational risks associated with banking sector. An overview of the risks in general. An insight of the various credit, market and operational risks attached to the banking sector. The methodology related to the management of operational risk . Tools applied in for measurement and management of various types of risks.

RESEARCH METHODOLOGY
Scope of Study

The report seeks to present a comprehensive picture of the various risks inherent in the bank. The risks can be broadly classified into three categories: Credit risk Market risk Operational risk Research Design It is descriptive in nature. Sampling Method & Technique Convenience sampling method. Data Collection Sources Secondary Sources-The secondary data I collected was through the study of the information already existed in the company in form of printed files or digital files reserved in the company for further references.

Risk management by commercial banks -Time to hammer out the chinks


Financial markets over the world have undergone far-reaching changes in the last decade, spurred by deregulation and liberalization, as well as rapid developments in communication and Internet technologies. Banks in INDIA have, however, generally not paid enough attention to the potential risks and to evolve mechanisms and systems to control and manage them in line with the global standards and procedures.

Risk management by commercial banks -Time to hammer out the chinks


Risk management is a comprehensive process adopted by an organization that seeks to minimize the adverse effects it is exposed to due to various factors -- economic, political or environmental, some of them inherent to the business, others unforeseen and unexpected.

WHATIS RISK?
A risk is ANYTHING that may affect the achievement

of an organizations objectives. It is the UNCERTAINTY that surrounds future events and outcomes. It is the expression of the likelihood and impact of an event with the potential to influence the achievement of an organizations objectives.

DEFINITION OF RISK MANAGEMENT?


Risk Management is the process of

identifying, measuring, monitoring and controlling risks. Risk management provides a clear and structured approach to identifying risks. Having a clear understanding of all risks allows an organization to measure and prioritize them and take the appropriate actions to reduce losses.

CHALLENGE IN BANKING Banking is an art of

striking a balance between Risk and Revenue.

BANKING RISK
Taking risks can almost be said to be the business of

bank management. A bank that is run on the principle of avoiding all risks or as many of them as possible, will be a stagnant institution ,and will not adequately serve the legitimate credit needs of its society. On the other hand a bank that takes excessive risks or credit is more likely ,takes them without recognizing their extent or their existence will surely run into difficulty.

RISKS FACED BY BANKS


CREDIT RISK
MARKET RISK INTEREST RISK

LIQUIDITY RISK
OPERATIONAL RISK COUNTRY RISK MANAGEMENT RISK

CREDIT RISK
The risk that the obligor (borrower) will not be able to repay the debt (loan) under the terms of the original agreement (loan agreement).
MOST CRITICAL RISK IN BANKING REQUIRES MOST SUBJECTIVE JUDGEMENT MUST BE MANAGED CAREFULLY

MARKET RISK
Changes in market rates and prices will impair an obligors ability to perform under the contract negotiated between the parties.

NEEDS MONITORING OF CHANGES IN PRICES

OF COMMODITIES, REAL ESTATE, ETC.

INTEREST RATE RISK


Interest rate risk is the exposure of an institution's financial condition to adverse movements in interest rates, whether domestic or world-wide.
ANOTHER CRITICAL RISK RE-PRICING/ MISMATCHES NEED TO BE ADDRESSED

LIQUIDITY RISK
The risk that a bank will be unable to

accommodate decreases in liabilities or to fund increases in assets. Such risks arise when the re-pricing or maturities of assets do not match those of liabilities.
CRITICAL RISK MATURITY MISMATCHES BASED ON MARKET CONDITIONS &

PERCEPTIONS

OPERATIONAL RISK
This risk arises from the lack of effective internal controls and auditing procedures.
It is particularly important as the bank should

have good internal controls.


RISK OF A FAILURE IN THE BANKS

PROCEDURES WHETHER FROM EXTERNAL CAUSES OR AS A RESULT OF ERROR OR FRAUD WITHIN THE INSTITUTION.

COUNTRY RISK
Risk associated with the economic, social and political environment of the borrowers country.
Country risk is most apparent when lending to

foreign governments/ their agencies and other customers.


BANKS HAVING GLOBAL PRESENCE

MANAGEMENT RISK
The risk that owners / shareholders, directors or senior management might be unfit for their respective roles or they are actually dishonest.

ALSO A CRITICAL RISK THE BEST WAY TO ROB A BANK IS TO OWN IT

ANALYSIS & INTERPRETATION


1. CAR can be viewed from two aspects:

Total advancement to total assets Total investment to total assets

Capital Adequacy Ratio is defined as,

CAR =

Capital Risk Weighted Assets

Capital adequacy ratio is the ratio which determines

the bank's capacity to meet the time liabilities and other risks such as credit risk, operational risk, etc.

CAR
16 14 12 10 8 6 4 2 0 2007-2008 2008-2009 2009-1010 2010-2011 2011-2012 CAR

Interpretation: The CRAR has declined to 13.17 in 2011-2012 which was 14.73 in 2010-11. Thus, it is showing slight inefficient management of credit risk

2. TOTAL ADVANCES TO TOTAL ASSETS


0.63 0.62 0.61 0.6 0.59 0.58 0.57 0.56 TOTALADVANCES TO TOTAL ASSETS

Interpretation: The ratio is showing an increasing trend at 0.62 in 2010-11 which implies proper balancing of advances & assets.

3. Net Non Performing Assets to Total Assets This ratio helps in identifying the quality of the asset of the bank. It can be calculated by dividing Net NPA by Total assets. Lesser the ratio shows the good quality of the asset.

NON PERFORMING ASSETS TO TOTAL ASSETS


0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

NON PERFORMING ASSETS TO TOTAL ASSETS

Interpretation: The percentage of Net NPA to Total assets has decreased to 0.18% during 2011-2012. This indicates a sound asset quality.

4. Net Non Performing Assets to Total Advances Net NPA shows the level of net NPA on net advances given by the bank. It can be calculated by dividing net NPA by net advances. Higher the ratio more will be the alarming situation for the bank and vice-versa.

NET NON PERFORMING ASSETS TO TOTAL ADVANCES


1.2 1 0.8

0.6
0.4 0.2 0

NET NON PERFORMING ASSETS TO TOTAL ADVANCES

Interpretation: The percentage is showing an decreasing trend from the period 2010-2011 to 2011-12, 0.29% due to good management.

5. EARNING PER NON PERFORMING ASSETS An NPA is defined as a loan asset, which has ceased to generate any income for a bank whether in the form of interest or principal repayment. Earning per Non Performing Asset ( ENPA) can be calculated using the following formulae: ENPA = (EBT/TA) / (NPAs/ TA) ENPA- Earning per Non Performing Assets NPA Non Performning Assets TA - Total Assets EBT Earnings before tax

EARNING PER NON PERFORMING ASSETS


8 7 6 5 4 3 2 1 0

EARNING PER NON PERFORMING ASSETS

Interpretation: The ENPA during 2011-12 has come down to 7 from 7.2

CONCLUSION
With branches all over India and a clientele across the

world, the bank is considered one of the most pro active banks in India with a competent tech savvy team of professional at the core of services. In 20010-11 Punjab National Bank could present an outstanding performance which was beyond market expectations despite the challenging economic scenario where the bank operates. Even though, the banking sector all over the world has been affected by the recession due to the global meltdown in economy, especially the US banking system, Punjab National Bank proved its competence not only in terms of increased profit but also in providing boundless customer service.

The effectiveness of risk management rests where the

credit quality is maintained by the bank. Basel III is likely to improve the risk management systems of banks as the banks aim for adequate capitalization to meet the underlying credit risks and strengthen the overall financial system of the country. Formerly, people were not much bothered about the banking services but now they are comparing banks based on the services offered.

BIBLIOGRAPHY
WEBSITES www.rbi.org www.investopedia.com www.pnbindia.com www.google.co.in Books: Galai, Mark, Crouny , Risk Management, second edition. Bhole L. M, Financial Institutions and Markets Structure, Growth and Innovations, fourth edition. Gleason T .James, Risk. The new Management Imperative in Finance, fourth edition Saunders Anthony, Credit Risk Management, second edition. Schleiferr Bell, Risk Management, third edition.

Any questions?