Measurement and Estimation of Credit Risk in Retail Loan Portfolio with Reference to South Indian Bank
Measurement and estimation of credit risk in retail loan portfolio with reference to South Indian Bank |
Risk is an integral part of the banking business and the Bank aims at delivering superior value to shareholders by achieving an appropriate trade-off between risk and return. Sound risk management and balancing risk-return trade-off are critical to a Bank’s success. Business and revenue growth have therefore to be weighed in the context of the risks embedded in the Bank’s business strategy. Of the various types of risks the Bank is exposed to, the most important are credit risk, market risk (which includes liquidity risk and price risk) and operational risk. The identification, measurement, monitoring and mitigation of risks, continued to be a key focus area for the Bank. The risk management strategy of the Bank is based on a clear understanding of various risks, disciplined risk assessment, risk measurement procedures and continuous monitoring for mitigation. The policies and procedures established for this purpose are continuously benchmarked with the best practices followed in the Industry.
Credit risk is the risk due to the uncertainty in counterparty’s ability to meet its obligation. Because there are many types of counterparties from individuals to sovereign governments and many different types of obligations from auto loans to derivative transaction, credit risk takes many forms. A bank or a financial institution enters into a large number of financial transactions. In these transactions, the bank is exposed to a risk linked to a risk linked to the financial strength of the counterparty. Credit risk originates from the point where FI has completed its transaction and the obligation of counterparty starts. The process of measuring the credit risk for a portfolio of credit assets is different from the one used for a single loan because of the correlated between loans in a portfolio. Correlation reflects the extent to which loans tend to default
Risk is an integral part of the banking business and the Bank aims at delivering superior value to shareholders by achieving an appropriate trade-off between risk and return. Sound risk management and balancing risk-return trade-off are critical to a Bank’s success. Business and revenue growth have therefore to be weighed in the context of the risks embedded in the Bank’s business strategy. Of the various types of risks the Bank is exposed to, the most important are credit risk, market risk (which includes liquidity risk and price risk) and operational risk. The identification, measurement, monitoring and mitigation of risks, continued to be a key focus area for the Bank. The risk management strategy of the Bank is based on a clear understanding of various risks, disciplined risk assessment, risk measurement procedures and continuous monitoring for mitigation. The policies and procedures established for this purpose are continuously benchmarked with the best practices followed in the Industry.
Credit risk is the risk due to the uncertainty in counterparty’s ability to meet its obligation. Because there are many types of counterparties from individuals to sovereign governments and many different types of obligations from auto loans to derivative transaction, credit risk takes many forms. A bank or a financial institution enters into a large number of financial transactions. In these transactions, the bank is exposed to a risk linked to a risk linked to the financial strength of the counterparty. Credit risk originates from the point where FI has completed its transaction and the obligation of counterparty starts. The process of measuring the credit risk for a portfolio of credit assets is different from the one used for a single loan because of the correlated between loans in a portfolio. Correlation reflects the extent to which loans tend to default