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Part - IV

• Banks should establish proactive credit risk management practices like annual / half yearly industry studies and individual obligor reviews, periodic credit calls that are documented, periodic plant visits, and at least quarterly management reviews of troubled exposures/weak credits.

• Business managers in banks will be accountable for managing risk and in conjunction with credit risk management framework for establishing and maintaining appropriate risk limits and risk management procedures for their businesses.

• Banks should have a system of checks and balances in place around the extension of credit which are:

  • An independent credit risk management function

  • Multiple credit approvers

  • An independent audit and risk review function

• The Credit Approving Authority to extend or approve credit will be granted to individual credit officers based upon a consistent set of standards of experience, judgment and ability.

• The level of authority required to approve credit will increase as amounts and transaction risks increase and as risk ratings worsen.

• Every obligor and facility must be assigned a risk rating.

• Banks should ensure that there are consistent standards for the origination, documentation and maintenance for extensions of credit.

• Banks should have a consistent approach toward early problem recognition, the classification of problem exposures, and remedial action.

• Banks should maintain a diversified portfolio of risk assets in line with the capital desired to support such a portfolio.

• Credit risk limits include, but are not limited to, obligor limits and concentration limits by industry or geography.

• In order to ensure transparency of risks taken, it is the responsibility of banks to accurately, completely and in a timely fashion, report the comprehensive set of credit risk data into the independent risk system.

1.5      Organizational Structure

1.5.1      A common feature of most successful banks is to establish an independent group responsible for credit risk management. This will ensure that decisions are made with sufficient emphasis on asset quality and will deploy specialised skills effectively. In some organisations, the credit risk management team is responsible for the management of problem accounts, and for credit operations as well. The responsibilities of this team are the formulation of credit policies, procedures and controls extending to all of its credit risks arising from corporate banking, treasury, credit cards, personal banking, trade finance, securities processing, payment and settlement systems, etc. This team should also have an overview of the loan portfolio trends and concentration risks across the bank and for individual lines of businesses, should provide input to the Asset - Liability Management Committee of the bank, and conduct industry and sectoral studies. Inputs should be provided for the strategic and annual operating plans. In addition, this team should review credit related processes and operating procedures periodically.

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Compiled by CoolAvenues Knowledge Management Team