SREI-BNP Paribas Credit Head delivers Guest lecture at VGSoM IIT Kharagpur

 | September 14,2011 12:36 pm IST

Nothing more but “real-life examples with a tint of humor” could explain the otherwise complex Credit Risk Assessment. A topic really wide and deep in itself was neatly explained in layman’s terms by Mr Suranjan Bhattacheryay, Credit Head, SREI-BNP Paribas at the Vaarta’11 Guest Lecture series at VGSOM.

Mr. Suranjan Bhattacheryay started the session with a classic example of a man borrowing money to get his daughter married. As the audience tuned themselves for the session, Mr.Bhattacheryay contrasted the situations that prevailed 20 years ago and that which prevails now. Then, in the early 90s, when the “risk of defaulting” had no or very little significance, bank agencies could wait for even 7 months and sleep peacefully that the money would come back. But today, bankers need to be on their feet 24*7 and stringently monitor the “churning” of accounts. The credit risk management and assessment has thus become a core competency of every bank.

Firstly, Mr. Bhattacheryay explained the various steps under the credit risk management which included creating a good loan (The KYC rule), grading the loans, coming up with a price for the risk, the importance of return on Equity (ROE), managing the loan book as an investment, the share-holder’s demand risk and the diversification of funding based on the business (Individual Vs SMEs Vs Corporate funding).

He then moved on to explain the credit risk assessment where he mentioned that the bank’s board of directors and the senior supervisors are responsible for ensuring that the banks have appropriate credit risk assessment process. He stressed the importance of a loan review process that is independent of the loan lending function to assure a clean report and to estimate losses. He as well mentioned that periodic evaluation of the risk assessment model is of great importance. He noted that every bank must lend money to various industries depending on its “risk appetite”.

Mr. Bhattacheryay then talked about the credit risk mitigation under which he explained the collateralized transactions, the fallback criteria and the concept of haircuts, the balance sheet netting and the maturity mismatch. The discussion then went on to seeing the 2008-’09 economic downturn and the Bellary Mines-Reddy brother’s case from a banker’s perspective.

Mr. Bhattacheryay concluded the session by briefly explaining the various basel accords (Basel-I, Basel-II and Basel-III), the difference between each of the accords and how each accord applies to various risk assessment scenarios. The Q&A was really vibrant where he discussed the IFRS migration to India and its impact on Indian Accounting System and the UID project-If government should give the project to contractors and if it did how it would violate the basic norms etc.

At the end of the 60 minutes session VGSOM students were left with a good number of key takeaways and even more points and ideas to research and ponder upon.