“A STUDY ON CREDIT RISK MANAGEMENT AT CANARA BANK”

DONE FOR

Project report submitted in partial fulfilment of the requirement ofPONDICHERRY UNIVERSITY for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted ByBHASWANI DANA(Reg. No. 11397020)

Under The Guidance Of

Dr.B.CHARUMATHIAssociate Professor,

Department Of Management Studies,Pondicherry University.

DEPARTMENT OF MANAGEMENT STUDIESSCHOOL OF MANAGEMENTPONDICHERRY UNIVERSITY

PONDICHERRY-605014

MARCH-APRIL 2013

CERTIFICATE

This is to certify that this project entitled “A STUDY ON CREDIT RISK MANAGEMENT

AT CANARA BANK” is submitted by BHASWANI DANA, MBA II year to the

DEPARTMENT OF MANAGEMENT STUDIES, SCHOOL OF MANAGEMENT,

PONDICHERRY UNIVERSITY in partial fulfilment of the degree requirement for the award

of the degree MASTER OF BUSINESS ADMINISTRATION and is certified to be an original

and bonafide work.

Dr.T.NAMBIRAJAN Dr.B.CHARUMATHIProfessor & Head Of The Department Associate ProfessorDepartment Of Management Studies, Department Of Management studiesPondicherry University. Pondicherry University.

Place: Pondicherry

Date:

DEPARTMENT OF MANAGEMENT STUDIESSCHOOL OF MANAGEMENTPONDICHERRY UNIVERSITY

PONDICHERRY-605014

DECLARATION

I hereby declare that this project report entitled “A STUDY ON CREDIT RISK

MANAGEMENT AT CANARA BANK” in CANARA BANK,

NIDADAVOLE,ANDHRA PRADESH submitted in the partial in partial fulfilment of

the degree requirement for the award of the degree MASTER OF BUSINESS

ADMINISTRATION (MBA) Of DEPARTMENT OF MANAGEMENT STUDIES,

SCHOOL OF MANAGEMENT, PONDICHERRY UNIVERSITY, PUDUCHERRY-

605014 is based on second data found by me in various departments, websites, annual reports &

Collected by me under the guidance of Mr.ANIL KUMAR, Sr Manager, CANARA BANK,

NIDADAVOLE,ANDHRA PRADESH.

Date: BHASWANI DANAMBA (II YEAR)Pondicherry University

ACKNOWLEDGEMENT

It’s a great privilege that I have done project in such a well-organized & diversified

organization. I am very grateful to all those who helped and supported me in completing the

project.

First of all I would like to thank Mr. ANIL KUMAR, (Sr Manager,) for giving me an

opportunity to work as winter trainee in CANARA BANK, NIDADAVOLE, ANDHRA

PRADESH & also I would like to thank to all the staff members for their cooperation & help

given by them. Their experiences & feedback kept me on track and helped me produce much

better results.

I am also thankful to our Head of the Department Dr.T.NAMBIRAJAN, and my Project

guide Dr.Charumathi who guided me and helped me a lot in completing the project.

I would also like to thank to all college staff and my friends for helping me directly or

indirectly in project.

BHASWANI DANA

EXECUTIVE SUMMARY

Credit risk is defined as the possibility of losses associated with diminution in the credit

of quality of borrowers or counter parties. In a banks portfolio, losses stem from outright default

due to inability or unwillingness of a customer or counter party to meet commitments in relation

to lending, trading, settlement and other financial transactions.

As credit risk is one of the challenging tasks to banks I have selected this topic for my

study in order to know the various types of risk and the types of strategies the banks use to

mitigate the risk.

As part of its vision of using technology to provide affordable banking services to the

vast rural population of India, Canara bank has extend the performance and cost benefits of

enterprises Linux to its customers. With a modernized branch infrastructure, Canara bank hopes

to serve customers in a timely and efficient manner, reinforcing its image of being a customer

savvy bank

TABLE OF CONTENTS

CHAPTER DESCRIPTION PAGE NO.

ACKNOWLEDGEMENT 4EXECUTIVE SUMMARY 5

LIST OF TABLES 8LIST OF CHARTS 9

1 INTRODUCTION 101.1Introduction To The Topic 111.2 Need For The Study 121.3 Statement Of The Problem 121.4 Objectives Of The Study 121.5 Research Methodology 121.6 Limitations Of The Study 131.7 Chapterization 13

2 PROFILE OF INDIAN BANKING INSUSTRY & HDFC BANK

14

2.1 Introduction 152.2 Historical Background 152.3 General Banking Scenario 162.4 Structure of Indian Banking Industry 172.5 Profile of HDFC bank 21

2.5.1 Promoter 212.5.2 Business Focus 212.5.3 Capital Structure 222.5.4 Times Bank Amalgamation 222.5.5 Distribution Network 222.5.6 Management 232.5.7 Technology 232.5.8 Business Focus 242.5.9Rating 242.5.10 Product Scope 252.5.11 Products & Services at a glance 252.5.12 Merger 302.5.13 Quality Policy 32

3 EXPOSURE NORMS 33

3.1 Introduction 343.2Guidelines 34

3.2.1 Credit Exposures to Individual / Group Borrowers 343.2.2 Credit Exposure to Industry or Certain Sectors 41

3.2.3 Banks' Exposure to Capital Market 453.2.4 Financing of equities and investments in shares 503.2.5. Risk Management and Internal Control System 573.2.6 Valuation and Disclosure 583.2.7 Cross holding of capital among banks / financial

institutions58

3.2.8 Margin Requirements 593.2.9 Limits on exposure to unsecured guarantees and

unsecured advances60

3.2.10 'Safety Net' Schemes for Public Issues of Shares, Debentures, etc

61

3.2.11 The definition of infrastructure lending and the list of the items included under infrastructure sector

61

4DATA ANALYSIS & INTER PRETATION

63

5 SUMMARY OF FINDINGS AND SUGGESTIONS 965.1 General findings 975.2 Specific findings 975.3 Suggestions and recommendations 98

REFERENCES 99

LIST OF TABLES

TABLE NO.

TITLEPAGE

NO.

1.1 Sample Size For Each Sector And Parameter 142.1 Category Wise Banks In India 193.1 CCF for market related off-balance sheet items 38

4.1Bank Wise Credit Exposure To Capital Market Sector (Rs In Lakhs) (2007 - 2011)

64

4.2 ANOVA performed YEAR WISE to capital market sector 654.3 ANOVA performed BANK WISE to capital market sector 65

4.4Trend Analysis For Exposure To Capital Market Sector of old private banks (2007 is base year)

66

4.5Trend Analysis For Exposure To Capital Market Sector of new private banks (2007 is base year)

67

4.6Comparative Analysis For Exposure To Capital Market Sector of old private banks (previous year is base year)

68

4.7Comparative Analysis For Exposure To Capital Market Sector of new private banks (previous year is base year)

69

4.8Bank Wise Credit Exposure To Real Estate Sector (Rs In Lakhs)(2007 – 2011)

70

4.9 ANOVA performed YEAR WISE to REAL ESTATE sector 714.10 ANOVA performed BANK WISE to REAL ESTATE sector 71

4.11Trend Analysis For Exposure To Real Estate Sector of old private banks (2007 is base year)

72

4.12Trend Analysis For Exposure To Real Estate Sector of new private banks (2007 is base year)

73

4.13Comparative Analysis For Exposure To Real Estate Sector of old private banks (previous year is base year)

74

4.14Comparative Analysis For Exposure To Real Estate Sector of new private banks (previous year is base year)

75

4.15Bank Wise DIRECT Credit Exposure To Real Estate Sector(Rs In Lakhs) (2007 - 2011)

76

4.16Trend Analysis For DIRECT Exposure To Real Estate Sector of old private banks (2007 is base year)

77

4.17Trend Analysis For DIRECT Exposure To Real Estate Sector of new private banks (2007 is base year)

78

4.18Comparative Analysis For DIRECT Exposure To Real Estate Sector of old private banks (previous year is base year)

79

4.19Comparative Analysis For DIRECT Exposure To Real Estate Sector of new private banks (previous year is base year)

80

4.20Bank Wise INDIRECT Credit Exposure To Real Estate Sector (Rs In Lakhs) (2007 - 2011)

81

4.21Trend Analysis For INDIRECT Exposure To Real Estate Sector of old private banks (2007 is base year)

82

4.22Trend Analysis For INDIRECT Exposure To Real Estate Sector of new private banks (2007 is base year)

83

4.23Comparative Analysis For INDIRECT Exposure To Real Estate Sector of old private banks (previous year is base year)

84

4.24Comparative Analysis For INDIRECT Exposure To Real Estate Sector of new private banks (previous year is base year)

85

4.25 Risk Category Wise Country Exposure-2011 864.26 Risk Category Wise Country Exposure-2010 874.27 Risk Category Wise Country Exposure-2009 884.28 Risk Category Wise Country Exposure-2008 894.29 Risk Category Wise Country Exposure-2007 904.30 Bank wise High risk country exposure 91

4.31Backward trend analysis to Bank wise High risk country exposure considering 2011 as base year

91

4.32 Bank wise Very High risk country exposure 92

4.33Backward trend analysis to Bank wise Very High risk country exposure considering 2011 as base year

93

4.34 Bank wise restricted risk country exposure 94

4.35Backward trend analysis to Bank wise restricted risk country exposure considering 2011 as base year

94

4.36List of Private Banks Which Are Compiled And Not Complied Exposure Norms

95

LIST OF CHARTS

CHART

NO.TITTLE

PAGE NO.

2.1 Structure Of Indian Banking Industry 21

4.1Trend Analysis For Exposure To Capital Market Sector of old private banks (2007 is base year)

66

4.2Trend Analysis For Exposure To Capital Market Sector of new private banks (2007 is base year)

67

4.3Comparative Analysis For Exposure To Capital Market Sector of old private banks (previous year is base year)

68

4.4Comparative Analysis For Exposure To Capital Market Sector of new private banks (previous year is base year)

69

4.5Trend Analysis For Exposure To Real Estate Sector of old private banks (2007 is base year)

72

4.6Trend Analysis For Exposure To Real Estate Sector of new private banks (2007 is base year)

73

4.7Comparative Analysis For Exposure To Real Estate Sector of old private banks (previous year is base year)

74

4.8Comparative Analysis For Exposure To Real Estate Sector of new private banks (previous year is base year)

75

4.9Trend Analysis For DIRECT Exposure To Real Estate Sector of old private banks (2007 is base year)

77

4.10Trend Analysis For DIRECT Exposure To Real Estate Sector of new private banks (2007 is base year)

78

4.11Comparative Analysis For DIRECT Exposure To Real Estate Sector of old private banks (previous year is base year)

79

4.12Comparative Analysis For DIRECT Exposure To Real Estate Sector of new private banks (previous year is base year)

80

4.13Trend Analysis For INDIRECT Exposure To Real Estate Sector of old private banks (2007 is base year)

82

4.14Trend Analysis For INDIRECT Exposure To Real Estate Sector of new private banks (2007 is base year)

83

4.15Comparative Analysis For INDIRECT Exposure To Real Estate Sector of old private banks (previous year is base year)

84

4.16Comparative Analysis For INDIRECT Exposure To Real Estate Sector of new private banks (previous year is base year)

85

4.17Backward trend analysis to Bank wise High risk country Exposure considering 2011 as base year

92

4.18Backward trend analysis to Bank wise Very High risk country exposure considering 2011 as base year

93

4.19Backward trend analysis to Bank wise restricted risk country exposure considering 2011 as base year

94