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Interim Project Report
Risk Management in Banking
Submitted toKaushik Bhattacharya
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A Report on
Risk Management Practices of
Three Public Sector Banks
Bank of Baroda, Punjab National Bank
&Canara Bank
By-
HARSH KUPANIA
SUMIT VIJ
SHRESHTA DAS
PRIYAMWADA
Submitted on21
st
January, 2013
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Table of Contents
1. Abstract.......................................................................................................42. Introduction to banking sector....................................................................43. Risk Management in Banking Concepts....................................................54. Asset Liability Mismanagement................................................................65. Gap analysis...............................................................................................66. Duration Analysis......................................................................................87. Interest Rate Risk108. Type ofRisk119. Bank of Baroda1410.Canara Bank....1611.Punjab National Bank...............................................................................2012.References24
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Abstract
This project report is related with the concepts of Risk Management in Banking of three
public sector banks. The basic methodology is to make a comparison of these three banks to
analyze the performance of these banks. The comparison is made on the basis of various risk
management practices that we have mentioned in this report. We have collected the past Ten
years data of all these PSU banks and compare them on this of their Asset-Liability
Mismatch, Gap analysis, Interest Rate Risk ant the Duration Gap analysis.
Introduction
Financial sector reforms in India have brought about rapid changes in the structure of
financial markets, more particularly in banks. After initial shocks, the market is now attuned
to the winds of liberalization and gradually learning the tricks of not only surviving but also
growing in an environment of volatile as man soon. Banking prior to the 90s and banking
now present a perfect study of contrast.
Recently, banks have started to focus on the area ofrisk management as well as asset-
liability management (ALM). Simply speaking, ALM is an attempt to match the assets and
liabilities in terms of their maturities and interest rates sensitivities so that the risk arising
from such mismatchesmainly interest rate risk and liquidity risk- can be contained within
the desired limit. The objective behind all these measures is to make banks fully prepared to
face the emerging challenges. It is also common knowledge that the concept of risk in terms
of its definition, identification, quantification and management as well as the risk of
managing assets and liabilities, without which all endeavors to manage the net interest margin
as well as the total balance sheet would remain a non- starter. Because of ALM, Interest rate
risk management assumes utmost importance. In fact due to very nature of its business, a
bank should accept interest rate risk not by chance but by choice. And when the bank has to
take risk as a choice, then it should ensure that the risk taken is firstly manageable and
secondly it does not get transformed into any other undesirable risk. As stated earlier, the
focal point in managing any risk will be to understand the nature of the risk. This is especially
essential for interest rate risk management. Interest Rate Risk is the gain/ loss that arises due
to sensitivity of the interest income/interest expenditure or values of assets/liabilities to the
interest rate fluctuations.
This project study is an endeavor to understand interest rate risk management practices
followed in banks in India. Banks in fact are using various interest rate risk management
methods. Traditional and modern methods like maturity gap method, rate adjusted gap
method, duration analysis, hedging techniques, and simulation and value at risk method are
being used. So banking in India has come a long way. In fact interest rate risk management
being part of ALM is being given utmost importance by banks.
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Risk Management in Banking Concepts
Risk management underscores the fact that the survival of an organization depends heavily
on its capabilities to anticipate and prepare for the change rather than just waiting for thechange and react to it. The objective of risk management is not to prohibit or prevent risk
taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose
and clear understanding so that it can be measured and mitigated. It also prevents an
institution from suffering unacceptable loss causing an institution to suffer or materially
damage its competitive position. Functions of risk management should actually be bank
specific dictated by the size and quality of balance sheet, complexity of functions, technical/
professional manpower and the status of MIS in place in that bank.
Risk: the meaning of Risk as per thecomprehensive dictionary is a chance of encountering
harm or loss, hazard, danger or to expose to a chance of injury or loss. Thus, something
that has potential to cause harm or loss to one or more planned objectives is called Risk.
The word risk is derived from an Italian word Risicare which means To Dare. It is an
expression of danger of an adverse deviation in the actual result from any expected result.
Banks for International Settlement (BIS) has defined it as- Risk is the threat that an event or
action will adversely affect an organizations ability to achieve its objectives and successfully
execute its strategies.
Risk Management: Risk Management is a planned method of dealing with the potential loss
or damage. It is an ongoing process of risk appraisal through various methods and tools
which continuously
Assess what could go wrong
Determine which risks are important to deal with
Implement strategies to deal with those risks
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AssetsLiabilitiesMismatching
A bank with mismatched assets and liabilities can be badly hurt by unexpected interest
rate changes. In the 80s, many Savings & Loan associations went bankrupt owing to rates
increases: since they had borrowed short and lent long, both their income and their net
worth had become negative.
Banks use the gap and the duration analyses to respectively evaluate (not necessarily to
eliminate) their exposure to income and to capital risks.
Gap analysis
It estimates the net effect on income of interest rate changes (parallel shifts). Income risk
is two forged: there is a reinvestment riskwhen assets mature before liabilities (ex. when a
bank has financed a 6 months T-bill by issuing a 1 year fixed rate CD: when, after 6
months, it cashes the T-bill, it may be unable to reinvest the proceeds at a profitable rate.
Please note that it is not unusual for a bank to finance a 5-years floating rate loan by
issuing a 3-years fixed rate bond: also in this case it is exposed to a reinvestment risk).
There is also a refinancing riskwhen liabilities mature before assets (ex. when a bank has
financed a 1 year fixed rate asset by issuing a 6 months CD: when the liability will mature,
the bank has to refinance its position by issuing another 6 months CD. But, if interest rates
have increased, the bank will have to pay a higher rate).
For the Gap analysis all items, on both sides of the balance sheet, are classified into twocategories: rate-sensitive andfixed-rate (non-sensitive).
ASSETS LIABILITIES
Rate-sensitive: RSA
(variable-rate loans and bonds; bills
and short-term securities) 40
Rate-sensitive:RSL
(variable-rate deposits; short-term or
variable-rate securities) 30
Fixed-rate: NSA
(fixed-rate loans; fixed-rate long-term
bonds; reserves) 60
Fixed-rate: NSL
(fixed-rate loans; fixed-rate long-term
bonds; net worth) 70
Gap = RSARSL = 4030 = 10 million
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The (annual) income will change by the size of the gap multiplied by the size of theinterest rates change: if the rates increase by 2% (200 basis points), the annual income will
increase by: 2%(10 million) = 200,000 euro.
GAP>0 The bank is asset sensitive: it benefits from interest rate increases and suffersfrom decreases.
GAP
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Duration analysis
Estimates the effect on the banks net worth (capital gains and losses) of an interest rate
change (parallel shifts).
ASSETS LIABILITIES
Rate-sensitive 40 Rate-sensitive 30
Fixed-rate Fixed-rate
*Reserves 10
*Zero coupon 5 years (83 mln, market
value at 6%) 62
*Zero coupon 20 years (233 mln, market
value at 8%) 50 *Net worth 8
Total 100 Total 100
After a 200 bp increase in interest rates, we have:ASSETS LIABILITIES
Rate-sensitive 40 Rate-sensitive 30
Fixed-rate Fixed-rate
*Reserves 10
*Zero coupon 5 years (83 mln,
market value at 8%) 56,46
*Zero coupon 20 years (233 mln, market
value at 10%) 34,64 *Net worth -1,82
Total 84,64 Total 84,64
The bank is bankrupt, notwithstanding its advantage of 0.2 mln in interest income. The cause
is a very large mismatching between assets and liabilities duration:
DA Assets average duration 0 40 100 0 10 100 20 50 100 10/ / /
DL
Liabilities average duration 0 30 92 5 62 92 3 4/ / .
DG Duration gap D
L
AD
A L10
92
1003 4 6 87. .
1st approximation:Duration gap
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NW DL
AD A i D A i
A L G1
For an increase of 200 bp, DG gives an estimation of NW1 = 13.74mln: a poor
approximation since the actual fall is 9.82 mln.
2nd approximation: Modified duration gap
NWD
i
L
A
D
iA i MD A iA
A
L
L
G21 1
ForMDG = 6.30, we have: NW2= 12.6 mln.
3rd
approximation: Modified duration gap and convexity gap
NW MD A i CL
AC A i
A A L3
21
2
MD A i C A iG G 1
2
2
with: C CA 50
100
20 10% 180 04. ; C CL 62
92
5 8% 17 93. , we have: NW3=
9.45 mln: a not too bad approximation.
Of course, all the approximations are better for smaller changes in interest rates. For i=0.01, we obtain: NW1 = 6.87, NW2= 6.30, NW3 = 5.51 as against an actual fall of
5.61 mln.
A positive DG is an implicit bet that interest rates will fall; a negative one that they willrise. To obtainDG = 0, in order to cover much of the capital risk, the bank can:
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Interest Rate Risk
Interest rate risk is the largest market risk in the banking book. A bank's interest rate risk
reflects the extent to which its financial condition is affected by changes in market interest
rates. There are two different ways of thinking about such effects when analysing banks'
exposure to interest rate risk: the net interest income risk measure and the investment riskmeasure.
The income risk measure is employed to assess the impact of a change in overall interest rate
level to the net interest income from the banking book, whereas the investment risk measure
is employed to assess changes in the market value of the trading portfolio (on and off balance
sheet items available for sale) in response to interest rate changes.
Various economic forces affect the level and direction of interest rates in the economy.
Interest rates typically climb when the economy is growing, and fall during economic
downturns.
Similarly, rising inflation leads to rising interest rates (although at some point, higher rates
themselves become contributors to higher inflation), and moderating inflation leads to lowerinterest rates. Inflation is one of the most influential forces on interest rates.
Management of interest rate and currency risks by banks
Banks are essentially in the business of managing risks. In particular, they are required to
handle interest rate mismatches as well as currency mismatches in their capacity as
authorized dealers and market-makers in the currency market.. The Reserve Bank has also
assigned responsibility on banks for ensuring suitability and appropriateness while
transacting derivative instruments with the corporates and also ensuring that the corporates
have appropriate risk management framework... Absence of proper oversight over corporates
business particularly their currency and interest rate risks has come to the fore now when we
have witnessed a number of cases of corporates seeking restructuring/CDR, many of whom
have got into difficulties due to foreign exchange related losses and excessive leverage,
restructuring/defaults of overseas ECB/Foreign Currency Convertible Bonds (FCCB)
obligations, loss to the overseas branches of Indian banks who have subscribed Credit Linked
Notes (CLNs) under the FCCB issues past.
Banks enter into derivative contracts for the purpose of hedging their own risks. They also
play an important role as market makers in the derivatives markets to enable their customers
to hedge their risks. Client trades are typically covered on a back-to-back basis by banks in
the inter-bank market, implying that the banks are hedged as far as market risks on clientrelated transactions are concerned but they continue to hold on to the credit risks arising from
the exposure to their clients. Banks also carry a significant amount of interest rate risk in their
investment portfolio due to holding of the Statutory Liquidity Ratio (SLR) bonds and non-
SLR securities. Managing risks in the investment portfolio, thus, acquires additional
significance in an environment of increased volatility of interest rates notwithstanding the
HTM dispensation available to banks up to certain limits. Typically, banks have been using a
combination of duration targets and duration gap analysis for managing risks arising out of
movements in interest rates. A series of stress tests are being conducted periodically by the
Reserve Bank on the impact of interest rate shocks on the banking and trading books of
banks. The results have been presented in the Financial Stability Reports (FSR) published by
the Reserve Bank of India.
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Type of Risk
When we use the term Risk, we all mean financial risk or unexpected financial loss. If we
consider risk in terms of probability or occur frequently, we measure risk on a scale, with
certainty of occurrence at one end and certainty of non-occurrence at the other end. Risk is
the greatest phenomena where the probability of occurrence or non-occurrence is equal. As
per the Reserve Bank of India guidelines issued in Oct. 1999, there are three major types of
risks encountered by the banks and these are Credit Risk, Market Risk & Operational Risk.
Further after eliciting views of banks on the draft guidelines on Credit Risk Management and
market risk management, the RBI has issued the final guidelines and advised some of the
large PSU banks to implement so as to gauge the impact. Risk is the potentiality that both the
expected and unexpected events may have an adverse impact on the banks capital or its
earnings.
The expected loss is to be borne by the borrower and hence is taken care of by adequately
pricing the products through risk premium and reserves created out of the earnings. It is the
amount expected to be lost due to changes in credit quality resulting in default.
Where as, the unexpected loss on account of the individual exposure and the whole portfolio
is entirely borne by the bank itself and hence care should be taken. Thus, the expected losses
are covered by reserves/provisions and the unexpected losses require capital allocation.
LIQUIDITY RISKLiquidity risk is the current and prospective risk to earnings or capital arising from a banks
inability to meet its obligations when they become due without incurring unacceptable
losses.Liquidity risk includes the inability to manage unplanned decreases or changes in
funding sources. Liquidity risk also arises from the failure to recognize or address changes in
market conditions that affect the ability to liquidate assets quickly and with minimal loss invalue.
CREDIT RISKIn the context of Basel II, the risk that the obligor (borrower or counterparty) in respect of a
particular asset will default in full or in part on the obligation to the bank in relation to the
asset is termed as Credit Risk.
Credit Risk is defined as-The risk of loss arising from outright default due to inability orunwillingness of the customer or counter party to meet commitments in relation to lending,
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trading, hedging, settlement and other financial transaction of the customer or counter party
to meet commitments.
Credit Risk is also defined, as the potential that a borrower or counter party will fail to meets
its obligations in accordance in agreed terms.
MARKET RISKIt is defined as the possibility of loss caused by changes in the market variables such as
interest rate, foreign exchange rate, equity price and commodity price. It is the risk of losses
in, various balance sheet positions arising from movements in market prices.
RBI has defined market risk as the possibility of loss to a bank caused by changes in themarket rates/ prices. RBI Guidance Note focus on the management of liquidity Risk and
Market Risk, further categorized into interest rate risk, foreign exchange risk, commodity
price risk and equity price risk.
Market risk includes the risk of the degree of volatility of market prices of bonds, securities,
equities, commodities, foreign exchange rate etc., which will change daily profit and loss
over time; its the risk of unexpected changes in prices or rates. It also addresses the issues of
Banks ability to meets its obligation as and when due, in other words, liquidity risk.
OPERATIONAL RISKOperational risk is the risk associated with the operations of an organization. It is defined as
risk of loss resulting from inadequate or failed internal process, people and systems or from
external events.
It includes legal risk. It excludes strategic and reputational risks, as the same are not
quantifiable.
Operational risk includes the risk of loss arising from fraud, system failures, trading error andmany other internal organizational risks as well as risk due to external events such as fire,
flood etc. the losses due to operation risk can be direct as well as indirect. Direct loss means
the financial losses resulting directly from an incident or an event. E.g. forgery, fraud etc.
indirect loss means the loss incurred due to the impact of an incident.
REGULATORY RISKThe owned funds alone are managed by an entity, it is natural that very few regulatorsoperate and supervise them. However, as banks accept deposit from public obviously better
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governance is expected from them. This entails multiplicity of regulatory controls. Many
Banks, having already gone for public issue, have a greater responsibility and accountability
in this regard. As banks deal with public funds and money, they are subject to various
regulations. The various regulators include Reserve Bank of India (RBI), Securities Exchange
Board of India (SEBI), Department of Company Affairs (DCA), etc. More over, banks shouldensure compliance of the applicable provisions of The Banking Regulation Act, The
Companies Act, etc. Thus all the banks run the risk of multiple regulatory-risks which
inhibits free growth of business as focus on compliance of too many regulations leave little
energy scope and time for developing new business. Banks should learn the art of playing
their business activities within the regulatory controls.
ENVIRONMENTAL RISKAs the years roll the technological advancement takes place, expectation of the customers
change and enlarges. With the economic liberalization and globalization, more national and
international players are operating the financial markets, particularly in the banking field.
This provides the platform for environmental change and exposure of the bank to the
environmental risk. Thus, unless the banks improve their delivery channels, reach customers,
innovate their products that are service oriented; they are exposed to the environmental risk.
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Bank of Baroda
Bank of Baroda is the highest profit-making public sector undertaking (PSU) bank in India
and the second largest PSU bank in terms of number of total business in India. Based
in Vadodara, India, it is the country's first largest public sector lender in terms of annual
profit. BoB is ranked 715 on Forbes Global 2000 list. BoB has total assets in excess of Rs.
3.58 lakh crores, or Rs. 3,583 billion, a network of 4007 branches (out of which 3914
branches are in India) and offices, and over 2000 ATMs. It plans to open 400 new branches
in the coming years. It offers a wide range of banking products and financial services to
corporate and retail customers through its delivery channels and through its specialized
subsidiaries and affiliates in the areas of investment banking, credit cards and asset
management. Its total global business was Rs. 7,003.30 billion as of 30 Sep 2012. Its
headquarter is in Vadodara and corporate headquarter is in BandraKurla Complex Mumbai.
HERE IS THE CALCULTION OF RSA, RSL,GAP, GAP RTIO, CUMMULATIVEGAP & NET WORTH OF BOB FROM MARCH 2003 TO MARCH 2012.
Industry :Banks -
Public Sector
(Rs in Crs)
Year
Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Mar
07
Mar
06
Mar
05
Mar
04
Mar
03
SOURCES OF
FUNDS :
Capital
412.3
8
392.
81
365.5
3
365.5
3
365.
53
365.5
3
365.5
3
294.5
3
294.5
3
294.3
4
Reserves Total
28,10
3.92
21,4
33.7
6
15,34
9.06
12,95
9.17
10,9
93.0
1
8,512
.03
7,743
.31
5,556
.54
4,997
.72
4,188
.18
Equity Share
Warrants 0 0 0 0 0 0 0 0 0 0
Equity
Application Money 0 0 0 0 0 0 0 0 0 0
Minority Interest 91.18
72.9
1 59.42 46.43
36.2
9 31.82 24.61 41.76 35.97 31.58
Deposits392,615.95
311,
603.25
245,951.15
196,608.44
155,
295.08
128,107.41
96,051.01
83,405.12
74,646.54
67,668.69
Borrowings
23,59
8.06
22,3
78.3
3
13,40
4.27
12,77
6.67
3,96
2.17
1,171
.15
5,048
.87
1,924
.54
1,289
.35
949.0
1
Other Liabilities &
Provisions
12,59
0.52
10,3
32.7
1
9,147
.34
8,820
.48
12,8
84.1
3
8,725
.49
7,446
.64
6,178
.15
6,259
.17
5,229
.30
Policy Holders
Fund 0 0 0 0 0 0 0 0 0 0
Others 0 0 0 0 0 0 0 0 0 0
TOTAL LIABILITIES
444,8
21.49
355,
881.
275,1
29.43
222,7
56.24
170,
652.
138,1
87.94
109,2
33.33
91,22
2.49
81,26
4.11
73,13
1.80
http://en.wikipedia.org/wiki/Vadodarahttp://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Croreshttp://en.wikipedia.org/wiki/Vadodarahttp://en.wikipedia.org/wiki/Bandra_Kurla_Complexhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Bandra_Kurla_Complexhttp://en.wikipedia.org/wiki/Vadodarahttp://en.wikipedia.org/wiki/Croreshttp://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Vadodara7/29/2019 Risk Management Practices of Three Public Sector Banks
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06 08
APPLICATION OF
FUNDS :
Cash & Balances
with RBI
22,26
8.35
20,3
94.4
2
14,07
6.07
10,90
1.21
9,61
7.34
6,569
.79
3,470
.96
2,777
.11
3,121
.19
3,567
.25Balances with
Banks & money at
Call
43,54
2.00
31,0
29.3
1
22,49
3.41
14,30
1.41
13,5
52.7
7
12,40
5.72
10,47
1.33
6,839
.90
4,397
.37
3,538
.50
Investments
86,69
7.00
74,1
54.4
2
63,16
3.27
53,62
6.58
44,6
57.7
6
35,67
7.00
35,64
5.17
38,02
3.35
38,80
4.41
30,72
5.70
Advances
292,0
77.14
232,
085.
11
177,7
11.90
145,5
59.50
108,
578.
97
85,55
8.04
61,48
3.12
44,47
7.15
36,53
3.59
36,17
4.08
Fixed Assets
2,428
.19
2,38
3.20
2,369
.39
2,559
.63
2,67
4.64
1,343
.60
1,216
.59
905.3
7
852.3
9
737.4
5
Other Assets
10,39
9.33
6,16
7.31
4,462
.73
4,628
.39
4,45
4.73
5,359
.28
4,392
.80
4,377
.76
3,814
.33
3,618
.12
Miscellaneous
Expenditure not
written off 0 0 0 0 0 0 0 0 0 0
Others 0 0 0 0 0 0 0 0 0 0
TOTAL ASSETS
457,4
12.01
366,
213.
77
284,2
76.77
231,5
76.72
183,
536.
21
146,9
13.43
116,6
79.97
97,40
0.64
87,52
3.28
78,36
1.10
Contingent
Liability
153,1
54.99
127,
562.
36
88,22
1.17
73,73
0.71
82,5
95.2
7
61,65
4.29
39,34
6.12
36,95
4.03
30,49
3.92
24,55
1.53
Bills for
collection
22,86
2.48
18,9
86.6
8
18,26
7.18
14,04
7.39
8,36
0.15
6,883
.55
6,096
.96
6,340
.39
5,014
.96
4,245
.77
RSA
444,5
84.49
357,
663.
26
277,4
44.65
224,3
88.70
176,
406.
84
140,2
10.55
111,0
70.58
92,11
7.51
82,85
6.56
74,00
5.53
RSL416,3
05.19
334,
054.
49
259,4
14.84
209,4
31.54
159,
293.
54
129,3
10.38
101,1
24.49
85,37
1.42
75,97
1.86
68,64
9.28
GAP (RSA - RSL)28,27
9.30
23,6
08.7
7
18,02
9.81
14,95
7.16
17,1
13.3
0
10,90
0.17
9,946
.09
6,746
.09
6,884
.70
5,356
.25
CUMMULATIVEGAP
28,279.30
51,8
88.07
69,917.88
84,875.04
101,
988.34
112,888.51
122,834.60
129,580.69
136,465.39
141,821.64
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GAP RATO
(RSA/RSL)
1.067
9292
52
1.07
0673
41
1.069
5018
45
1.071
4178
96
1.10
7432
48
1.084
2946
25
1.098
3549
09
1.079
0204
73
1.090
6217
12
1.078
0233
97
NET WORTH
(TOTAL ASSETS -
TOTAL LIABLITIES)
12,59
0.52
10,3
32.7
1
9,147
.34
8,820
.48
12,8
84.1
3
8,725
.49
7,446
.64
6,178
.15
6,259
.17
5,229
.30
Canara Bank
Widely known for customer centricity, Canara Bank was founded by
ShriAmmembalSubbaRaoPai, a great visionary and philanthropist, in July 1906, at
Mangalore, then a small port town in Karnataka. The Bank has gone through the various
phases of its growth trajectory over hundred years of its existence. In June 2006, the Bank
completed a century of operation in the Indian banking industry. Today, Canara Bank
occupies a premier position in the comity of Indian banks. With an unbroken record of profits
since its inception, Canara Bank has several firsts to its credit. These include:
Launching of Inter-City ATM Network Obtaining ISO Certification for a Branch Articulation of Good Banking Banks Citizen Charter Commissioning of Exclusive Mahila Banking Branch Launching of Exclusive Subsidiary for IT Consultancy Issuing credit card for farmers Providing Agricultural Consultancy Services
Over the years, the Bank has been scaling up its market position to emerge as a major'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint
ventures in India and abroad. As at September 2012, the Bank has further expanded its
domestic presence, with 3650 branches spread across all geographical segments. Keeping
customer convenience at the forefront, the Bank provides a wide array of alternative delivery
channels that include 3184 ATMs, covering 1182 centres. Several IT initiatives have been
undertaken during the year, which include Funds Transfer through Interbank Mobile Payment
Services (IMPS) in ATMs, ASBA facility to net banking users, E-filing of tax returns and
facility for viewing details of tax deducted at source, Terminal at 223 branches for customers
to use net banking, SMS/e-mail alerts for all transactions done through ATM, net banking,
POS, mobile banking, online payments irrespective of amounts, online loan applications and
7/29/2019 Risk Management Practices of Three Public Sector Banks
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17 | P a g e
tracking facility, generation of automatic pass sheets through e-mail and automatic renewal of
term deposits. Under Government business, the Bank has implemented internet based
application for UGC Maulana Azad National Fellowship Scheme, Web portal for National
Scheme for Girl Child Secondary Education, Electronic Accounting Systems of e-Receipts-
Customs (EASeR-C) for collection of customs duty and e-payment of commercial taxesmodule for UP, Karnataka, Delhi and Tamil Nadu.
Not just in commercial banking, the Bank has also carved a distinctive mark, in various
corporate social responsibilities, namely, serving national priorities, promoting rural
development, enhancing rural self-employment through several training institutes and
spearheading financial inclusion objective. Promoting an inclusive growth strategy, which
has been formed as the basic plank of national policy agenda today, is in fact deeply rooted in
the Bank's founding principles. "A good bank is not only the financial heart of the
community, but also one with an obligation of helping in every possible manner to
improve the economic conditions of the common people". These insightful words of our
founder continue to resonate even today in serving the society with a purpose. The growth
story of Canara Bank in its first century was due, among others, to the continued patronage of
its valued customers, stakeholders, committed staff and uncanny leadership ability
demonstrated by its leaders at the helm of affairs. We strongly believe that the next century is
going to be equally rewarding and eventful not only in service of the nation but also in
helping the Bank emerge as a "Global Bank with Best Practices". This justifiable belief is
founded on strong fundamentals, customer centricity, enlightened leadership and a family
like work culture.
HERE IS THE CALCULTION OF RSA, RSL,GAP, GAP RTIO, CUMMULATIVE
GAP & NET WORTH OF CANARA BANK FROM MARCH 2003 TO MARCH 2012.
Industry :Banks - Public Sector
(Rs in Crs)
Year
Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Mar
07
Mar
06
Mar
05
Mar
04
Mar
03
SOURCES OF FUNDS
Capital 443 443 410 410 410 410 410 410 410 410
ReservesTotal 22600 19959 14612 12171 10310 10445
7164.6
6075.5
5274.2
4054.1
EquityShare
Warrants 0 0 0 0 0 0 0 0 0 0
Equity App
Money 0 0 0 0 0 0 0 0 0 0
Minority
Interest
161.4
8
149.1
6
136.3
7
181.5
7
159.0
4 30.87 27.2 22.96
190.5
2
161.1
9
Deposits
3268
94.04
2932
57.91
2345
17.77
1867
56.47
1537
28.7
1423
76.43
1167
76.68
9673
7.76
8640
5.88
7214
2.05
Borrowings 15614 142958473.
8 139652777.
81724.
6545.8
4512.0
62152.
7 785.7
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18 | P a g e
Other
Liabilities &
Provisions 13690 11361
8691.
3
6968.
1 13536 11696
8963.
8
7455.
3
6782.
1
5918.
9
Policy
Holders
Fund 0 0 0 0 0 0 0 0 0 0Others 0 0 0 0 0 0 0 0 0 0
TOTAL
LIABILITIES
3657
13.34
3281
04.23
2581
50.3
2134
84.34
1673
85.49
1549
87.07
1249
24.34
1037
58.23
9443
3.23
7755
3.03
APPLICATION OF
FUNDS :
Cash &
Balances
with RBI 17813 22032 15733 10047 13365
9095.
3
7914.
3
4984.
5 6891
5607.
6
Balances
with Banks &
money at
Call 10434
8739.
5
3990.
3
6680.
1
4758.
7
7291.
3
4891.
7
3641.
3
5062.
3
1814.
8
Investment
s
10649
7 86499 71120 58425 49598 45293 37013 38038 35922 30536
Advances
2327
28.74
2114
48.51
1694
63.86
1383
60.53
1076
17.09
9889
4.93
8002
5.7
6092
7.56
4887
0.83
4075
1.91
Fixed
Assets 2888
2884.
5
2931.
6
2998.
3
2941.
5
2876.
2
704.7
6
693.2
6
699.6
4
679.6
7
Other
Assets
9043.
5
7860.
7
3602.
8
3941.
1
2641.
5
3232.
4
3339.
1
2928.
9
3769.
9
4081.
9
MisExp notwritten off 0 0 0 0 0 0 0 0 0 0
Others 0 0 0 0 0 0 0 0 0 0
TOTAL
ASSETS
3794
03.55
3394
64.82
2668
41.6
2204
52.45
1809
21.38
1666
82.96
1338
88.09
1112
13.56
1012
15.29
8347
1.97
Contingent
Liability
1900
56.81
1296
54.29
1243
44.55
1518
12.07
1089
13.42
6194
3.56
5527
3.61
5796
6.19
5280
6.28
5154
5.22
Bills for
collection 12497 11193
7491.
6 10522 11137
6206.
2
4422.
6
3961.
5
3711.
1
3320.
4
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19 | P a g e
RSA
36747
2
32872
0
26030
7
21351
3
17533
8
16057
4
12984
4
10759
1 96746 78710
RSL34267
030770
224312
820090
315666
614413
211735
0 97273 88749 73089
GAP (RSA -
RSL) 24802 21018 17179 12610 18673 16443 12494 10319
7996.
7
5621.
5
CUMMULAT
IVE GAP 24802 45820 62999 75609 94282
11072
4
12321
9
13353
7
14153
4
14715
6
GAP RATO
(RSA/RSL)
1.072
4
1.068
3
1.070
7
1.062
8
1.119
2
1.114
1
1.106
5
1.106
1
1.090
1
1.076
9
NET WORTH
(TOTAL
ASSETS -
TOTAL
LIABLITIES) 13690 11361
8691.
3
6968.
1 13536 11696
8963.
8
7455.
3
6782.
1
5918.
9
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20 | P a g e
Punjab National Bank
With over 72 million satisfied customers and 5937 domestic branches, PNB has continued to
retain its leadership position amongst the nationalized banks. The Bank enjoys strong
fundamentals, large franchise value and good brand image. Over the years PNB has remained
fully committed to its guiding principles of sound and prudent banking irrespective of
conditions. Bank has been earning many laurels and accolades in recognition to its service
towards doing good to society, technology usage and on its overall performance. Some of the
major awards won by the Bank are the Best Bank Award, Most Socially Responsive
Bank by Business World-PwC, Most Productive Public Sector Bank, Golden Peacock
Awards by Institute of Directors, etc. Besides, the Bank is ranked 26th amongst FE 500
Indias Finest Companies, 26th amongst the Top 500 India's Largest Corporations by
Fortune 500 India. The Banker ranked PNB on 186th position in 2011, improving from 257thposition a year before. PNB ranked 668th amongst 2000 Global Giants as per the Forbes and
170th in 2012 improving from 195th in 2011 in Top 500 Most Valuable Banking Brands by
Brand Finance Banking 500. India Inc Top 100 Most Powerful CEOs for the year 2012, Shri
K.R. Kamath, CMD, PNB, adjudged Most Powerful amongst the Nationalised Banks in
India, with overall rank at 50 by Economic Times. Bank has also been ranked 26th amongst
India Top Companies as per ET 500 and 25th amongst the Top 50 most valuable corporate
brand by Brand Finance-ET.
Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is
concerned. With its policy of inclusive growth and the mission Banking for Unbanked, it isa matter of pride for the Bank that it has been able to cover all its 4588 villages allotted under
the Swabhiman Campaign of Government of India through Business Correspondents.
Further, the Bank has also adopted 118 villages across country. Under FI plan, the Bank has
engaged Technical Service Providers (TSPs) and the corporate Business Correspondents
(BCs) for providing banking services in villages using ICT based BC model. The village
level BC agents are using Hand Held Terminals/ POS machines & smartcards. Bank has
extensively used technology to reach out to those which have remained away from formal
banking set up.
The Bank is offering all the technology enabled services to its customers ranging from
Mobile Banking, Call Centre, Internet Banking, on line booking of rail tickets, payment of
utilities bills, booking of airline tickets to SMS alerts and Mobile Banking services to keep
them updated about their financial transactions at all time. Towards developing a cost
effective alternative channels of delivery, the Bank with more than 6050 ATMs has the
largest ATM network amongst Nationalized Banks. ATM Network of the Bank provides
other value added services such as Funds Transfer, Bill Payments and mobile registration for
generation of SMS alerts; Direct Tax Payment, request for stop payment of cheques, etc. are
also provided to the cardholders.
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21 | P a g e
Backed by strong domestic performance, the Bank has its global aspirations as well. Bank has
expanded its footprint into 10 countries. Bank also has 4 overseas branches in Hong Kong,
Dubai & Afghanistan and an Offshore Banking Unit (OBU) Branch in SEEPZ, Mumbai.
Bank has one wholly owned overseas Banking subsidiary, PNB International Ltd. (UK) along
with other two overseas subsidiaries are Druk PNB Bank Ltd, Bhutan and PNBKazakhstan besides Representative Office in Sydney, Australia, Dubai, Almaty, China &
Norway. Bank is planning to set up its second wholly owned subsidiary in Canada. Bank is
also looking to upgrade its Representative Offices at Norway, China and Australia to full-
fledged branches. Bank is also exploring possibilities for presence in Maldives, South Africa,
Bangladesh, Myanmar, Pakistan, Singapore and Brazil.
HERE IS THE CALCULTION OF RSA, RSL,GAP, GAP RTIO, CUMMULATIVE
GAP & NET WORTH OF PNB FROM MARCH 2003 TO MARCH 2012.
(Rs inCrs)
Year
Mar
12
Mar
11
Mar
10
Mar
09
Mar
08
Mar
07
Mar
06
Mar
05
Mar
04
Mar
03
SOUR
CES OF
FUNDS
:
Capita
l 339.18 316.81 315.3 315.3 315.3 315.3 315.3 315.3 265.3 265.3
Reser
vesTotal
28,864.66
22,297.85
18,387.44
15,244.92
12,756.54
10,736.67
9,588.03
8,261.57
5,191.83
4,128.48
Equity
Share
Warra
nts 0 0 0 0 0 0 0 0 0 0
Equit
y
Applica
tion
Money 0 0 0 0 0 0 0 0 0 0
Minority 331.42 301.29 227.06 139.94 136.87 131.3 127.16 122.67
144.92
123.86
7/29/2019 Risk Management Practices of Three Public Sector Banks
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22 | P a g e
Interes
t
Depos
its
384,40
8.22
316,23
1.93
251,45
7.66
210,65
9.17
166,91
7.02
139,94
4.07
119,75
2.01
103,20
3.69
88,07
3.38
75,95
1.73
Borro
wings
42,645
.42
34,638
.50
22,762
.94
17,136
.14
8,646.
18
4,711.
11
8,973.
08
3,973.
63
2,689
.81
1,733
.90Other
Liabiliti
es &
Provisi
ons
13,884
.97
12,526
.26
10,444
.32
10,116
.95
14,972
.55
10,392
.35
9,654.
96
12,254
.81
8,362
.50
5,964
.77
Policy
Holder
s Fund 0 0 0 0 0 0 0 0 0 0
Othe
rs 0 0 0 0 0 0 0 0 0 0
TOTAL
LIABILI
TIES
456,58
8.90
373,78
6.38
293,15
0.40
243,49
5.47
188,77
1.91
155,83
8.45
138,75
5.58
115,87
6.86
96,36
5.24
82,20
3.27
APPLIC
ATION
OF
FUNDS :Cash &
Balances
with RBI
18,50
7.64
23,79
1.19
18,33
4.78
17,05
9.55
15,25
9.14
12,37
2.51
23,39
4.96
9,460.
76
6,742.
93
6,569
.01
Balances
with
Banks &
money at
Call
11,61
2.25
6,300.
11
5,915.
91
4,965.
60
3,968.
53
3,505.
57
1,587.
24
1,750.
75
2,090.
77
1,528
.78
Investm
ents
125,7
46.34
96,91
1.28
79,25
3.88
65,39
1.68
55,88
3.28
47,07
5.87
42,85
1.13
51,68
2.60
43,58
5.72
35,08
9.04
Advances
301,346.52
247,746.58
191,110.85
158,453.42
121,571.05
97,873.46
75,409.29
61,094.47
47,862.28
40,798.13
Fixed
Assets
3,217.
14
3,150.
48
2,531.
41
2,622.
19
2,538.
64
1,228.
14
1,249.
12
974.7
3
910.7
2
902.5
1
Other
Assets
10,04
3.98
8,413.
00
6,447.
89
5,119.
98
4,523.
82
4,175.
25
3,918.
80
3,168.
36
3,535.
32
3,280
.57
Miscell
aneous
Expendit
ure not
written
off 0 0 0 0 0 0 0 0 0 0Others 0 0 0 0 0 0 0 0 0 0
7/29/2019 Risk Management Practices of Three Public Sector Banks
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23 | P a g e
TOTAL
ASSETS
470,4
73.87
386,3
12.64
303,5
94.72
253,6
12.42
203,7
44.46
166,2
30.80
148,4
10.54
128,1
31.67
104,7
27.74
88,16
8.04
Conting
ent
Liability
212,4
21.74
127,6
11.31
92,78
9.21
110,4
72.81
104,1
76.34
66,76
1.36
53,03
9.75
43,04
0.88
32,23
0.11
23,58
8.81
Bills forcollectio
n
16,32
2.79
11,98
1.55
9,529.
79
7,567.
10
7,106.
59
7,942.
25
5,704.
17
4,046.
07
4,813.
08
3,334
.76
RSA
457,2
12.75
374,7
49.16
294,6
15.42
245,8
70.25
196,6
82.00
160,8
27.41
143,2
42.62
123,9
88.58
100,2
81.70
83,98
4.96
RSL
427,3
85.06
351,1
71.72
274,4
47.66
227,9
35.25
175,7
00.07
144,7
86.48
128,8
52.25
107,2
99.99
90,90
8.11
77,80
9.49
GAP
(RSA-
RSL)
29,82
7.69
23,57
7.44
20,16
7.76
17,93
5.00
20,98
1.93
16,04
0.93
14,39
0.37
16,68
8.59
9,373.
59
6,175.
47
Gap
ratio
1.069
7911
1.067
1393
1.073
4849
1.078
6846
1.119
419
1.110
7902
1.111
6812
1.155
5321
1.103
1106
1.079
3665
Cummu
lative
gap
29,82
7.69
53,40
5.13
73,57
2.89
91,50
7.89
112,4
89.82
128,5
30.75
142,9
21.12
159,6
09.71
168,9
83.30
175,1
58.77
Net
Worth
(Total
assets -
Total
Liabiliti
es)
13,88
4.97
12,52
6.26
10,44
4.32
10,11
6.95
14,97
2.55
10,39
2.35
9,654.
96
12,25
4.81
8,362.
50
5,964.
77
7/29/2019 Risk Management Practices of Three Public Sector Banks
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References
Websites:
www.bankofbaroda.com
www.wikipedia.com
www.capitaline.in/
www.bseindia.com
www.moneycontrol.com
http://in.finance.yahoo.com/
http://economictimes.indiatimes.com/
http://www.bankofbaroda.com/http://www.capitaline.in/http://www.capitaline.in/http://www.bseindia.com/http://www.bseindia.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://in.finance.yahoo.com/http://in.finance.yahoo.com/http://economictimes.indiatimes.com/http://economictimes.indiatimes.com/http://economictimes.indiatimes.com/http://in.finance.yahoo.com/http://www.moneycontrol.com/http://www.bseindia.com/http://www.capitaline.in/http://www.bankofbaroda.com/