A SYNOPSIS

ON

“A DETAILED STUDY ON CREDIT RISK MANAGEMENT WITH

REFERENCE TO HDFC BANK (DELHI)”

Submitted in Partial fulfilment of the requirements

for the award of the Degree of

PGDM IN
FINANCE
GUIDE NAME:

SUBMITTED TO:

INSTITUTE OF MANAGEMENT & TECHNOLOGY

CENTRE DISTANCE LEARNING GHAZIABAD (U.P.), 2018

NAME:
ROLL NO:

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TITLE OF THE PROJECT
A DETAILED STUDY ON CREDIT RISK MANAGEMENT WITH REFERENCE TO
HDFC BANK (DELHI)

INTRODUCTION & OBJECTIVE OF THE STUDY

INTRODUCTION
Banking is the life blood of trade, commerce and industry. Nowadays, banking sector acts as
the backbone of modern business. Development of any country mainly depends upon the
banking system. A bank is a financial institution which deals with deposits and advances and
other related services. It receives money from those who want to save in the form of deposits
and it lends money to those who need it. The banking is one of the most essential and
important parts of the human life.
Credit risk is the oldest and vital risk banks are exposed to and significance of its
management is increasing with time due to reasons like economic stagnation, company
bankruptcies, violation of rules in company accounting and audit, borrowing becoming easy
for small firms, financial globalization and BIS risk based capital requirements.
Credit risk can be defined as the risk of losses caused by default of borrowers. Default occurs
when borrower cannot meet his financial obligations. Credit risk can also be defined as a risk
that a borrower deteriorates from credit quality.

OBJECTIVES
 To analyze the credit risk management system in banks.
 To analyze overall functions and procedures of managing credit risk management in
banks.
 To analyze the improvements to the existing procedures of credit risk management
system in bank.
 To gain insights into the credit risk management activities of the HDFC Bank.

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STATEMENT OF THE PROBLEM
Credit Risk is the most fundamental risk faced by a banking company. Credit Risk is the risk
of default by a borrower of funds or decline in the credit standing of a borrower. It is the
most difficult to quantify due to the large amount of subjectivity involved in it. Thus credit
risk management can assist in decision-making. It cannot be a substitute to the judgmental
decisions of a credit officer.
Traditionally credit risk has been managed by setting up limits to the global exposure,
industry exposure, country exposure and individual client/group exposure. Credit risk
management is extremely important as the pricing of a portfolio or a transaction is dependent
on the risk factor built-in it.

LITERATURE REVIEW
Commercial banking plays a dominant role in commercial lending (Allen and Gale 2014).
Commercial banks routinely perform investment banking activities in many countries by
providing new debt to their customers (Gande 2008). The credit creation process works
smoothly when funds are transferred from ultimate savers to borrower (Bernanke 1993).
There are many potential sources of risk, including liquidity risk, credit risk, interest rate risk,
market risk, foreign exchange risk and political risks (Campbell, 2007). However, credit risk
is the biggest risk faced by banks and financial intermediaries (Gray, Cassidy, & RBA.,
1997). The credit risk’s indicators include the level of non- performing loans, problem loans
or provision for loan losses (Jimenez & Saurina, 2006). Credit risk is the risk that a loan
which has been granted by a bank will not be either partially repaid on time or fully and
where there is a risk of customer or counterparty default. Credit risk management processes
enforce the banks to establish a clear process in for approving new credit as well as for the
extension to existing credit.
These processes also follow monitoring with particular care, and other appropriate steps are
taken to control or mitigate the risk of connected lending (Basel,1999).

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Credit granting procedure and control systems are necessary for the assessment of loan
application, which then guarantees a bank’s total loan portfolio as per the bank’s overall
integrity (Boyd, 1993). It is necessary to establish a proper credit risk environment,sound
credit granting processes, appropriate credit administration, measurement, monitoring and
control over credit risk, policy and strategies that clearly summarize the scope and allocation
of bank credit facilities as well as the approach in which a credit portfolio is managed i.e.
how loans are originated, appraised, supervised and collected, a basic element for effective
credit risk management (Basel, 1999). Credit scoring procedures, assessment of negative
events probabilities, and the consequent losses given these negative migrations or default
events, are all important factors involved in credit risk management systems (Altman,
Caouette, & Narayanan, 1998). Most studies have been inclined to focus on the problems of
developing an effective method for the disposal of these bad debts, rather than for the
provision of a regulatory and legal framework for their prevention and control (Campbell,
2007). Macaulay (1988) conducted a survey in the United States and found credit risk
management is best practice in bank and above 90% of the bank in country have adopted the
best practice.
Inadequate credit policies are still the main source of serious problem in the banking industry
as result effective credit risk management has gained an increased focus in recent years. The
main role of an effective credit risk management policy must be to maximize a bank’s risk
adjusted rate of return by maintaining credit exposure within acceptable limits. Moreover,
banks need to manage credit risk in the entire portfolio as well as the risk in individual
credits transactions. To implement effective credit risk management practice private banks
are more serious than state owned banks. A survey conducted by (Kuo & Enders 2004) of
credit risk management policies for state banks in China and found that mushrooming of the
financial market; the state owned commercial banks in China are faced with the
unprecedented challenges and tough for them to compete with foreign bank unless they make
some thoughtful change.

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RESEARCH METHODOLOGY
The present paper is a case study which is restricted to branch of HDFC Bank in Dwarka
branch (Delhi). The objective of research paper is to study the Credit Risk Assessment Model
of HDFC Bank and to check the commercial, financial & technical viability of the project
proposed & its funding pattern. To observe the movements to reduce various risk parameters
which are broadly categorized into financial risk, business risk, industrial risk & management
risk. For the purpose, the secondary data is collected through the Books & magazines,
Database at HDFC, Websites, e-circulars of HDFC.

RESEARCH DESIGN:

Research design provides the framework for the collection and analysis of data or it is the
plan and structure of investigation so conceived as to obtain answers to research questions.
This means it gives the procedure necessary for obtaining the information needed to solve the
research problems. I have used a qualitative approach to interview bank managers because I
believed that since they are experienced professionals in their field, they must probably have
a deep and broader knowledge on the topic.

PURPOSE OF THE RESEARCH

 The very nature of the banking business is having the threat of risk imbibed in it.
Banks' main role is intermediation between those having resources and those
requiring resources. For management of risk at corporate level, various risks like
credit risk, market risk or operational risk have to be converted into one composite
measure.

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  Therefore, it is necessary that measurement of operational risk should be in tandem
with other measurements of credit and market risk so that the requisite composite
estimate can be worked out. So, regarding to international banking rule (Basel
Committee Accords) and RBI guidelines the investigation of risk analysis and risk
management in banking sector is being most important.

Nature of Research:

The research design used for this study is of the descriptive type. Descriptive research studies
are those studies which are concerned with describing of a particular individual or a group.

Area of research: Delhi

Universe and Sample Size:

NCR region have been taken as universe of the study .Convenient sampling technique is used
and sample of 80 respondents has been taken for the purpose of the study .Convenience
sampling technique is used for collecting the data from different respondents. The selection
of units from the population based on their easy availability and accessibility to the
researcher is known as convenience sampling.

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DATA COLLECTION

Data Collection and Sources

Primary Data:
Primary data has been collected through personal interview by direct contact method. The
method which was adopted to collect the information is „Personal Interview’ method.
Personal interview and discussion was made with manager and other personnel in the
organization for this purpose.

Secondary Data:
The data is collected from the Magazines, Annual reports, Internet, Text books. The various
sources that were used for the collection of secondary data are Internal files & materials.

STATISTICAL TOOLS:
Statistical techniques are to obtain findings and average information in logical sequence from
the raw data collected. After tabulation of data research have used the following quantitative
technique.

PERCENTAGE ANALYSIS
Percentage refers to special kind of ratio. This method is used as making comparison
between two or more services of data. Percentage charts are used to decidable relationship.
Percentage can also be used to compare the relative terries, the distribution of two or more
services of data

CHARTS
Bar charts and pie charts are used to get a clear look at the tabulated data.

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RESEARCH TOOL APPLIED

Research Design: The research design refers to the overall strategy that you choose to
integrate the different components of the study in a coherent and logical way, thereby,
ensuring you will be effectively address the research problem; it constitutes the blueprint for
the collection, measurement, and analysis of data.

Nature of research
The research design used for this study is of the descriptive type. Descriptive research studies
are those studies which are concerned with describing of a particular individual or a group.

Data analysis stage

Data collected through primary & secondary sources will be tabulated and summarized so as
to draw logical conclusions.

Method used to classify data:

Interview and questionnaire have been used to conduct the study. A structured questionnaire
consisting close-ended questions have been made, which is filled by the trainee during direct
interaction with the respondents.

Method used to present the data:

The data collected form questionnaire is edited, tabulated and analyzed. Various graphical
techniques have been used to present the data in more meaningful way.

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LIMITATIONS OF THE STUDY:
 Due to lack of time and resources a countrywide survey was not possible. Hence only
NCR Region has been taken for the study.
 The information given by the respondents might be biased because some of them
might not be interested to given correct information.
 The result of the study may not be applicable to any other banks.
 The present study does not ascertain the views from the borrowers who are not
directly concerned with management of non-performing assets.
 The time constraint was a limiting factor, as more in depth analysis could not be
carried.
 Some of the information is of confidential in nature that could not be divulged for the
study.

COMPAY NAME:
HDFC Bank

COMPANY PROFILE:
HDFC was incorporated in 1977 with the primary objective of meeting a social need - that of
promoting home ownership by providing long-term finance to households for their housing
needs. HDFC was promoted with an initial share capital of Rs. 100 million.
Their objective, from the beginning, has been to enhance residential housing stock and
promote home ownership.
Now, their offerings range from hassle-free home loans and deposit products, to property
related services and a training facility. They also offer specialized financial services to their
customer base through partnerships with some of the best financial institutions worldwide.

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QUESTIONNAIRE

1) Occupation:-
 Government Employee
 Private Employee
 Businessman
 Retired
2) Age Group
 20 - 40
 40 – 60
 Above 60
3) Education
 Illiterate (uneducated)
 Metric/Senior Secondary
 Graduation
 Post-graduation
 Doctorate
4) Annual Household Income
 Less than 1.5 lakh
 1.5 to 3 lakh
 3 Lakh to 5 lakh
 Above 5 lakh
5) Do you have Credit Risk Management sub-unit under Risk Management division?
 Yes
 No
6) Has there been establishment of written credit policy?
 Yes
 No

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7) Do you calculate following inputs?
a) PROBABILITY OF DEFAULT
 Yes
 No
b) RECOVERY RATE
 Yes
 No
c) DEFAULT CORRELATION
 Yes
 No
8) Do you use internal credit rating system/Credit scoring model?
 Yes
 No
9) What advantages do you find in internal rating system?
10) Any problems you faced with the current credit rating system?
11) What are the credit risk management tools used by your bank?
 Diversification
 Taking Collateral
 Credit Limits
 Netting
 Loan Selling
 Securitization
 Credit Insurance
 Reinsurance
12) Is your bank using credit risk derivatives to manage credit risk?
 Yes
 No

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13) Has credit risk management tools helped in improving customer retention?
 Yes
 No

14) Has there been improvement in the bank’s positioning after implementation of
credit risk management techniques?
 Yes
 No
15) What has been the impact on the cost structure of the bank?
16) Has the implementation of credit risk management techniques compensated the
change in cost structure of the Bank?
 Yes
 No

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REFERENCES

BOOKS REFERRED:
1) M.Y.Khan and P.K.Jain, Management Accounting (Third Edition), Tata McGraw Hill.
2) M.Y.Khan and P.K.Jain, Financial Management (Fourth Edition), Tata McGraw Hill.
3) D.M.Mittal, Money, Banking, International Trade and Public Finance (Eleventh Edition),
Himalaya Publishing House.
4) HDFC Bank Annual Report
5) Allen, Franklin and Douglas Gale, 2000. Comparing Financial Systems (The MIT Press).
6) Asian Policy Forum, 2000. Policy Recommendations for Preventing Another Capital
Account Crisis.
7) Barth, James, Gerard Caprio and Ross Levine, 2001a. “Banking systems around the
globe: do regulation and ownership affect performance and stability”?
8) Mishkin, ed., Prudential Regulation and Supervision: Why it is Important and What are
the Issues (Cambridge, Mass., National Bureau of Economic Research). , 2001b. “The
regulation and supervision of banks around the world: a new database”, Policy Research
Working Paper, World Bank.
9) Beck, Thorsten, Ross Levine and Norman Loayza, 1999. “Finance and the sources of
growth”, unpublished.

Web Sites:

 www.hdfcbank.com
 www.icicidirect.com
 www.rbi.org
 www.indiainfoline.com
 www.google.com

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BANKS INTERNAL RECOREDS:
1. Annual Reports of State bank HDFC Bak (2003-2007)
2. HDFC Banks Manuals
3. Circulars sent to all Branches, Regional Offices and all the Departments of Corporate
Offices.

CHAPTERIZATION
1. INTRODUCTION
2. COMPANY PROILE
3. LITERATURE REVIEW
4. NEED, SCOPE AND OBECTIVE OF THE STUDY
5. RESEARCH METHODOLOGY
6. DATA ANALYSIS, INTERPRETATION AND FINDINGS OF THE STUDY
7. RECOMMANDATIONS AND SUGGESTIONS
8. CONCLUSIONS
9. BIBLIOGRAPHY AND ANNEXURE