International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
A STUDY ON CREDIT RISK MANAGEMENT AT CANARA BANK
Dr.subramanyam¹,Karuvanga Shivakumar²
Dr Danda Uday Shekar³ Dr Subramanyam⁴
Guide¹, Student², HoD³, Corresponding Author⁴
DEPARTMENT OF BUSINESS ADMINISTRATION
JB INSTITUTE OF ENGINEERING & TECHNOLOGY
Moinabad(M), Rangareddy(D)
HYDERABAD – 500 075.
INTRODUCTION
Credit risk is defined as the potential that a bank borrower or counterparty will fail to meet its obligations in
accordance with agreed terms, or in other words it is defined as the risk that a firm’s customer and the
parties to which it has lent money will fail to make promised payments is known as credit risk The exposure
to the credit risks large in case of financial institutions, such commercial banks when firms borrow money
they in turn expose lenders to credit risk, the risk that the firm will default on its promised payments. As a
consequence, borrowing exposes the firm owners to the risk that firm will be unable to pay its debt and thus
be forced to bankruptcy. Credit Risk is the largest element of risk that exists in the books of most banks. It
has been witnessed a number of times in the past credit risk management not only weakens the individual
banks but also contributes to financial instability on the whole. For better credit risk management, banks
should consider the relationship between the credit risk and other risk. The primary objectives of the credit
risk management should be the maximization of bank’s risk adjusted rate of returns by maintaining it in the
acceptable parameters. Credit risk management has emerged as one of essential components in risk
management and gradually lots of new tools and practices are emerging to control the credit risk.
NEED OF THE STUDY
The purpose of this study is to understand the risks that bank managers in the region. Credit risk
management is one of the key areas of financial decision-making. It is significant because, the management
must see that an excessive investment in current assets should protect the company from the problems of
stock-out.
Current assets will also determine the liquidity position of the firm. The goal of Credit risk management is
to manage the firm current assets and current liabilities in such a way that a satisfactory level of working
capital is maintained. If the firm cannot maintain a satisfactory level working capital, it is likely to become
insolvent and may be even forced into bankruptcy.
If the borrower presents an acceptable level of default risk, the analyst can recommend the approval of the
credit application at the agreed terms. The outcome of the credit risk analysis determines the risk rating that
the borrower will be assigned and their ability to access credit.
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
PROBLEM STATEMENT
Credit risk continuous to be the leading source of problem in CANARA BANK LIMITED. The exposure to
the credit dangers massive in case of economic establishments such industrial banks, while firms borrow
cash, they in flip reveal lenders to credit score risk. As a result borrowing exposes the firm owners to the
danger that firm may be unable to pay its debt and as a result be forced to Bankruptcy Banks Should have a
eager consciousness of the want to become aware of, measure and manage credit score danger as well as to
determine that they keep ok capital against these risks and that they're competently compensated for dangers
incurred.
OBJECTIVES OF THE STUDY
To study the credit risk management in different banks.
To make a comparative study on credit recovery management of CANARA AND
HDFC, SBI, banks.
To analyze the sanctions of loans to different sectors by different public and private
banks.
To know the RBI Guidelines regarding credit rating and risk analysis.
To provide suggestions for the improvement of Credit Risk Management Policy of
the Bank.
SCOPE OF THE STUDY
The study is carried out for 5 years (2018-2022). Credit risk is the risk arising from the uncertainty of an
obligor’s ability to perform its contractual obligations. Credit risk could stem from both on- and off-balance
sheet transactions. An institution is also exposed to credit risk from diverse financial instruments such as
trade finance products and acceptances, foreign exchange, financial futures, swaps, bonds, options,
commitments and guarantees. Consider the cause and effect' and scope of the risk and state as clearly as
possible to avoid misunderstanding and misinterpretation.
PROPOSED OUT COME
The scenario analysis was conducted assuming credit period to be 80 days and 100 days. The result should
that while credit period is 100 days the company is getting profits. When the credit period is 80 days the
company is getting losses.
Based on the report it is concluded that credit policies are decided by zonal manager so, powers are
centralized.
Credit standards are determined based on economic conditions.
Credit risk analysis determines a borrower's ability to meet their debt obligations and the lender's aim
when advancing credit.
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
Implementing policies to limit connected-party lending and large exposures to related parties can reduce
credit risk. Asset classification and subsequent provisioning against possible losses affect the value of
the loan portfolio as well as the underlying value of a bank's capital.
RESEARCH METHODOLOGY
Type of the study:
A Research methodology defines the purpose of the research, how it proceeds, how to measure progress and
what constitute success with respect to the objectives determined for carrying out the research study. The
appropriate research design formulated is detailed below.
Period of the study: The time Duration of the study is 45 Days.
DATA COLLECTION METHOD:
The data needed for this project is collected from the following sources:
The data is adopted purely from secondary sources. The financial data and information is gathered from
annual reports of the company. To fulfill the objectives of my study; I have taken in primary & secondary
data into considerations viz.
Primary data
Data that has been generated by the researcher himself/herself, surveys, interviews, experiments, specially
designed for understanding and solving the research problem at hand.
Secondary data is data that has been collected for another purpose. When we use statistical method with
primary data from another purpose for our purpose, we refer to it as secondary data. It means that one
purpose’s primary data is another purpose’s secondary data.
The data is collected from the Magazines, Annual reports, Internet, Textbooks. The various sources that
were used for the collection of secondary data are internal files & materials.
Tools & Techniques
DTR (Debtor’s turnover ratio)
ACP (Average Collection Period)
NPA(Non performing Asset)
TECHNIQUES OF DATA ANALYSIS
Credit sales (or)sales
DTR (Debtor’s turnover ratio) = Debtors
365
ACP (Average Collection Period) = Receivables turnover
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
Net non performing asset
NPA (Nonperforming asset) = x 100
total loan of the year
REVIEW OF LITERATURE
P. J. Edwards, P.A. Bowen The literature on construction and project risk management published during the
period from 1960 to 1997 is reviewed and analyzed to identify trends and practice. This analysis is used to
identify gaps and inconsistencies in the knowledge and treatment of construction and project risk. The
findings suggested that political, economic, financial and cultural categories of construction risk deserve
greater research attention, as do those associated with quality assurance, and occupational health and safety.
Jean-Paul- Laurent,Year: (2021) Credit scoring models play a fundamental role in the risk management
practice at most banks. They are used to quantify credit risk at counterparty or transaction level in the
different phases of the credit cycle. The credit score empowers users to make quick decisions or even to
automate decisions and this is extremely desirable when banks are dealing with large volumes of clients and
relatively small margin of profits at individual transaction level. In this article, we analyze the history and
new developments related to credit scoring models. We conclude that banks that are going to implement the
most advanced approach to calculate their capital requirements under Basel Ⅱ will need to increase their
attention and consideration of credit scoring models in the near future.
DATA ANALYSIS&TABULATION
COMPARISON OF LOANS & ADVANCES
Name of the Bank 2018 2019 2020 2021 2022
CANARA Bank 11954.9 19744.5 25566.3 35061.3 46944.8
Syndicate Bank 18305.4 20646.9 26729.2 36466.2 51870.4
Canara Bank 40471.6 47638.6 60421.4 79425.7 98505.7
Corporation Bank 12029.2 13889.7 20546.4 23962.4 29949.7
SBI 137758 177934 202374 261842 337336
ICICI Bank 52474.5 60757.4 88991.8 163030 184484
UTI Bank 7199.92 9362.95 17602.9 22316.2 36876.5
Table 6
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
1200000
1000000
800000
Datenreihen5
600000
Datenreihen4
400000
Datenreihen3
200000 Datenreihen2
0 Datenreihen1
Figure 6
Interpretation:
Considering the above data, we can say that year on year the amount of advances lent by CANARA has
increased which indicates that the bank’s business is really commendable and the Credit Policy it has
maintained is absolutely good. Whereas other banks do not have such good business SBI is ahead in terms
of its business when compared to both Public Sector and Private Sector banks, this implies that SBI has
incorporated sound business policies in its bank.
COMPARISON STUDY ON CREDIT RECOVERY MANAGEMENT
For the year 2017:
Name Of The Banks Loans Issued Recovered Outstanding
CANARA Bank 19744.51 9670.75 8073.76
Syndicate Bank 20646.62 11762.11 9084.5
Canara Bank 47638.62 27058.74 20579.88
Corporation Bank 16889.72 7500 6389.72
SBI 177933.54 91801.4 66332.09
ICICI Bank 60757,36 34631.70 26125.66
UTI Bank 9362.92 4617.55 4447.40
Table 7
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
350000
300000
250000
200000
150000 Outstanding
100000 Recovered
50000 Loans Issued
0
Figure 7
Interpretation: Above graph shows the recovery management of banks against the issued loans for the year
2018 in which SBI recovered 91801.4 with outstanding amount of 66332.09 following by CANARA Bank
recovered 34631.70 with outstanding of 26125.66, Canara Bank recovered 27058.74 with outstanding of
20579.88, Syndicate bank recovered 11762.11 with outstanding of 9084.5, corporation bank recovered 7500
with outstanding of 6389.72, CANARA Bank recovered 9670.75 with outstanding of 8073.76 and UTI
recovered4617.55 with outstanding of 4447.40. SBI recovered highest amount compared to its peers.
COMPARISON STUDY ON CREDIT RECOVERY MANAGEMENT
For the year 2020:
Name Of The Banks Loans Issued Recovered Outstanding
CANARA 202374.46 120210.43 82184.03
Syndicate Bank 26729.21 17422.75 11306.46
Canara Bank 60421.40 35044.42 25376.96
Corporation Bank 20546.36 10478.70 8067.67
SBI Bank 25566.30 16291.56 11274.74
ICICI Bank 88991.75 52327.17 36664.60
UTI Bank 17602.92 8550.40 7052.52
Table 8
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
100%
90%
80%
70%
60%
50%
40% Outstanding
30% Recovered
20%
10% Loans Issued
0%
Figure 8
Interpretation:
Above graph shows the recovery management of banks against the issued loans for the year 2019 in which
SBI recovered 120210.43with outstanding amount of 82184.03following by CANARA Bank recovered
52327.17with outstanding of 36664.60, Canara Bank recovered 35044.42with outstanding of 25376.96,
Syndicate bank recovered 17422.75 with outstanding of 11306.46, corporation bank recovered 10478.70
with outstanding of 8067.67, CANARA Bank recovered 25566.30 with outstanding of 11274.74 and UTI
recovered 8550.40 with outstanding of 7052.52. So in the year 2019 SBI recovered highest amount
compared to its peers
COMPARISON STUDY ON CREDIT RECOVERY MANAGEMENT
For the year 2021:
Name Of The Banks Loans Issued Recovered Outstanding
CANARA Bank 35061.26 20175.61 16936.10
Syndicate Bank 36466.24 22079.74 16386.50
Canara Bank 79425.69 48446.67 30976.02
Corporation Bank 23962.43 13898.21 10064.22
SBI 261841.54 183264.32 98377.22
ICICI Bank 163029.89 88392.47 54637.46
UTI Bank 22316.24 12429.03 9885.20
Table 6
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
100%
90%
80%
70%
60%
50%
40% Outstanding
30% Recovered
20%
Loans Issued
10%
0%
Figure 9
Interpretation:
Above graph shows the recovery management of banks against the issued loans for the year 2020 in which
SBI recovered 183264.32 with outstanding amount of 98377.22 following by CANARA Bank recovered
88392.47 with outstanding of 54637.46, Canara Bank recovered 48446.67 with outstanding of 30976.02,
Syndicate bank recovered 22079.74 with outstanding of 16386.50, corporation bank recovered
13898.21with outstanding of 10064.22, CANARA Bank recovered 20175.61 with outstanding of 16936.10
and UTI recovered 12429.03 with outstanding of 9885.20. So in the year 2020 SBI recovered highest
amount compared to its peers.
COMPARISON STUDY ON CREDIT RECOVERY MANAGEMENT For the year 2022:
For the year 2022:
Name Of The Banks Loans Issued Recovered Outstanding
CANARA Bank 46944.78 30125.18 18819.62
Syndicate Bank 51870.44 32079.74 19790.7
Canara Bank 98505.69 68449.67 30056.02
Corporation Bank 29949.65 17898.21 16051.44
CANARA 337336.49 263264.32 74072.19
ICICI Bank 184484.38 98392.47 66091.91
UTI Bank 36876.48 22429.03 16447.45
Table 7
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
100%
90%
80%
70%
60%
50%
40% Outstanding
30% Recovered
20%
Loans Issued
10%
0%
Figure 10
Interpretation: Above graph shows the recovery management of banks against the issued loans for the
year 2021 in which SBI recovered 263264.32 with outstanding amount of 74072.19 following by CANARA
Bank recovered 98392.47 with outstanding of 66091.91, Canara Bank recovered 68449.67 with outstanding
of 30056.02, Syndicate bank recovered 32079.74 with outstanding of 19790.7, corporation bank recovered
17898.21 with outstanding of 16051.44, CANARA Bank recovered 30125.18 with outstanding of 18819.62
and UTI recovered 22429.03 with outstanding of 16447.45. So in the year 2021 SBI recovered highest
amount compared to its peers.
PRIORITY SECTOR ADVANCES OF BANKS
COMPARISON WITH OTHER PUBLIC SETOR BANKS
Total Total
Direct Indirect Weaker
Agricultur Priority
Agriculture Agriculture Section
S.No Name of the Bank e Sector
Advances Advances Advances
Advances Advances
Amount Amount Amount Amount Amount
1 CANARA 23484 7032 30518 19883 82895
2 SYNDICATE BANK 4406.33 1664.64 5870.94 3267.71 16626.62
3 CANARA BANK 8348 3684 12032 4423 30937
4 CORPORATION BANK 963.58 971.22 1934.80 665.32 9043.74
Table 8
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
1 HDFC
Direct Agriculture Advances
Amount
23484
7032 Indirect Agriculture Advances
Amount
Total Agriculture Advances Amount
82895 30516
Weaker Section Advances Amount
19883 Total Priority Sector Advances
Amount
Figure 11
Interpretation:
CANARA Issued loans for Direct Agriculture is 23484, Indirect Agriculture is 7032, a weaker section
is 19883 and a total priority sector advance is 82895.
SYNDICATE BANK Issued loans for Direct Agriculture is 4406.33, Indirect Agriculture is 1664.64, a
weaker section is 3267.71 and a total priority sector advance is 16626.62.
CANARA BANK Issued loans for Direct Agriculture is 8348, Indirect Agriculture is 3684, a weaker
section is 4423 and a total priority sector advance is 30937
PRIORITY SECTOR ADVANCES OF PUBLIC SECTOR BANKS IN PERCENTAGES ARE AS
FOLLOWS:
Total
Direct Indirect Total Weaker
Priority
Agriculture Agriculture Agriculture Section
Sector
Advances Advances Advances Advances
S.No Name of the Bank Advances
% Net % Net % Net % Net % Net
Banks Banks Banks Banks Banks
Credit Credit Credit Credit Credit
1 CANARA 10.5 3.1 13.6 8.9 37.0
2 SYNDICATE BANK 13.5 4.5 20.0 10.0 44.9
3 CANARA BANK 11.2 4.9 17.7 5.9 41.4
4 CORPORATION 4.5 4.5 9.0 3.1 41.9
BANK
Table 9
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
4.5
Direct Agriculture Advances % Net
4.5 Banks Credit
13.5
Indirect Agriculture Advances % Net
4.5 Banks Credit
9
Total Agriculture Advances % Net
44.9
Banks Credit
18
3.1 Weaker Section Advances % Net
41.9 Banks Credit
10 Total Priority Sector Advances % Net
Banks Credit
Figure 12
Interpretation:
CANARA’s direct agriculture advances as compared to other banks is 10.5% of the Net Bank’s Credit,
which shows that Bank has not lent enough credit to direct agriculture sector.
In case of indirect agriculture advances, CANARA is granting 3.1% of Net Banks Credit, which is less
as compared to Canara Bank, Syndicate Bank and Corporation Bank. CANARA has to entertain
indirect sectors of agriculture so that it can have more number of borrowers for the Bank.
CANARA has advanced 13.6% of Net Banks Credit to total agriculture and 8.9% to weaker section
and 37% to priority sector, which is less as compared with other Bank.
FINDINGS
1. Project findings reveal that SBI is sanctioning less Credit to agriculture, as compared with its key
competitor’s viz., Canara Bank, Corporation Bank, Syndicate Bank
2. Recovery of Credit: SBI recovery of Credit during the year 2018 is 62.4% Compared to other Banks
SBI ‘s recovery policy is very good; hence this reduces NPA.
3. CANARA Issued loans for Direct Agriculture is 10.5%, Indirect Agriculture is 3.1%, a weaker section
is 8.9% and a total priority sector advance is 37.0%.
4. SYNDICATE BANK Issued loans for Direct Agriculture is 13.5%, Indirect Agriculture is 4.5%, a
weaker section is 10.0% and a total priority sector advance is 44.9%
5. CANARA BANK Issued loans for Direct Agriculture is 11.2%, Indirect Agriculture is 4.9%, a weaker
section is 5.9% and a total priority sector advance is 41.4%.
6. CORPORATION BANK Issued loans for Direct Agriculture is 4.5%, Indirect Agriculture is 4.5%, a
weaker section is 3.1% and a total priority sector advance is 41.9%.
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
7. Canara Bank Issued Highest percentage of loans for Indirect Agriculture i.e., 4.9% out of total loans
and lowest by SBI i.e., 3.1%.
SUGGESTIONS
The Bank should keep on revising its Credit Policy which will help Bank’s effort to correct the course
of the policies.
The Chairman and Managing Director/Executive Director should make modifications to the procedural
guidelines required for implementation of the Credit Policy as they may become necessary from time to
time on account of organizational needs.
Banks has to grant the loans for the establishment of business at a moderate rate of interest. Because of
this, the people can repay the loan amount to bank regularly and promptly.
Bank should not issue entire amount of loan to agriculture sector at a time, it should release the loan in
installments. If the climatic conditions are good, then they have to release remaining amount.
SBI has to reduce the Interest Rate.
SBI has to entertain indirect sectors of agriculture so that it can have more number of borrowers for the
Bank.
CONCLUSIONS
The project undertaken has helped a lot in gaining knowledge of the “Credit Policy and Credit Risk
Management” in Nationalized Bank with special reference to CANARA. Credit Policy and Credit Risk
Policy of the Bank has become very vital in the smooth operation of the banking activities. Credit Policy of
the Bank provides the framework to determine (a) whether or not to extend credit to a customer and (b) how
much credit to extend. The Project work has certainly enriched the knowledge about the effective
management of “Credit Policy” and “Credit Risk Management” in banking sector.
BIBLIOGRAPHY
BOOKS:
M.Y. Khan and P.K. Jain (2012) Management Accounting (Third Edition), Tata McGraw Hill. Noida.
M.Y. Khan and P.K. Jain (2016) Financial Management (Fourth Edition), Tata McGraw Hill, Noida.
D.M. Mittal (2012) Money, Banking, International Trade and Public Finance (Eleventh Edition)
Himalaya Publishing House, Mumbai.
NEWS PAPERS
Economic Times
BANKS INTERNAL RECOREDS:
Annual Reports of CANARA (2016-2020)
State bank Of India Manuals
Circulars sent to all Branches, Regional Offices and all the Departments of Corporate Offices.
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International Journal of Engineering Science and Advanced Technology (IJESAT) Vol23 Issue 10,2023
WEB SITES
1.www.CANARA.com
2.www.rbi.org
3.www.indiainfoline.com
4.www.financeindia.com
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