CREDIT RISK MANAGEMENT Syllabus - BBA-BI (PU)

Course Objectives

The course aims to equip students with knowledge and skills necessary to understand the credit management function in banking institutions and acquaint them with tools and methods available to manage credit. The course attempts to enable students to understand major tasks performed by credit management department of a bank and make decisions related to sound credit management.

Course Description

This course provides an understanding of the credit process, the assessment of credit risk and managing credit risk for various types of credit facilities. Specifically, this course conceptualizes on the key areas of the credit management process: credit appraisal, administration, monitoring and review. It discusses financial and non-financial factors that affect the creditworthiness and presents comprehensive coverage of credit appraisal, credit execution & administration, and loan review process.

Course Outcomes

On successfully completing this subject, students will be able to:

• understand the nature of bank lending activities and credit risk;
• apply the principles of good lending in assessing credit propositions from bank customers;
• conduct credit analysis for the purpose of bank lending;
• perform quantitative and qualitative analysis for assessment of creditworthiness of borrowers;
• structure, price and market loan products in a competitive way;
• identify and work-out problem loans;
• apply various techniques to mitigate credit risk; and
• demonstrate knowledge and skills required for credit risk management in a bank.

Course Contents

Unit I: Introduction to Bank Credit Management                                      4 hours

Credit Risk Management: Meaning and significance, Lending policies and procedures, Types of credit facilities: funded and non-funded facilities, Steps in lending process, Credit information and role of credit information Bureau; and management of credit portfolio.

Unit 2: Policies and Structure for Credit Management                                          4 hours

Principals and regulation of lending; credit policies and procedures; credit manuals; organization of credit function; and credit committee.

Unit 3: Credit Evaluation Process                                                                            5 hours

Credit scoring; credit rating; financial analysis; ratios analysis: profitability ratios, liquidity ratios and measures, measuring efficiency, financial leverage, review of financial indicators; common size statement analysis.

Unit 4: Commercial and industrial lending                                                   10 hours

Role of asymmetric information in lending; the competitive environment; loan policy; making loan; principal lending activities; collateral: characteristics of goods collateral, types of collateral; the lending process: evaluating a loan request, structuring commercial loan agreements, pricing commercial loan, and monitoring and loan reviews.

Unit 5: Real Estates and Consumer Lending                                                          8 hours

Real Estate lending: mortgage debt outstanding, characteristics of mortgage loan, the real estate portfolio, residential mortgage loan, alternative space mortgage instruments, technology, commercial real estate loan; consumer lending: types of consumer loan, leases, finance charges, annual percentage rate, real estate and consumer credit regulation.

Unit 6: Non-Fund Based Operations                                                                        5 hours

Bank guarantees; letter of credit: meaning and types, establishing letter of credit, parties involved, basic documents, risk assessment in letter of credit. 

Unit 7: Credit Administration, Monitoring and Review                                          8 hours

Credit structuring; bank documentation; types of securities and methods of creating charge over securities; loan covenants; credit file and credit evaluation memo; sanction and disbursement; follow up mechanism for monitoring; indicators of problem loans; credit audit; Handling problem loans: Credit restructuring: non-performing assets and Provisioning norms; non-banking assets.

Unit 8: Credit Risk Mitigation                                                                                4 hours

Characteristics of credit risk, indicators of credit risk, credit risk and bank failure, mitigating credit risk.

Basic texts

1. Rose, P.S., & Hudgins, S. C. Bank management and financial services. New Delhi: Tata McGraw Hill Education Pvt. Ltd.
2. Gup, B.E., & Kolari, J. W. Commercial banking. New Delhi: Willey India

References

1. Murali, S., & Subbakrishna, K. R. Bank credit management. Mumbai: Himalayan Publishing House.
2. Vijayaragavan, G. Bank credit management: Text and cases. Mumbai: Himalayan Publishing House.
3. Gestel, T. V. & Baesens, B. Credit risk management. New York: Oxford University Press.