Srikanth 08154

MIP PHASE II RE PO RT
A NA LY S I S O F S M E R I S K
P RO F IL E
AXIS BANK, COIMBATORE
Faculty Guide: Prof. S. Shijin
Industry Guide: Mr. H. Sathyamoorthy
Submitted in partial fulfillment of the Post Graduate Programme in Management

at TAPMI, Manipal by:
Name: R. Srikanth
Roll No: 08154
Batch: 2008-10
Date: 17/08/2009
T A PAI MANAGEMENT INSTITUTE,
MA N IPA L, KA R N ATA KA- 57 6 10 4
MIP PHASE II REPORT
A NA LY S I S O F S M E R I S K
P RO F IL E
AXIS BANK, COIMBATORE
Faculty Guide: Prof. S. Shijin
Industry Guide: Mr. H. Sathyamoorthy
Submitted in partial fulfillment of the Post Graduate Programme in Management

at TAPMI, Manipal by:
Name: R. Srikanth
Roll No: 08154
Batch: 2008-10
Date: 17/08/2009
CERTIFICATE
This is to certify that the project report titled Analysis of SME risk
profile – Axis bank, Coimbatore is a bonafide work carried out by R.
Srikanth under my guidance for partial fulfillment of Post Graduate
Diploma in Management.
Signature
Name of Faculty Guide: Prof. Shijin
Date: 17th August 2009
T A PAI MANAGEMENT INSTITUTE,

MA N IPA L, KA R N ATA KA- 57 6 10 4
ACKNOWLEDGMENTS
I express my gratitude towards my guide Prof. Shijin for his guidance in

the course of my project. I would like to thank Mr. H. Sathyamoorthy (Vice
President, SME cell, Coimbatore) for showing the direction and providing
the necessary resources to carry out my project work. I convey my special
thanks to Mr. C Venugopal (Axis bank) for sharing his knowledge about the
processes, policies and procedures at the SME cell of Coimbatore. His
interest motivated me to zealously work towards my project objectives. I
would also like to thank Mr. Ram Anand(Axis bank) for patiently
explaining certain basic concepts of credit analysis. Finally, I am grateful
to all the team members of SME cell, Coimbatore for contributing to my
learning and for making my stay at the centre pleasant and memorable.
R Srikanth Analysis of SME Risk Profile Page 1 of 50

EXECUTIVE SUMMARY
The primary focus of the project was to measure the concentration risk
in lending to various industries and then recommend strategies to
minimize the concentration risk. Evaluation of this concentration risk was
also extended to locations, nature of organizations and loan schemes.
Prevalence of the textile industry within the scope of this SME centre
necessitated a special focus on its subsectors. An analysis of the
customers under high risk category and the ones under watch list/exit list
gave insights on the industries to be focussed on for lending and the ones
to be avoided.
A comparison of the industry wise percentage exposure of Axis bank

with the overall credit potential in Coimbatore district was carried out with
the objective of market expansion. This comparison was enriched
by a study of the growth potential of industries prevalent in Coimbatore
coupled with a focus on the risk posed by present customers within that
industry. Finally, an analysis of high value customers who underwent
downward migration in internal ratings reinforced the negative impact of
recession in the developed countries on their performance.

TABLE OF CONTENTS
1. Introduction............................................................................................................................4
2. Objectives of the study ..........................................................................................................9
3. Scope of the study ...............................................................................................................11
4. Methodology .......................................................................................................................13
5. Analysis of Concentration risk.............................................................................................14
6. Risk analysis.........................................................................................................................33
7. Analysis of customers with downward migration................................................................47
8. Market expansion.................................................................................................................51
Limitations ..............................................................................................................................56
Conclusion ...............................................................................................................................58
References................................................................................................................................59

Appendix..................................................................................................................................61
A N A LY S I S O F S M E R I S K P R O F I L E
1. INTRODUCTION
Axis Bank is one of the fastest growing banks in the country and has an
extremely competitive and profitable banking franchise evidenced by:
Comprehensive portfolio of banking services including Corporate Credit,
Retail Banking, Business Banking, Capital Markets, Treasury and
International Banking. Axis Bank is committed to adopting the best
industry practices internationally in order to achieve excellence. The Bank
today is capitalized1 to the extent of Rs. 359.0 crores with the public
holding (other than promoters) at 57.60%. Axis Bank Ltd. has been
promoted by UTI, one of the largest financial institutions in the country.
The Bank was set up with a capital of Rs. 115 crore, with UTI contributing
Rs. 100 crore, LIC - Rs. 7.5 crore and GIC and its four subsidiaries
contributing Rs. 1.5 crore each.
Axis Bank has a sound technological platform in place with centralized

database and operations enabling anytime and anywhere banking, in
order to render the best customer service to its 4.5 million customer
base. Citing instances, in Mar-08 Axis Bank launched Platinum Credit Card,
India's first EMV2 chip based card. Core banking solution is provided by
1
www.axisbank.com
2
The name EMV comes from the initial letters of Europay, MasterCard and VISA
the three companies which originally cooperated to develop the standard.

Finacle (version 7.0.18) from Infosys. With a mission of Customer Service
and Product Innovation tuned to diverse needs of individual and corporate
clientele, Axis bank focuses on continuous technology up gradation,
maintaining human values, progressive globalization, achieving
international standards, sustaining efficiency and effectiveness built on
ethical practices. The bank strives to achieve customer satisfaction by
providing quality service effectively and efficiently, periodic customer
service audits, maximization of stakeholder value and success through
teamwork, integrity and people.
1.1 Services offered:

Axis bank offers services to customers in the following categories:
Personal, Corporate, NRI and Priority Banking. A summary of the various
services offered to each of the categories is given in the table below:
Table 1. Services offered by Axis bank
Category
Service Priority
Personal Corporate NRI
Banking
Accounts √ √ √ √
Deposits √ √ √
Loans √ √
Cards √ √
Investments √ √
Insurance √ √
Payments √ √
Other Services √ √ √
Credit √
Capital Market √
Treasury √
Cash Management Services √
Govt Business √
Remittances √ √
Source: Axis Bank website
1.2 Credit:
At Axis bank, comprehensive portfolio of banking services including
Corporate Credit, Retail Banking, Business Banking, Capital Markets,

Treasury and International Banking. Credit is a core banking function that
enables attainment of the fundamental objective of assets transformation
between its clients. The function is executed by way of extending fund
based and non-fund based credit facilities to different clients. The Credit
department endeavours to extend different products in the above two
categories to the corporate clients in the country. The department is the
major contributor to the top line as well as bottom line of Axis Bank. It is
the SBU earning highest operating profit in the Bank. The department has
been at the forefront of launching innovative corporate credit products.
Credit facilities can be fund based or non-fund based. The fund-based
limits are those where outlay of the Bank’s funds is involved. Such limits
are also known as borrowing limits. Non-fund based limits are those where
the Bank has to meet the commitment / promise made by a borrower and
endorsed by the Bank, only if the borrower fails to honour it. Main types of
facilities under fund based limits are overdraft and cash credit, demand
loans, bills purchased/discounted, export credit and term loan. The non-
fund based limits are Letter of Credit and Bank Guarantees
1.3 SME:
SME is one of the lines of business under Credit function. In 2008-09,
based on the recommendations of Mckinsey & Company, Agri Business
was hived off from Advances Cells and SME Centres were entrusted with
handling SME business only3. SME accounts are classified as those with a
turnover upto Rs.125 crores or those with aggregate credit exposure with
the bank upto Rs. 25 crores. An account should satisfy both the conditions
in order to be classified as an SME account. SME segment would now
comprise of MSME (as per RBI definition) and other borrowers, satisfying
both the conditions of turnover and exposure. Both MSME and other
borrowers will have schematic and non-schematic sub-groups.
The SME business is driven through 25 SME Centres located at SME

business intensive locations across India. These SME Centres are the
32
Corporate Credit Policy 2009-10 of Axis bank

marketing and processing hubs for SME credit proposals. The SME Centre
Heads are supported by a sales team headed by a Senior Sales Officer
(SSO) and a credit team headed by Senior Credit Officer (SCO). The sales
team comprises Relationship Managers (who manage accounts with an
exposure of Rs.2.00 crores and above), Sales Officers and Assistant
Relationship Managers. The credit team consists of Credit Analysts.
Customer acquisition is driven through sales officers mapped to branches
across the country.
There are three SME centers in Tamil Nadu – Chennai, Madurai and
Coimbatore. The SME cell at Coimbatore caters to Erode, Salem, Karur,
Tirupur, Pollachi and Nilgiris apart from Coimbatore district. Major type of
SMEs located in Coimbatore district include Textile Mills, Power looms,
Handlooms, Hosiery Units, Motor, Pumps and Foundry Units, Wet grinder
and accessories Units, Coir Industries, Textile/Automobile Machinery /
Engineering Industries4.
1.4 Concentration risk:

Concentration risk is a banking term5 denoting the overall spread of a
bank's outstanding accounts over the number or variety of debtors to
whom the bank has lent money. This risk is calculated using a
concentration ratio, which explains what percentage of the outstanding
accounts each bank loan represents. For example, if a bank has 5
outstanding loans of equal value each loan would have a concentration
ratio of .2; if it had 3, it would be .333.
Various other factors enter into this equation in real world applications,
where loans are not evenly distributed or are heavily concentrated in
4
http://www.diccoimbatore.com/Nutshell.html
5
www.wikipedia.org

certain economic sectors. A bank with 10 loans, valued at 10 dollars a
piece would have a concentration ratio of .10; but if 9 of the loans were
for 1 dollar, and the last was for 50, the concentration risk would be
considerably higher. Also, loans weighted towards a specific economic
sector would create a higher ratio than a set of evenly distributed loans
because the evenly spread loans would serve to offset the risk of
economic downturn and default in any one specific industry damaging the
bank's outstanding accounts. Risk of default is an important factor in
concentration risk. The basic issue raised by the concept of default risk is:
does the risk of default on a bank's outstanding loans match the overall
risk posed by the entire economy or are the bank's loans concentrated in
areas of higher or lower than average risk based on their volume, type,
amount, and industry.
Concentration risk in credit portfolios6 comes through an uneven

distribution of bank loans, investments and other exposures to individual
borrowers (single-name/ borrower-wise concentration) or industry and
services sectors (industry concentration) and geographical regions
(sectoral concentration). Concentration risk can result in significant losses
because these exposures are affected by changes in similar risk factors
and any adverse movement in underlying factors would impact a large
portfolio. The effective monitoring, measurement and management of
concentration risk by the Bank is, therefore, of fundamental importance.
1.5 Overview of the study:

The primary focus of the project was to measure the concentration risk in
lending to various industries and then to recommend sectors to which the
bank can lend or avoid lending. Further, a comparison with the credit
potential for Coimbatore district was done. In the high-risk category, the
areas of focus were identified, which would help in the reduction of default
risk. This was followed by clear insights into enterprises under watch
6
Corporate Credit policy of Axis bank 2009-10

list/exit list7. Finally, the effects of recession on the downward migration in
the internal ratings were studied.
2. OBJECTIVES OF THE STUDY
1. The primary objective of the study is to measure concentration risk

prevalent in the SME centre of Axis Bank. The specific objectives of the
study include:
1.1 To examine the industry wise concentration risk for the overall SME
centre and the major locations under the purview of the centre
7
Watch list/exit list is released by the Corporate Credit office of Axis bank. This
contains the list of customers to be closely monitored in the current year.

1.2 To examine the concentration risk of sub sectors with special focus
on textile industry
1.3 To compare the relative disbursement of credit to various locations

within the centre
1.4 To examine credit allocation for various loan schemes and type of
organizations
1.5 To compare credit allocation to each sector with overall credit

potential of respective sector within Coimbatore district
2. To analyze the borrowing spectrum based on internal credit rating
3. Analysis of enterprises under watch list/exit list
4. To examine whether the incorporation of internal rating into

concentration risk by assigning weights makes any difference
5. To analyze the migration effects due to economic downturn on the
industries under watch list
6. To identify industries with growth potential and favorable internal rating
at Coimbatore district

3. SCOPE OF THE STUDY
The concentration risk has been measured on the basis of sanction limit
and not on the basis of outstanding amount with the customers. Industries
with low concentration risk (less than 1%) have been grouped into the
‘others’ category. For each location, while measuring the concentration
risk industry wise, only the following places were considered: Coimbatore,
Salem, Erode, Karur and Tirupur because of the sizeable exposure that
Axis bank has in these places. The data from NABARD indicates the credit
potential in the Coimbatore district, but there is no information on how
much of the credit needs can actually be met.
Risk analysis of borrowal spectrum based on internal rating encompassed

the ratings SME 5 and below only, since these ratings pose a relatively
higher risk. Risk analysis of customers under watch list/exit list was done
only for customers who received advances before a period of two years.
The analysis of migration is a sample study and included ten high value
enterprises from different industries, including three from textile
industries8. Market expansion focussed on ten industries based on
coherence between prevalent industries in Coimbatore, internal data of
Axis bank and general knowledge.
8
Prevalence of textile industries in Coimbatore led to the choice of three textile
industries for this study.

4. METHODOLOGY
To measure concentration risk, the credit data to each customer was

summarized using a Pivot Table9. The summarized data was further
defined to obtain the concentration risk for each industry, location, loan
scheme and nature of organisation etc. This data was then compared with
the industry potential data from NABARD10. From the concentration risk
measurement, customers under high risk category were selected and
analysed. Further, on the same lines analysis of customers under watch
list/exit list was also carried out.
This was followed by a sample analysis of ten high value companies which
underwent downward migration in internal ratings to ascertain the effects
of recession on their performance. Lastly, from the industries prevalent in
Coimbatore about ten were chosen; their growth potential and the risk
levels of their present customers were studied with an intention of
understanding whether further lending can be done to that industry.
9
Used in MS Excel, a PivotTable report is an interactive table that you can use to
quickly summarize large amounts of data.
10
NABARD releases an annual document called Potential Linked Credit Plan
which indicates the credit potential available at a location

5. ANALYSIS OF CONCENTRATION RISK
As outlined in the project objectives, the measurement and analysis of

concentration risk has been done industry wise, location wise, loan
scheme wise and nature of organization wise. There is also a special focus
on the textile industry. The total fund based sanction limit for the non-
schematic enterprises of SME centre (Coimbatore) is about Rs. 860 crores
(as on 31st March 2009). All the percentages given below indicate the
proportion of the credit sanctioned to industries, locations etc. For
example, 2% towards engineering industry means that the exposure
towards the industry is 2% of Rs. 860 crores.

Industry wise:
Industry Concentration risk -

SME Centre, Coimbatore
ENGINEERING
2%
Others
2% 12%
3%
3% TEXTILES:
4% COTTON
44%
4%
4%
FOOD EDUCATION &
PROCESSING TRAINING
5% IRON & STEEL 7%
REAL ESTATE 5%
5%
ALCOHOLIC BEVERAGES & TOBACCO
AUTO ANCILLARIES
EDIBLE OILS
INFRASTRUCTURE CONSTRUCTION: OTHERS
TRADE
CHEMICAL & CHEMICAL PRODUCTS
The above chart depicts the industry wise concentration risk for SME
Centre, Coimbatore. The various concentration risks in this SME centre are
measured with data upto 31st March 2009 for Non Schematic enterprises
only. We observe that the textile industry has a concentration risk of 45%.
This can result in significant losses for the bank, because this exposure
would be affected by changes in similar risk factors and any adverse
movement in underlying factors would impact this industry – thereby
enhancing the possibility of NPAs for the centre. Even though the credit
portfolio at the SME centre is healthy, any adverse situation can increase
the % NPAs in the centre.

Industry wise – for major locations:
INFRASTRUCTURE Concentration risk - Coimbatore

CONSTRUCTION:
OTHERS FOOD PROCESSING
AUTO , 7% , 6% EDUCATION & TRAINING
ANCILLARIES
, 8%
5%
ENGINEERING
REAL 5%
ESTATE
, 11% 4% INFRASTRUCTURE CONSTRUCTION - ROADS
4%
IRO N & 3% CHEMICAL & CHEMICAL PRODUCTS

STEEL 2%
, 12% 5%
OTHER METAL & METAL PRODUCTS
TEXTILES: COTTON
, 28% TRADE
Others
Concentration risk - Salem
IRON & STEEL

8%
TELECOMMUNICATI
EDUCATION & ON SERVICES
TRAINING 6%
14% ENGINEERING
6%
OTHERS
6% TEXTILES: OTHER
AUTOMOBILES 4%
15% TRADE
4% MINING AND MINING
PRODUCTS
1%
CHEMICAL &
TEXTILES: COTTON
CHEMICAL
34%
PRODUCTS
1%

Concentration risk - Erode
CHEMICAL & CHEMICAL

PRODUCTS INFRASTRUCTURE
LEATHER & LEATHER 1% CONSTRUCTION:
PRODUCTS OTHERS
4% 2%
OTHERS
8%
EDIBLE OILS
TRADE 26%
10%
FOOD PROCESSING
12%
REAL ESTATE
2%
TEXTILES: COTTON
33%
PETROCHEMICAL &
LOGISTICS
PETROLEUM PRODUCTS
0.4%
2%
Concentration risk - Karur
TEXTILES: OTHER
6% AUTO ANCILLARIES
EDUCATION & TRAINING 2%
16%
CHEMICAL & CHEMICAL

PRODUCTS
ENGINEERING 2%
1%
OTHERS
1%
TRADE
1%
TEXTILES: COTTON PETROCHEMICAL &

71% PETROLEUM PRODUCTS
0.2%

Concentration risk - Tirupur
POWER
GENERATION &
DISTRIBUTION
3%
CHEMICAL &
CHEMICAL
PRODUCTS
TEXTILES: 3%
TEXTILES: OTHER
COTTON
1%
93%
MINING AND
OTHERS MINING
0.5% PRODUCTS
0.5%
Coimbatore:
Axis bank SME centre has a balanced portfolio in Coimbatore district with
Textiles: Cotton having a concentration risk of 27% (by sanction limit).
Compared to the other major locations, the default risk of textile
industries is lower in Coimbatore district. The other industries with major
exposures are Iron & steel (12%) and Real estate (11%). On the other side,
Trade has the lowest concentration risk. With the increase in disposable
incomes across India, the lending to this sector can be enhanced. Apart
from this, lending to enterprises in the services sector (like established
hospitals) can be looked at.
Salem:
Salem has a higher percentage exposure towards textile industry

(compared to Coimbatore). But otherwise, the industry portfolio is
balanced with other major exposures being in the industries of
automobiles (15%) and Education and training (14%). Even though the
concentration risk towards education and training is a little high,
additional lending to this sector can be done because of the relatively
lower risk associated with this sector. The industries with lower exposures

are Trade (4%), Mining & mining products (1%) and Chemical products
(1%). Similar to Coimbatore, in Salem lending to the Trade sector can be
further enhanced for reasons mentioned above.
Erode:
Erode has the same percentage exposure as Salem towards the textile
industry. But a high exposure towards edible oils (26%) is a cause for
concern. Towards the lower side, we observe lower exposure towards Real
estate (2%), but lending to this sector should be done cautiously,
considering the volatility factor. In Erode also, lending towards education
& training, hospitals can be focused on.
Karur:
At Karur, exposure towards textile industry (main home textile industries)

is extremely high (71%), a signal of trouble for the bank, incase the textile
industry does not perform well. Exposure towards Education & training
(16%) is healthy while the potential industries for enhanced lending are
auto ancillaries, engineering and trade, all having lower concentration
risks. The attractive avenues for lending at Karur are the bus body
builders and education & training.
Tirupur:
About 93% of the lending by SME centre in Tirupur is towards Textile

industry. If the industry does not perform well, the possibility of NPAs for
the centre would increase drastically. Since reducing the exposure levels
to healthy levels (15-20%) seems impossible in Tirupur (given the
prevalence of textile industry), sourcing of new customers should be done
with utmost caution.
Textile industry:
The prevalence of textile industries in this region has necessitated a closer

look. The breakup of subsectors within the textile industries for the SME

centre (overall) is given below. Out of the 45% exposure to textile
industry, we observe that Apparels and Cotton spinning are subsectors
with major exposures, followed by Madeup textiles (8%).
Textile industry - Coimbatore SME centre - Overall
PREPARATION AND
SPINNING OF COTTON MFR. OF MADE-UP OTHER WHOLESALE (INCL. SPECIALIZED
TEXTILE ARTICLES & WHOLE
, 13.3%
TARPA, 8.2%
MFR. OF KNITTED AND CROCHETED FABRICS
MFR. OF
MFR. OF WEARING THREADS, NETS, ROPES, TAPES,NEWA
APPARELS, READY MADE
GAR, 19.8% 0.4% 0.3% MFR. OF MACHINERY FOR TEXTILE,APPAREL
0.5% 0.2% &
0.5% 0.2%
DRESSING AND DYEING OF FUR,MFR. OF
0.1% ARTIC
3.6% 0.8%
Non textile in dustries, 55.1% 0.7% TEXTILES, CLOTHING & FOOTWEAR & OTH
HOUS
EMBROIDERY WORK, MAKING OF LACES AND

FRI
View in this order COTTON
WHOLESALE OF OTH INTERMEDIATE

PRODUCTS,

Concentration risk - Subsectors of Textile industry - Coimbatore
MFR. OF KNITTED
PREPARATION AND AND CROCHETED
SPINNING OF FABRICS
MFR. OF WEARING COTTON 0.3%
APPARELS, READY 12% MFR. OF THREADS,
MADE GAR NETS, ROPES,
14% COTTON TAPES,NEWA
0.4% 0.2%
MFR. OF MADE-UP
TEXTILE ARTICLES
Other & TARPA
2% 0.2%
Non textile
(Industries industries
other than 73%
textiles) MFR. OF
MACHINERY FOR
TEXTILE,APPAREL &
1.2%
Concentration risk - Subsectors of textile industry - SALEM
MFR. OF MADE-UP
TEXTILE ARTICLES
& TARPA
OTHER 5%
WHOLESALE (INCL.
SPECIALIZED
WHOLE
10%
PREPARATION AND
SPINNING OF
COTTON Non textile
18%
(Industries
industries
67%
other than
textiles)

Concentration risk - Subsectors of textile industry - Erode
MFR. OF WEARING
APPARELS, READY
MADE GAR TEXTILES, CLOTHING &
2.1% FOOTWEAR & OTH
MFR. OF KNITTED AND HOUS
CROCHETED FABRICS 1.0%
4.2%
PREPARATION AND
SPINNING OF COTTON
24.4%
Non textile industries

68.3%
(Industries
other than
textiles)
Concentration risk - Subsectors of Textile industry - Karur
DRESSING AND
MFR. OF MADE-UP
DYEING OF
TEXTILE ARTICLES &
FUR,MFR. OF ARTIC
TARPA (Industries
0.3%
68.9% other than
textiles)
0.8%

OTHER WHOLESALE
Non textile industries (INCL. SPECIALIZED
30.4% WHOLE
0.5%
Concentration risk - subsectors of textile industry - Tirupur
PREPARATION MFR. OF
AND SPINNING OF THREADS, NETS,
COTTON ROPES,
18.2% DRESSING AND DYEING OF FUR,MFR. OF
TAPES,NEWA
MFR. OF ARTIC
2.1%
WEARING
APPARELS, EMBROIDERY WORK, MAKING OF LACES AND
0.6% FRI
READY MADE 1.0%
GAR
0.3% TEXTILES, CLOTHING & FOOTWEAR & OTH
67.9%
HOUS
3.9% 0.2%
WHOLESALE OF OTH INTERMEDIATE
PRODUCTS,
1.9%
GEN. OF ELECTRICITY: HYDRO, COAL, OIL, A
Non textile
(Industries
industries
other than
textiles) 8.0%
Coimbatore:
At Coimbatore, the percentage exposure towards Apparels (14%) is lower,

compared to that of this SME centre as a whole (19%), which is a healthy
picture. The exposure for spinning is in line with that of the centre
(overall). Other subsectors with minor exposures are mainly towards
manufacturing. Among all the locations, Coimbatore has the highest
proportion of non-textile industries (industries other than textiles).
Salem:
There is no exposure towards Apparels at Salem, while the exposure

towards spinning is higher (18%) than the value for the overall SME centre
(13%).
Erode:
Exposure towards apparels is much lower at Erode (2%), when compared

to the overall value for the Coimbatore SME centre. But the proportion of

cotton spinning is very high (24%), again compared to the overall value.
After Coimbatore, Erode has the second highest exposure (68.3%) towards
non-textile industries, followed by Salem (67%).
Karur:
Extremely high exposure (almost 69%) towards one subsector (Mfr. Of

Made-up textile articles and tarpa) is observed at Karur, which is a
dangerous sign – especially with the continuing recessionary trends in
Europe and US (the areas to which maximum exports from Karur are
headed to).
Tirupur:
Similar to Karur, Tirupur also has very high exposure (almost 68%)
towards Apparels. The recessionary trends discussed above also apply to
Tirupur. On the other hand, exposure towards non-textile industries is
lowest in Tirupur (8%), followed by Karur (30%).
Location wise:
Concentration risk - Location wise
Others
SALEM 8%
7%
COIMBATORE
39%
TIRUPUR
21%
KARUR
ERODE
11%
14%

From the above chart, we observe that 39% of the exposures are
concentrated towards enterprises at Coimbatore. Any adverse effect on
the economic climate of Coimbatore would have its toll on the
performance of the SME Centre. Considering the favourable conditions for
industries at places like Salem and Erode there is ample scope for
diversifying the credit portfolio for the centre.
Loan scheme wise
Concentration risk by loan scheme
Misc.
Export finance 0.3%
11%
Working capital
47% Term loan
42%
More than the working capital, the concentration risk towards term loan
(42%) is a cause of concern, considering the nature of the loan scheme. If
this exposure towards term loan is reduced to 30%, then the credit
portfolio would be having a healthy outlook. Even though the exposure
towards working capital is less risky, the SME centre can focus more on
export finance so that there is sufficient diversification to mitigate the

credit risk. An ideal combination would be Term loan (30%), working
capital (40%), Export finance (25%) and miscellaneous (5%).

Nature of organization wise
Concentration risk - Nature of organisation wise
Sole Proprietorship
Public Ltd 11%
Com panies
7% Trust-Educational
Institutions
4%
OTHERS
4%
Private Ltd Cos
51%
Partnership Firm
23%
In the above chart, more than the private limited companies, the causes
of concern are sole proprietorship and partnership firm. This is because of
the key man risk factor. – the dependence of an enterprise on a single
person for its day-to-day working and strategic planning. Since sufficient
exposure is present towards private limited companies (51%), the focus
can be on public limited companies and trusts which do not have the
constraint of key man risk and are therefore much safer.

Comparison with industry data (NABARD)
Our next analysis will be a comparison of the credit data of Axis bank with
the overall potential for Coimbatore district (2009-10). As per the policy
directive of RBI, the annual credit plans (ACP) prepared by the banks
should be based on the Potential Linked Credit Plan (PLP) prepared by
National Agricultural Bank for Rural Development. The projection of
potentials for ground level investments through bank credit during the
year 2009-10 have been arrived at by estimating the balance potential
available for exploitation in Coimbatore district and taking into account
the human and natural resources endowment factors, infrastructure and
support services available and likely to be created. NABARD has projected
a credit potential of Rs 7328.87 crores in the coming year for Coimbatore
district.
Broad sector wise PLP projections for Coimbatore (2009-10)

Total=Rs. 7328.87 crores
Agri and agri

related
17%
Other priority
sector
18% Non farm sector
65%
In the above chart, agricultural and related industries do not come under
the purview of the SME centre. Included under non farm sector are: Food
based; beverages; tobacco and tobacco based; cotton textile based; wool,
silk and synthetic fibre textiles; jute, hemp and mesta textiles; Hosiery
and garments; Wood and wooden products; Paper and paper products;

Leather based; Plastic and rubber based; Chemicals and chemical based;
Non metallic mineral products; Basic metal and alloy products; Metal
products; Machinery and machine tolls, electrical machinery and
apparatus; Transport equipments.
The following are included under other priority sector: transport

operators, retail trade & small business. Remaining items under this
category do not come under the purview of the SME centre.
To start with, in each of the sectors that Axis bank has currently lent, the
overall estimated credit potential for Coimbatore district is shown in the
table below:
Table 2 – Comparison of Axis bank credit with overall estimated potential

of Coimbatore
Overall Estimated
Axis bank credit
Credit Potential
08-09 for
Sector for Coimbatore
Coimbatore
2009-10 (Rs.
(Rs. Lakhs)
lakhs)
Textiles:handloom & powerloom 100.0 4202
Food based 1966.5 13500
Beverages, tobacco and tobacco
0.0 1050
based
Cotton textile based 4137.6 41216.4
Wool, silk and synthetic fibre
textiles; jute hemp and mesta 75.0 1486
textiles
Hosiery and garments 1273.5 156874
Wood and wooden products 0.0 6030
Paper and paper products 384.7 12784
Leather based 0.0 7018.5
Plastic and rubber based 125.0 14138.2
Chemicals and chemical based 500.0 6069.2
Non metallic mineral products 0.0 6683.9
Basic metal and alloy products 1805.5 9827.5
Metal products 2692.0 22261.7
Machinery and machine tolls,
1461.1 53300
electrical machinery and apparatus

Transport equipments 2893.6 21110
Transport operators 0.0 54750
Retail trade & small business 1202.4 20250
With the objective of understanding whether lending to a particular sector

should be increased or decreased, a comparison was carried out for each
sector, between the percentage exposure of axis bank (2008-09) and the
exposure of that sector as a percent of the overall estimated potential for
Coimbatore district (2009-10). This analysis is based on the assumption
that the banks at Coimbatore are likely to lend to the various sectors on a
proportionate basis. For e.g. if potential for cotton textiles is 5.6% of the
overall credit potential, then the banks are likely to lend in the same
proportion. The comparison has been done in two parts, the sole purpose
being a clearer graphic representation of the data.

On a proportionate basis, we observe that the potential for exposure to
cotton textile based industries is lesser than the present exposure level of
Axis bank - an indication that future lending to that sector has to be
minimized. Though there is potential for hosieries and garments at
Coimbatore, considering the concentration risk towards these subsectors,
it is not advisable to lend to enterprises in this subsector beyond a
stipulated level. From a marketing perspective, one should not focus on
food based industries considering the lower proportion of lending potential
available in that sector.

Marketing efforts for lending to enterprises can be toned down for basic
metal and alloy products, other metal products and transport equipments.
With the ongoing technological improvements, there is lot of scope for
lending towards the subsector of machinery & machine tools, electrical
machinery and apparatus. So the sales team at the SME centre can focus
on enterprises which fabricate or use these machinery. A significant fact to
be noted is that for Axis bank, there is no exposure towards transport
operators. But data suggests that there is huge potential in this area.
Considering the nature of the business, the SME centre can take a call on
whether or not to lend to the transport operators.

6 . R I S K A N A LY S I S
Risk analysis was carried out under the following heads:
• Analysis of borrowal spectrum based on internal credit rating
• Analysis of enterprises under watch list/exit list
• Internal rating weighted concentration risk
Analysis of borrowal spectrum based on internal credit rating:
With respect to internal credit rating, Axis bank presently follows eight
grade (SME 1 to SME 8) rating symbol system. While SME 1 is considered
as highly safe, SME 8 is extremely risk prone. In this analysis, enterprises
with rating only SME 5 and below (which come under the high-risk
category) have been included. The difference with the earlier analysis is
that the former included all enterprises without any reference to internal
rating. About 4.1% (Rs. 35.6 crores) of the total fund based credit
exposure (Rs. 860 crores) fall under this category. Similar to the previous
section, this study was also done industry wise, nature of company wise,
loan scheme wise and location wise.

Industry wise analysis of high-risk category
Under the high-risk category (with fund based sanction limit = Rs.35.6
crores), 71% of the exposure is towards textile industry, definitely not a

healthy sign for the SME centre. For better insights, analysis within the
above mentioned industries was carried out as shown below:
We are able to observe that within engineering industry, 41% of loan

exposure is under the high-risk category. This is an indication that future
exposures to engineering enterprises should be done with utmost caution.
Location wise analysis of high-risk category:

We observe that 45% of the exposure under high-risk category belongs
to Karur – an indication that future exposures to industries in Karur should
be thoroughly reviewed.
The graph above shows the percentage of exposure under high-risk

category within the locations Karur, Erode and Coimbatore. Again, we
observe that within Karur town, 17% of exposure falls under the high-risk
category.

Nature of organization wise analysis of high-risk category
Nature of organisation wise contribution to high risk category

SOLE
PROPRIETORSHIP PARTNERSHIP
2% FIRM
10%
PRIVATE LTD
COMPANIES
88%
The low proportion of sole proprietorships and partnership firms in the

high risk category is a good sign considering the key man risk factor.
Loan scheme wise contribution to high-risk category
Loan scheme wise contribution to high risk category
Export finance
32%
Working capital
46%
Term loan
22%
Again, the low proportion of term loans under high risk category is a
healthy sign. The SME centre should focus on sustaining this proportion of

term loans to ensure a low probability of default by enterprises that are
enjoying term loans.
Enterprise wise contribution to high-risk category:
The above chart shows the contribution by various enterprises to the

high risk category. Considering the case of Veera Home Tex, we observe
that if the enterprise defaults, then it will have an adverse impact on the
NPA (Non Profitable Asset) level of the SME centre as a whole. So such
accounts have to be regularly monitored to avoid the risk of default.

Analysis of enterprises under watch list/exit list:
Out of the total 255 customers, the Zonal Risk committee placed 40
under watch list/exit list. About 12.1% (Rs. 104 crores) of the sanction
limit came under this category. This study is separate from the analysis
above based on internal credit rating. To identify the priority areas for
monitoring risk of default, a Pareto analysis was also done among
industries, enterprises etc.
Industry wise:
Similar to the previous analysis, even here we observe that of the

sanction limit under watch list/exit list, 50% belongs to the textile industry.
Also, another significant observation is that 77% of the sanction limit
under watch list/exit list is contributed by just three industries: Textiles

(Cotton), Iron & Steel and Engineering, necessitating more focus on
enterprises belonging to these industries.
To have a clearer picture, the within industry analysis is shown below:
Within industry - % under watch list
60% 53% 51%

50%
39%
40%
30% 24% 23%
20% 16% 14% 13%
12%
10% 7%
1%
0%
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A significantly disturbing feature is that within the mining and mining

products industry, 53% of the exposure is under watch list followed by
engineering (51%). Another heartening feature is that only 13% of the
exposure within textile industry is under watch list.
Location wise

Considering the relatively lower sanction limit towards enterprises at
Karur, a figure of 24.3% is a disturbing feature. To understand the impact
of 50.4% for Coimbatore, the within-location analysis was done as shown
below:

Within location - % of sanction limit under watch list
30%
26%
25%
23%
20%
15%
15%
10%
6%
5%
3%
0%
M
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Having a look at the chart, we can conclude that Karur remains the area of
prime focus, with 26% of the sanction limit given to enterprises at Karur
under watch list. Even the figure of 15% within Coimbatore is a cause of
concern considering the larger proportion of sanction limit lent to
enterprises in that district.
Enterprise wise

Enterprises - % contribution to sanction limit under watch list
80%
68%
70%
cumulative
60%
50%
40% 68% of exposure under

watch list contributed
30% by 25% of enterprises
20%
13.11%
9.58% 8.40%
10% 6.73% 5.89% 5.34% 5.20% 5.05% 4.77%
4.27%
0%
SM
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The enterprise wise contribution of the sanction limit under watch list is
shown for the top 10 firms in the chart above. We observe that about 68%
of the sanction limit under watch list is contributed by just these 10 firms
(out of the 40 firms in watch list). This is an example of how individual
firms can even make a significant impact on the SME centre’s credit
portfolio.

Internal rating weighted concentration risk:
A realistic picture of the concentration risk of each industry would emerge

if the risk measured is weighted with the internal ratings given to all the
enterprises within that industry. To understand whether this internal rating
creates any difference in the concentration of the industries, the following
weights were applied. The weights added were similar to the ones given in
the report released by Basel Committee on Banking Supervision11. The
weights are given below:
Table 3: Weights for internal ratings
Internal rating Weightage

SME 1 to SME 2 (including SO) 20%
SME 3 to SME 4 (including SO) 50%
SME 5 to SME 7 150%
A sample calculation of the internal rating adjusted sanction limit is shown

below. The difference arising after the weights are applied is to be noted.
Table 4: Sample calculation of adjusted sanction limit
IR
adjuste
Weighta Percenta
Percent d
ge ge of
Enterpri Sancti age of sanction
Industr Internal based total
se on total limit
y rating on adjusted
Name Limit sanction (sanctio
internal sanction
limit n limit *
rating limit
weighta
ge)
Auto A SME 3 315000 74% 50% 1575000 37%
ancillari 00 0
11
International Convergence of Capital Measurement and Capital Standards, A
Revised framework (June 2006)

es
570000
Textile B SME 6 13% 150% 8550000 20%
0
Iron & 415000
C SME 2 10% 20% 830000 2%
steel 0
Auto
120000
ancillari D SME 4 3% 50% 600000 1%
0
es
425500 2573000
00 0
The increase/decrease in sanction limits (after adjustment) for each
enterprise, on summing up would give rise to the modified sanction limit
for each industry as a whole. From the modified sanction limit, the
percentage exposure to each industry can be calculated (which is nothing
but the concentration risk). The summary of the calculations are shown in
the table below:
Table 5: Comparison of normal and adjusted sanction limits
Normal Adjuste
Sanctio d Differenc
Industry (1)
n limit Sanction e (3)-(2)
(2) Limit (3)
GEMS & JEWELLERY 0.66% 0.75% 0.09%
INFRASTRUCTURE CONSTRUCTION: ROADS 1.65% 1.57% -0.09%
INFRASTRUCTURE CONSTRUCTION: OTHERS 3.50% 3.32% -0.18%
POWER GENERATION & DISTRIBUTION 0.63% 0.96% 0.34%
ALCOHOLIC BEVERAGES & TOBACCO 2.82% 3.66% 0.84%
EDIBLE OILS 3.68% 3.59% -0.09%
FOOD PROCESSING 4.05% 4.67% 0.62%
TELECOMMUNICATION SERVICES 0.43% 0.41% -0.02%
REAL ESTATE 4.32% 4.86% 0.54%
IRON & STEEL 4.43% 5.15% 0.73%
LOGISTICS 0.06% 0.06% 0.00%
OTHER METAL & METAL PRODUCTS 1.23% 1.16% -0.06%
PETROCHEMICAL & PETROLEUM PRODUCTS 0.34% 0.45% 0.11%
AUTO ANCILLARIES 3.72% 3.63% -0.09%
TEXTILES: COTTON 46.33% 44.89% -1.44%
TEXTILES: OTHER 1.11% 1.17% 0.06%
TRADE 2.93% 2.88% -0.05%
EDUCATION & TRAINING 6.36% 6.92% 0.56%
PAPER & PAPER PRODUCTS 0.63% 0.60% -0.03%
LEATHER & LEATHER PRODUCTS 0.37% 0.59% 0.22%
MINING AND MINING PRODUCTS 0.21% 0.20% -0.01%

RUBBER & RUBBER PRODUCTS 0.15% 0.15% -0.01%
OTHERS 2.34% 2.32% -0.02%
AUTOMOBILES 1.10% 1.04% -0.06%
CHEMICAL & CHEMICAL PRODUCTS 2.60% 2.48% -0.12%
DRUGS & PHARMACEUTICALS 0.03% 0.03% 0.00%
ENGINEERING 4.27% 2.45% -1.82%
We are able to observe that there is no appreciable difference after

weighting the sanction limit with internal ratings (except in the case of
Engineering and Textiles: Cotton).
Risk Adjusted Return on Capital (RAROC):
With the intention of increasing ROC by minimizing capital requirements

for individual enterprises (necessitated by credit risk), a study of the first
pillar of Basel 2 norms (June 2006 revision) was first carried out. If the
capital allocation is reduced, this results in increased profits for the bank.
Approved by Basel norms, one approach for minimizing capital allocation
was through an internal rating based approach.
Under the First Pillar (Minimum Capital Requirements), a model based on

Internal Ratings was chosen to reduce the capital allocation to be done by
the bank. But since capital allocation for the credit exposures at Axis bank
took place at the Central level, obtaining data on the allocated capital for
Coimbatore zone was not possible. So this attempt at calculating risk
adjusted return on capital (RAROC) was discontinued.

7 . A N A LY S I S O F C U S T O M E R S W I T H D O W N WA R D M I G R AT I O N
For this analysis, a sample of 10 high value enterprises was selected

across industries (with three enterprises in textile industry). After a
thorough understanding of the firms, information which is significant for
this analysis have been summarized below:
Table 6: Details of customers who underwent downward migration

For each enterprise, the following information has been included:
• Line of activity
• Change in ratings
• Location of major suppliers and customers and
• Factors affecting migration:
o Demand side
o Financial performance (2008-09 provisional)
o Specific factors (includes supply side also)

Observations:
1. Ratings: In the sample under study, conduct ratings have gone down in
more cases than the financial ratings. Included under conduct rating
are frequent overdrawing, irregularities under term loan account etc.
2. Major customers: Enterprises with overseas customers have been

impacted more than the domestic customers.
3. Demand side: Order postponement and deferring of payments are

phenomenon commonly observed in the demand side.
4. Financial performance (2008-09 provisional): Performance affected

across industries. Textile industry worst hit followed by the automobile
industry & real estate.
5. Specific factors:
a. Power shortage and advance payment demanded by suppliers

are factors that occur more frequently than the others.
b. Irregularities by companies (working capital, cheque returns) also

contribute to downward ratings.
Considering all the above observations, we can conclude that the much
talked about downturn did have an impact on the performance of
enterprises. Power shortage is one important factor that is not related to
the downturn, but still has affected the turnover and profit margins of
companies.

8 . M A R K E T E X PA N S I O N
From the previous sections, we get an idea on which industries to lend to

and which industries to avoid when seen from the risk perspective. In this
section, we take a look at the industries which are prevalent in
Coimbatore district and understand their growth potential while still
retaining the risk perspective. To judge the growth prospects of the
industry, the following factors were considered12:
• Potential Increase (decrease) in sales %
• Potential Increase (decrease) in PAT %
• Short term outlook
• CAGR
• Sectoral p/e
With the intention of balancing growth with risk management, the

following factors give an understanding of the present risk level of the
industry (based on the customers associated with the SME centre of
Coimbatore currently):
• Percentage exposure for Coimbatore centre (Concentration risk)
• Internal rating spectrum for current customers
• Companies under Watch list (as on March 31, 2009)
The prevalent industries in Coimbatore were consolidated from various

sources like internal data of Axis bank, the website of District Industries
Centre, Coimbatore and based on the general knowledge of industries in
12
Source: Industry Analysis Service (CMIE) and Crisil Research website

Coimbatore. The following ten industries were shortlisted so that the
above mentioned factors are in coherence with each other: Gems &
jewellery, plastics, building materials (Construction), electronic goods,
paper, auto ancillaries, engineering, retail trade, hospitals and
hospitality. The table in the next page summarises the risk and market
expansion factors for each industry. IAS - Industry Analysis Service, CMIE -
Centre for Monitoring Indian Economy.
Table 7: Data on industries prevalent in Coimbatore

IAS - Industry Analysis Service, CMIE - Centre for Monitoring Indian Economy
S.No 1 2 3 4 5
Building
Gems & Electronic
Industry Plastics materials Paper
Jewellery goods
(Construction)
Percentage exposure for
Coimbatore centre 0.75% 2.48% 4.88% 0.10% 0.60%
(Concentration risk)
Green (SME 1 to
100% 77% 100% 0% 75%
SME 3 S0)
Internal
Orange (SME 4) 0% 23% 0% 100% 25%
rating
Red (SME 5 to
0% 0% 0% 0% 0%
SME7)
Companies under Watch list:-

Percentage (number of 20% (1) 8% (1) 0% 0% 0%
companies in bracket)
Potential Increase
(decrease) in QoQ: (2-4%) 11.50% 37-40% 41% (LCD TV) 6.50%
sales %
Potential Increase
profit margins
(decrease) in PAT 4.30% 14-17% (PBDIT)
under pressure
%
Growth
potential Short term
sluggish good positive positive sluggish
outlook
CAGR - - 13% - 6.30%
Sectoral p/e -
present (previous 11.9 (10.7) - - - 15.9 (13.3)
in bracket)
Plastics are
largely used in
Going through
agriculture and Infrastructure
a rough patch Increased
construction spending by moderate
because of average
Remarks sectors which stable growth, but less
poor demand disposable
are expected to government to volatility
from US - the income in India
clock decent aid growth
largest market
growth in 2009-
10
Recommendation Don’t lend Lend Lend Lend Lend
IAS (CMIE) &

Source IAS (CMIE) IAS (CMIE) CRISIL research IAS (CMIE) CRISIL
research

S.No 6 7 8 9 10
Auto
Industry Engineering Retail Trade Hospitals Hospitality
ancillaries
Percentage exposure for
Coimbatore centre 8.41% 2.45% 2.88% 0.43% 0.02%
(Concentration risk)
Green (SME 1 to
43% 50% 88% 100% 100%
SME 3 S0)
Internal
Orange (SME 4) 29% 38% 12% 0% 0%
rating
Red (SME 5 to
29% 12% 0% 0% 0%
SME7)
Companies under Watch list:-

Percentage (number of 43% (3) 25% (2) 12% (2) 0% 0%
companies in bracket)
Potential Increase
(decrease) in sales YoY: 9.6% 17% 20% 23-27% 8.60%
%
Potential Increase
QoQ: 4-7% 7.5-10% 43% (PBDIT)
(decrease) in PAT %
Growth
potential Short term outlook slow growth healthy Slow growth Healthy sluggish
CAGR - 14% 14% - -
Sectoral p/e -
present (previous in - 9.4 (7.7) 87.3 - 12.3 (9.7)
bracket)
Short term
Coupled with Increased
opportunity for
good growth average
unorganised Huge scope for
Coupled with expected for disposable
retail as penetration of
Remarks good growth for automobiles income in India
organised retail healthcare
automobiles and consumer will lead to
will grow slowly services
durables growth in the
in the next 2
industries long term
years.
Lend for short

Recommendation Lend Lend Lend Lend
term only
CRISIL CRISIL
Source IAS (CMIE) IAS (CMIE) IAS (CMIE)
Research Research
LIMITATIONS
Concentration risk:

• Concentration risk measured only for fund based sanction limits.
Non fund based sanction limits have been excluded from the
present study.
• If allocation of industry, subsector etc. to an enterprise is done

wrongly at the time of entry into MIS, we will not give the accurate
concentration risk.
• NABARD’s potential credit does not take into account the factor of
concentration risk towards a particular industry.
Risk analysis:
• Under watch list/exit list, only enterprises that have been associated
with SME centre for the past two years have been included. This has
been done because of the inherent constraint in the rating system
which gives lower ratings to newly associated enterprises (lack of
adequate data).
• Under internal rating weighted concentration risk, the present

weights allocation is subjective. A change in weights may alter the
concentration risks.
Analysis of migration:
• The short listed companies underwent downward migration from

2006-07 to 2007-08.
• Rating based on Annual balance sheet of 2008-09 not done, so

provisional figures for theyear have been included. An accurate
picture would have emerged if the rating was done based on 2008-
09 balance sheet.
• This analysis has been done for a sample only. More specific factors
may have had an effect on the performance of enterprises not
included in the present sample.

Market expansion:
• Only ten industries have been included in this study for market
expansion. Other industries may exist which have growth
potential.
CONCLUSION
The textile industry with a concentration risk of 45% (overall SME centre)
may result in significant loss for the bank under adverse economic
conditions. Under textile industry, apparels/garments have the highest
concentration risk followed by Cotton spinning. Coimbatore has the
highest concentration risk location wise, followed by Tirupur. Under loan
schemes, 42% towards the term loan poses the highest risk. Consider the
nature of organizations, sole proprietorships with an exposure of 11% are
a cause of concern because of the key man risk factor. Looking at the
credit potential for Coimbatore district (NABARD), lending towards the
subsector of machine tools and transport operations seems to be an
attractive option.
4.1% of the total sanction limit is under high-risk category – the main
contribution being from the cotton textiles and engineering industries.
Karur poses the highest risk location wise when we consider the internal
ratings SME 5 and below. 77% of the exposure under watch list/exit list is
contributed by just 3 industries: Textiles, Iron & Steel & Engineering. Also,
ten customers of the SME centre contribute to about 68% of exposure
under watch list/exit list. Considering the effects of recession on the
industries in this region, we observe from the sample study that textile
industry appears to be the one worst hit by the recession followed by the
real estate and automobile ancillaries. Power shortage is another
important factor that affected the margins of customers in this SME
centre. When it comes to market expansion, gems & jewellery is one
industry where the SME centre may avoid lending atleast in the short
term.

Care should be taken while allocating the industry, subsector etc. to the
industry, as wrong allocation may portray additional exposure towards the
industry and hence increase the concentration risk. The relationship
managers associated with the SME centre should encourage the Textile
enterprises to go in technological improvements, to achieve the objectives
of reduced cost, increased efficiency and margins. Another general
observation is that the collaterals based on real estate are volatile, which
necessitates frequent valuation to decipher the market value. A more
accurate picture of the concentration risk would emerge if the Lead bank
at Coimbatore shares the exposure data of all the banks combined. Also,
when this analysis of concentration risk is seen together with the yield
from the individual customers, the SME centre will have the convenience
of managing credit risk without affecting the interest and other incomes.
Thus, the project has identified the areas of focus for the SME centre in its
endeavor to manage credit risk. Added to this, suggestion of new avenues
for lending gives a marketing angle to the project and is believed to help
the SME centre in market expansion.
REFERENCES
Books
1. NABARD, Potential Linked Credit Plan, Coimbatore district, Tamil Nadu

Regional office, 2009-10
2. Corporate Credit policy, Axis Bank, 2009-10
Internet articles
1. District Industries Centre, Coimbatore
http://www.diccoimbatore.com/
2. About Axis bank
http://www.axisbank.com/aboutus/aboutaxisbank/About-Axis-Bank.asp

3. Basel committee on banking supervision, International Convergence of
Capital Measurement and Capital Standards (A revised framework), June
2006
www.bis.org/publ/bcbs128.pdf
Internal data
1. Data for Non-schematic enterprises, SME centre, Coimbatore, 31 st March

2009.
2. Companies under watch list/exit list, March 2009
3. Latest proposals of various enterprises

APPENDIX
1. Estimates from Potential Linked Credit Plan for Coimbatore district (Released by
NABARD) 2009-10
Total credit flow projection for the year
732857.2 lakhs
2009-10 is
Investment credit (Rs. Working capital (Rs.
Total
Lakhs) Lakhs)
Potential for Percentage
Financial WC
Sector Bank loan Bank loan 2009-10
outlay assessment
Textiles:handloom 577.5 433.1 1886.5 1509.2 1942.325 0.3%
Textiles:powerloom 1000.0 750 1886.5 1509.2 2259.2 0.3%
Beverages, tobacco and
574.2 430.6 774.8 619.8 1050.4 0.1%
tobacco based
Cotton textile based 22528.4 16896.3 30400.1 24320.1 41216.4 5.6%
wool, silk and synthetic fibre
603.9 453.0 815.0 652.0 1104.9 0.2%
textiles
jute hemp and mesta textiles 208.4 156.3 281.2 225.0 381.3 0.1%
hosiery and garments 85745.9 64309.4 115706.2 92565.0 156874.4 21.4%
wood and wooden products 3296.1 2472.1 4447.8 3558.2 6030.3 0.8%
paper and paper products 6987.8 5240.8 9429.4 7543.5 12784.3 1.7%
leather based 3836.3 2877.2 5176.7 4141.3 7018.5 1.0%
plastic and rubber based 7727.8 5795.9 10428.0 8342.4 14138.2 1.9%
chemicals and chemical
3317.4 2488.0 4476.5 3581.2 6069.2 0.8%
based
non metallic mineral
3653.4 2740.0 4929.9 3943.9 6683.9 0.9%
products
basic metal and alloy
5371.6 4028.7 7248.5 5798.8 9827.5 1.3%
products
metal products 12168.0 9126.0 16419.6 13135.7 22261.7 3.0%
machinery and machine tolls 20708.1 15531.1 27943.7 22355.0 37886.1 5.2%
electrical machinery and
8425.3 6319.0 11369.2 9095.3 15414.3 2.1%
apparatus
transport equipments 11538.5 8653.9 15570.2 12456.2 21110.1 2.9%
Non farm sector 209184.8 263702.6 472887.4 64.5%
Transport operators 54750 7.5%
Retail trade & small business 20250 2.8%

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MIP PHASE II RE PO RT

AXIS BANK, COIMBATORE

Faculty Guide: Prof. S. Shijin

Industry Guide: Mr. H. Sathyamoorthy

Submitted in partial fulfillment of the Post Graduate Programme in Management

Roll No: 08154

AXIS BANK, COIMBATORE

Faculty Guide: Prof. S. Shijin

Industry Guide: Mr. H. Sathyamoorthy

Submitted in partial fulfillment of the Post Graduate Programme in Management

Roll No: 08154

Name of Faculty Guide: Prof. Shijin

Date: 17th August 2009

T A PAI MANAGEMENT INSTITUTE,

I express my gratitude towards my guide Prof. Shijin for his guidance in

R Srikanth Analysis of SME Risk Profile Page 1 of 50

A comparison of the industry wise percentage exposure of Axis bank

R Srikanth Analysis of SME Risk Profile Page 2 of 50

2. Objectives of the study ..........................................................................................................9

3. Scope of the study ...............................................................................................................11

5. Analysis of Concentration risk.............................................................................................14

7. Analysis of customers with downward migration................................................................47

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Axis Bank has a sound technological platform in place with centralized

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1.1 Services offered:

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The SME business is driven through 25 SME Centres located at SME

R Srikanth Analysis of SME Risk Profile Page 6 of 50

1.4 Concentration risk:

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Concentration risk in credit portfolios6 comes through an uneven

1.5 Overview of the study:

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2. OBJECTIVES OF THE STUDY

1. The primary objective of the study is to measure concentration risk

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1.3 To compare the relative disbursement of credit to various locations

1.5 To compare credit allocation to each sector with overall credit

2. To analyze the borrowing spectrum based on internal credit rating

3. Analysis of enterprises under watch list/exit list

4. To examine whether the incorporation of internal rating into

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Risk analysis of borrowal spectrum based on internal rating encompassed

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To measure concentration risk, the credit data to each customer was

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As outlined in the project objectives, the measurement and analysis of

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Industry Concentration risk -

ALCOHOLIC BEVERAGES & TOBACCO

INFRASTRUCTURE CONSTRUCTION: OTHERS

CHEMICAL & CHEMICAL PRODUCTS

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INFRASTRUCTURE Concentration risk - Coimbatore

IRO N & 3% CHEMICAL & CHEMICAL PRODUCTS

Concentration risk - Salem

IRON & STEEL

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CHEMICAL & CHEMICAL

Concentration risk - Karur

CHEMICAL & CHEMICAL

TEXTILES: COTTON PETROCHEMICAL &

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