Credit Management

(In addition to the analysis of credit risk

management and credit recovery mechanism)

Undertaken at
Punjab National
Bank

SUBMITTED TO: SUBMITTED BY:

GGDSD COLLEGE JAHANVI BANSAL
DEPARTMENT OF 8013
ECONOMICS M.B.E-1
COMPANYS PROFILE:
PUNJAB NATIONAL BANK , is a state-owned financial services company .It was registered on
May 19, 1894 under the Indian Companies Act with its office in Lahore.
Today, the Bank is the second largest government-owned commercial bank in India
with about 5000 branches .
And 37 million customers.

VISION Sh.K.R.Kamath (Chairmen and M.D)

To be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic
Plains providing entire range of financial products and services under one roof"

MISSION:
"Banking for the Unbanked"

The name you can bank upon

INTRODUCTION TO THE
TOPIC
I. CREDIT MANAGEMENT:: Credit Management in the bank is highlighted by
the quality of its loan portfolio. Every Bank is striving hard to ensure that its credit portfolio
is healthy and that Non Performing Assets are kept at lowest possible level, as both of these
factors have direct impact on its profitability.

WHAT PART OF A BANKS CREDIT GOES TO WHICH

TYPE OF LOANS?
 CONTINUED.

CREDIT RISK MANAGEMENT (RATING) MODEL AT PNB:

It is management of the risk of default by borrower due to inability and/or unwillingness to repay his
debts in accordance with the agreed terms and conditions.

The model evaluates the credit risk rating of a borrower on a scale of AAA to
D with AAA indicating minimum risk and D indicating maximum risk.
CREDIT RECOVERY MECHANISM IN PNB
It defines the responsibility of the branch to monitor advance accounts, ensure that they are conducted as per
the terms of sanction and the interest and instalments, wherever applicable are recovered promptly.
OBJECTIVES OF THE STUDY
To study broad contours of management of credit.

To understand the basis of credit risk rating and its significance for PNB.

To learn about credit recovery mechanism of public and private sector banks.

To appraise the creditworthiness of those organizations who approaches PUNJAB NATIONAL

BANK for credit which includes :

Financial Evaluation
Management Evaluation
Business / Industry Evaluation
Conduct Of Account
REVIEW OF LITERATURE
The research work on the topic the appraisal on consumer credit banking products with the
asset quality frame: A multiple criteria application

The research paper on Evaluation of decision support system for credit management decisions.

The research paper on the topic Competitive analysis in Banking, Appraisal of methodologies

The book name Financial Analysis for bank lending in liberalized economy
RESEARCH METHODOLOGY
Four major players have been selected for the purpose
DATA SOURCE:
QUESTIONNAIRE
CASE STUDY
Public Sector Bank
Punjab national bank (PNB)
SAMPLE SIZE Oriental bank of commerce (OBC)
4 MAJOR BANKS*
Private
Sector Bank Axis Bank Ltd
TYPE OF METHODS
Industrial Credit Investment Corporation of India Bank (ICICI)
PRIMARY DATA
SECONDARY DATA
DATA ANALYSIS AND INTERPERATION
COMPARATIVE ANALYSIS OF CREDIT RECOYERY MECHANISM BETWEEN PUBLIC AND PRIVATE
BANKS.

Respondents were asked whether their Corporate Credit Policy entails a Credit Recovery Policy/
Mechanism or not? Fig .A
CREDIT RECOVERY POLICY

100

50

0
PNB OBC ICICI AXIS

INTERPERATION:
It was observed that the Total number of credit default cases is very less in public sector bank
as compared to private sector banks, thus they dont need any separate credit recovery
mechanism policy .This depicts that public sector banks enjoys much a secured position as
compared to private sector banks.
 Respondents were further asked whether their institution have a separate credit recovery department
that handles collection of credits in default or not?

Fig. B

CREDIT RECOVERY DEPARTMENT

100
80
60 CREDIT
RECOVERY
40
DEPARTMENT
20
0
PNB OBC ICICI AXIS

INTERPERATION:
Private Banks do have a credit recovery cell but not proper separate department thus in private
sector banks we find few banks having separate department instead they have cells like
SARC(Stressed Assets Recovery Cell). So, public sector banks are more focussed as compared to
private sector banks.
 Respondents were then asked that whether they hire any agency for credit recovery?

Fig. C

CREDIT RECOVERY AGENCY

100
80
60
40
20
0
PNB OBC ICICI AXIS

INTERPERATION:
Due to this the level of NPAs are high in case of private sector banks. Thus, it is suggested
that though the credit default issues can be well managed internally also but still it is
advisable to hire an outside agency for credit recovery as their work is more professional and
systematic..
 Respondents were then questioned that how many number of reminders their institutions give before
any legal proceeding?

1-5
5-10
10-15
15-20
Fig. D
More than 20

NUMBERS OF REMINDERS

AXIS

ICICI

OBC

PNB

0 5 10 15 20
INTERPERATION:
It was observed that Public sector banks sends reminder by making a gap of proper time period and
not after passing a little bit of time. This shows that public sector banks moves in a justified
manner.
 The further question which was asked to the respondents was about the average duration
for recovery:

0-15 days
15-30days
1-3 months
3-6 months
More than 6 months Fig. E

AVERAGE RECOVERY DURATION

AXIS
ICICI AVERAGE
OBC RECOVERY
DURATION
PNB

0 10 20 30

INTERPERATION:
It was observed that Public sector banks recover their money in easy instalments under the rules
and regulations specified by the RBI while in some cases private sector banks do not even follow
proper procedure for recovering their money.
 Respondents were further asked about the average costs incurred in trying to collect the loans (e.g.,
costs of litigation, costs for external lawyers, valuation reports, auction or execution costs, experts.)

0-5000
5000-10000
10000-15000
15000-20000
More than 20000 Fig. F

AVERAGE CREDIT RECOVERY COST

15000
10000
5000
0
PNB OBC ICICI AXIS

INTERPERATION:
Public sector has less cost incurred reason being their fewer requirements in credit recovery
because of their planned and properly managed credit recovery procedure. Public sector banks
have many optimal options for recovering their amount like tagging, full amount settlement etc.
This makes less NPAS in comparison to private sector banks.
 Respondents were asked whether their banks follow any Compromise policy or not?

Fig. G

COMPROMISE POLICY

100
80
60 COMPROMISE
40 POLICY
20
0
PNB OBC ICICI AXIS

INTERPERATION
When a customer is not in position of repaying, this service makes compromise between the
customer and the bank for settlement of his account. This gives the smoothness to the NPAs
customer as well as to the banks.
 Respondents were asked about the overall average recovery rate:

20%
20-40%
40-60%
60-80%
More than 80%
Fig. I

AVERAGE RECOVERY RATE

AXIS
ICICI
AVERAGE
OBC RECOVERY RATE
PNB

0% 50% 100%
The public sector banks are able to recover equal to or more than 80% (approx.) of its credit
recovery cases while private sector banks are able to recover even less than 80% of its credit
recovery cases. This shows the difference of level of efficiency in credit recovery mechanism
between public sector banks and private sector banks. Thus public sector banks in way follows
better credit recovery mechanism polices
ANALYSIS OF CREDIT RISK MANAGEMENT
THROUGH A CASE STUDY
Multani pharmaceuticals Ltd.
FEASIBILTY ANALYSIS OF THE COMPANY:

FINANCIAL ANALYSIS-20

MANAGEMENT ANALYSIS-10

BUSINESS/OUTLOOK-15

CONDUCT OF ACCOUNT-10

TOTAL:55
According to internal credit rating, the company has been rated as BB

ESTIMATED COST OF THE PROJECT :

Land Rs. 46,00,000

Building Purchased Rs. 11,800,000

Building New construction 26,000 sq feet @ 600 Rs. 15,600,000

Plant and Machinery Rs. 12,300,000

Furniture and other office equipment Rs. 1,300,000

Total Cost Rs. 45,000,000

CONTINUED.
SENSITIVITY ANALYSIS WITH PROJECTED BALANCE SHEET

When Sales Down by 5%

When Sales Down by 10%

When sales down by 5 % and cost of production by 5%

The average DSCR is 4.049.

Sensitivity analysis was done. The results of which are as follows:-Benchmark level : 1.5

When sales are decreased by 5% the DSCR is down to 3.022. This is above the benchmark level.

When sales are decreased by 10% the DSCR is down to 1.99. This is above the benchmark level.
SSS

In the worst case scenario, the sales decreases by 5% and the cost of production increases by 5%.
In this highly unlikely worst case scenario, the DSCR is 1.456. In this case DSCR is below
benchmark level and is bad.

Thus the project is financially viable and has low risk since except in worst case scenario DSCR is
well above benchmark level and worst case scenario is very rare.
 CONCLUSION
PNB follows a systematic and efficient credit appraisal system based on
sound principles of lending.

Further to ensure asset quality PNB has formulated its own Credit Risk
Rating model i.e. PNB Trac. It considers important parameters like
profitability, repayment capacity, efficiency of the unit, historical / industry
comparisons etc depending on the industry. PNB Trac is one of the best
rating models present till date.

Public sector banks are more efficient as compared to Private sector banks in
recovering their credits due to their well organized and managed credit
recovery departments and recovery polices. PNB (Public Sector Bank) also has
a well-organized and managed credit recovery mechanism.