Bank of baroda

Credit Risk
Credit risk is a risk inherent in the banking business and involves the risk of loss arising as a result of the diminution in
credit quality of a borrower or counter-party and the risk that the borrower or counter-party will default on contractual
repayments under an advance.
We have a sub-committee of Directors constituted by the Board who specifically oversee and co-ordinate our risk
management functions. Reporting to this sub-committee is a Credit Policy Committee that comprises of Senior General
Managers whose role is to formulate and implement various risk management strategies and monitor our risk management
functions on a regular basis.
There are four credit risk management cells which work together to identify, measure, monitor and control our credit risk
exposure. These are the Corporate Research Cell, Portfolio Review Cell, Credit Review Cell and Economic Forecasting
Cell.
Corporate Research Cell
The primary function of the Corporate Research Cell is the preparation and update of industry reports, which are used by
credit officers at all levels- central management, zonal management, regional management, as well as at each branch.

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This cell has completed a study of all industries identified by the RBI for controlling sectoral deployment of credit and
prepared over 63 industry and product reports, updated quarterly/half yearly, for use by us. Although the RBI only
requires annual or half-yearly updates, it is part of our commitment towards risk management that some of our reports are
updated quarterly/ half yearly.
Portfolio Review Cell
The role of the Portfolio Review Cell is to conduct studies on various aspects of credit risk management at the portfolio
level, such as sectoral credit deployment, monitoring single borrower/group borrower exposure and monitoring industry-
wide capital exposures. The functions of this cell include conducting studies on the performance of specific loan portfolios
and preparing reports for submission to the Risk Management General Manager.
Credit Review Cell
The primary responsibility of the Credit Review Cell is to monitor the credit risk management techniques we deploy and
to provide recommendations to the Risk Management General Manager for improvements to current credit management
practices encompassing, among other responsibilities, the necessary policy preparation and roll out of credit rating
models.
Credit Exposure Ceilings
Credit exposure ceilings are a prudential measure mandated by RBI aimed at improving risk management and avoiding
concentration of credit risks. Ceilings are set in relation to single/group borrowers, unsecured borrowers and with respect
to each industry sector.
We have set our own credit exposure ceilings based on the guidelines for substantial exposure limits set by RBI, but
which are typically more conservative than those prescribed by RBI. Broadly, our credit exposure ceilings are as follows:
The aggregate substantial exposure limit is set at 600% of our capital funds as per the previous year’s balance
sheet. For the purposes of calculating our substantial exposure limites we include all single borrowers with an
exposure of 10% or more of capital funds;
Single borrower exposure is currently capped at 10% (despite RBI prescribing a limit of 15%, as it is more in line
with our risk management strategy) but may increase to 15% as long as the overall substantial exposure limit does
not exceed 600%.
As on March 31, 2005, the credit exposure ceilings on single/group exposure limits were as follows: