Credit Risk Management Overview

Global Credit Exposure Management Policy 2024

• Bank of Baroda's policy for managing credit risk
• Covers various aspects including governance structure, credit segmentation, credit delivery channels, and credit strategy
• Applies to all credit exposures globally, both standalone and consolidated levels
• Individual group entities are governed by their respective credit policies

Governance Structure

• Board: Responsible for overall credit risk management
• Risk Management Committee of the Board (RMCB): Approves the policy, sets credit risk appetite and monitoring limits, provides support in credit risk exposure management
• Credit Policy Committee (CPC): Senior management committee responsible for effective credit risk management policy implementation and guidelines
• Product & Process Approval Committee (PPAC): Approves new or modified products and processes
• Risk Management Department: Measures, monitors, and controls credit risk, enforces compliance with credit risk parameters, prescribes and implements risk measurement tools, identifies and analyzes problem exposures

Credit Governance and Segmentation

• Classification of Customers
  • Corporate & Institutional Credit (C&IC): Annual turnover of over Rs. 250 crore
  • MSME: Meets the definition of MSMED Act 2006, with investment in plant machinery/equipment not exceeding Rs. 50 crore and annual turnover of up to Rs. 250 crore
  • Rural & Agricultural Banking Business: Includes all agriculture and allied activities irrespective of priority sector status, and food/agro processing units with credit facilities up to Rs. 100 crore
  • Retail Lending: Personal consumption and business that are not covered in other categories.

Credit Delivery Channels

• Credit channels: Branches, specialized SME branches, proposal processing centers, and other channels set up by the Bank.

Credit Strategy

• Target Sectors and Markets:
  • Positive Outlook: Primary target
  • Neutral Outlook: Moderate exposure
  • Negative Outlook: Limited exposure to borrowers with external ratings of 'A' or 'BBB' or below (for specific categories)
• Priority Sector Lending Certificate (PSLC): A mechanism for banks to achieve priority sector lending targets.
• Industries requiring Compulsory Licensing: Distillation and brewing of alcoholic drinks, cigarettes, cigars, and certain types of electronic equipment.
• Credit Rating Matrix: Specific limits based on credit rating.

Restricted Exposures

• Wilful Defaulters/Fraud Accounts: No lending allowed to wilful defaulters, fraud accounts, or directors/partners of companies in default
• Loans settled under compromise/Write-off: Restrictions on lending to promoters/directors of companies with written-off loans
• Loans to Directors of the Bank: Restrictions and regulations
• Regulatory Restrictions: Compliance with regulations like the Banking Regulation Act 1949

Exposure Norms

• Exposure limits: Various types of prudential limits for credit portfolios, following RBI guidelines
• Single/Group Exposure Limit: Defined by the Large Exposure Framework (LEF) of RBI, related to exposures equal to or above 10% of the Bank's ECB.

Underwriting criteria

• Assessment Parameters/ Guiding Principles: Eligibility criteria, financial position, future projections, operational ability and past credit performance
• Credit risk evaluation process (CREP): Procedures and principles for evaluating credit risk exposures.
• Internal Credit Rating: Bank's internal credit rating system (BOBICON)
• External Credit Rating criteria for internal rating, and relevant authorities for considering fresh/enhancement proposals, including cases where relaxation or deviation from criteria is needed

Other Specific guidelines

• Country Exposure Limit: Assessing and managing risk associated with lending to borrowers in specific countries
• Financing to NBFCs: The bank can finance/lend to registered NBFCs with suitable increases in margin requirements
• Project Loans: Process for funding long-term infrastructure, industrial, and public projects.
• Capital Market Exposure: Guidelines on financing capital markets activities.

Credit Process

• Credit Approval Process: Procedures and approval paths to ensure no one individual can originate or sanction credit.
• Facility Structure: Credit facilities should contain appropriate covenants.
• Application: Procedures for applying for credit with established timelines for processing.

Monitoring and Control

• Three Lines of Defence: First line is customer relations, second line Risk management, and third line Internal audit, all with respective roles and responsibilities
• Credit Risk Management
• Credit Mitigation

Data Quality Management

• Data quality is critical for accurate business decisions.
• Specific responsibilities for data quality and consistency.

Reporting of Breaches

• Risk management monitors adherence to prudential limits.
• Breaches are reported through appropriate channels for action and remediation.

Training and Development

• Specific training programs and initiatives to enhance credit risk management competency
• Required knowledge and certification requirements.

Policy Administration and Review

• Policies are maintained and updated according to regulatory requirements
• Risk management department manages and reviews policies regularly

Other Information

• Abbreviations: Definitions of various acronyms and terms used in this policy.