School of Management

There exists meaningful inter-linkages among economic and financial variables such that the variation in the credit quality at the macro level can be explained. Both the economic factors and also the bank level factors play a critical role in determining the credit quality of assets. This study undertakes an empirical analysis for finding the impact of economic and financial factors on banks’ non-performing loans. It provides a framework for analysis of underlying default behavior of borrowers’ at the bank level in terms of banks’ individual characteristics and also due to the presence of other macroeconomic indicators. We conclude that a positive outlook on economic growth on banks would favour loan repayment response of borrowers in order to maintain credit worthiness and credit quality. Rising capital adequacy ratio and higher credit deposit ratio can jointly help improve the portfolio credit quality. The results of the study are in line with banking literature and provide an important insight for banks’ lending behavior.

Under the Basel framework banks are required to conduct stress tests for their requirements of potential capital while considering the impact of stress testing scenarios. There could exist interlinkages among macroeconomic indicators and financial performance such that the stressed credit quality can be explained. The capital ratio for the banking sector as a whole will be lower when the credit quality at the macro level worsens. We propose a stress testing framework that simulates the credit quality and the capital ratio levels using Gross Non-Performing Assets (GNPA) and Net Non-Performing Assets (NNPA) in the presence of both the banks' performance measures and macroeconomic indicators. We define stress testing scenarios assuming multivariate normal distribution using cholesky decomposition of such indicators and evaluate the stressed credit quality and resulting impact on the capital reserves ratio levels. We compare our results with the previous Financial Stability Report (June 2010) of Reserve Bank of India (RBI) (which uses historical "piece-wise" stress testing approach) also based on scenarios of multivariate distribution of stressed factors. We conclude that the banking sector needs to stress their capital ratio levels both with respect to their own performance and few economic factors. Based on a study of top 17 banks that comprise over 40 per cent of the total lending, over 6 years time period (2002-07), we find that the minimum Capital Adequacy Ratio (CAR) levels could fall to 8-9 per cent against a Gross Non-Performing Assets (GNPA) over 16 to 17 per cent. The rest of the results of the study are in line with previous studies for other countries and provide important insight to the bankers and policymakers.

The growing relative size and increased volatility of retail portfolios are attracting increased attention from banks’ risk managers and regulators. The correlation due to defaults of retail assets over time has been of considerable interest to retail bankers. Default correlation is important because if the correlation is significantly larger than zero, the default risk is larger. In this paper, we attempt to test the hypothesis of the significance of default correlation based on the external economic factors on the internal test data of a bank. We conclude that banks should use positive correlation between credit migrations of obligors but should use zero correlation between credit migration events and economic factors.

With the increasing competition, decreasing customer loyalty and plethora of banking products, it has become essential in today’s sluggish economy for banks to accurately position themselves. This paper presents a credit marketing model using an advanced data mining for acquisition segmentation and profit forecast. The average profitability (NPV) could increase with the use of an advanced data mining approach since the profit accruals vary across segments. Profit Forecast Models are built across each segment during the average life of a product. The model implementation on a Bank’s test data results in the robust segment distribution in groups of 22%, 29%, 14% and 35%, which forms a good representation of the population. Segments demonstrate distinction across their demographic and credit behavior profiles. The gains in our model scenario over a random scenario stands at Rs. 168 and Rs.29 for the top two segments respectively.

The regulatory norms for provisioning of capital against Bank’s credit exposure include the application of risk mitigants to protect the overall losses for the Bank. Credit risk mitigation (CRM) includes approaches to mitigate the credit risk to which banks are exposed. However, the use of CRM may also involve residual risks including legal or operational risks and the capital relief which is granted to the Bank against such mitigation may be insufficient to counteract the overall risks arising out of potential legal impact. The purpose of this study is to provide an overview of the legal issues involved in identification and application of mitigants to unburden the credit risk exposure of Banks in India. RBI guidelines intend to ensure minimum standards for legal documentation to obtain capital relief for mitigation. Banks need to have specific lien on the collateral with legal certainty and must possess the right to liquidate the pledged asset with enforceable security interest, by registering it with the Registrar. The management of such mitigants may not be easy for the Banks. For example, in case of property mortgages as collateral, the application of mitigation may pose unique problems for the bank. In case of joint family holdings, it is difficult to obtain comprehensive possession of the property without the protection of civil suits. Further, even with the support of various recovery laws, there could exist technicalities with respect to Limitation or other Acts to countermand the efforts of the Bank. We review the efficacy and failures of the Debt Recovery Tribunals (DRT) by describing the trends in recovered amounts and also elaborate example cases where borrowers have won against DRTs. We conclude that Banks must have clear and robust procedures for the collateral fulfilling legal conditions not only to declare the default of the counterparty but also to be able to liquidate the collateral.

Purpose – This study reviews the theoretical and empirical studies on credit information and attempts to demonstrate the benefits of credit information usage on the reduced delinquency rates of a banks’ retail portfolio. The purpose is to empirically demonstrate the use of external credit information which can significantly reduce the portfolio delinquency rates of a bank’s retail portfolio. To test for the significance of the relationship between positive information on the expected delinquency and draw insights on credit markets.
Design/methodology/approach – This paper uses theory of asymmetric information as the theoretical framework for analyzing the benefits of information usage in reducing borrower delinquency.
Findings – This concludes that fewer positive information regarding the information can help banks assign higher loan limits since it amounts to lower expected delinquency.
Practical implications – There exists information asymmetry between bankers and borrowers and this could have increased along with the increase in lending. Lending decisions of the bank are impacted by the presence of credit information of the borrowers. Credit information systems can play an important role towards reducing information asymmetry and improving credit market performance and credit access for the borrowers. Thus, usage of credit information in lending decisions can actually increase the transparency of credit markets.
Originality/value –This empirical study is an extension of previous empirical work done for various other countries in this subject to the Indian credit market.
Key Words: Credit Information, Delinquency, Positive Foot Prints, Bureau, Information Model

Retail Assets in Banks has grown due to the trend among banks to grow at a much faster space. Unlike the commercial exposures banks manage retail assets on pooled basis. In this paper, we discuss the methodology of creating pools of revolving retail assets. We compare the capital charges generated by the Basel's formula with the capital charges generated by two possible earnings-at-risk internal capital allocation models. We find that in general, Basel's capital ratios are closer to those generated by our models for the groups with lower credit risk. We explain the discrepancies to the different ways Basel and our models account for future margin income, to Basel's' assumptions about asset correlations. JEL Classification Codes: G0, G2.

Business models are built and widely used in the financial
services industry. Statistical and mathematical models are also
used for credit risk, market risk and operation risk. Segmentation
models are used in risk based segmentation, service marketing;
rating models are used in risk control; optimisation models are
used in product profitability; forecasting models are used in business planning and so on

The promotion of high yielding varieties (HYV) that marked the
green revolution has led to the large-scale use of chemicals as
pesticides. Increase in the use of chemicals as pesticides can result
in various health and environmental problems like pesticide
poisoning of farmers and farm workers, cardiopulmonary,
neurological and skin disorders, foetal deformities, miscarriages,
lowering the sperm count of applicators, etc.

This book provides a first-hand account of impact of volatility on valuations. It picturizes stock valuation with fair, practical and insightful explanations. Volatility in markets can form the foundation of fair value. A marginal change in volatility has a significant impact on the effective cost of capital. This text discusses the phenomenon of realized volatility and its implementation. Portfolio managers, fund managers and corporates continue to watch as prices change due volatility and can impose future restrictions on their skillful maneuver. Successful investing is beating market benchmarks, and the ability to locate mistakenly priced scrips over a horizon. This text delves into techniques for measuring the contours and boundaries of risk and, necessary emphasis to translate the risks to money impact. It explains the post facto approaches to unmake money loss in the post period.

An ever growing middle class population and rising income levels, combined with the demographic change of smaller household sizes has boosted demand for retail credit. There may exist meaningful inter-linkages among economic indicators and personal finance growth such that the variation in the retail credit at the macro level can be explained. Banks credit policies and credit processes are prepared with the broad risk management objective and the oversight of the credit policy remains with the senior management. However, increasing population, increase in the number of households, per capital income, number of employed people and also per capita household income, etc provide the need for fulfilling the gap between the existing level of debt and income. The purpose of this study is to provide meaningful analysis of inter-linkages among economic and financial variables such that the growth in retail

This textbook provides a first-hand account of impact of volatility on valuations. It focuses on valuation of the investment with fair, practical and insightful explanations. Volatility in markets can form the foundation of fair value. A marginal change in volatility has a significant impact on the effective cost of borrowing (capital). Portfolio managers, fund managers and corporates continue to watch as prices plunge due to volatility and can impose future restrictions on their skillful maneuver. The book highlights the approaches, design of tests, comparison and matching or making of models. It delves into techniques for measuring the contours and boundaries of risk and translating the losses to end impact. It explains the post facto and post period nuances to recover from money loss.  The book further elaborates combining positions and hedging, to evaluate and choose to conduct tests of effectiveness. It provides guidance on benchmarks of portfolios, tax implications and carrying forward benefits of losses. The text includes examples and business use cases that build on analysis, common tools and highlights the end use of volatility for stakeholders.

Capital cost of an open cast mines is determined based on many irreversible geological factors e.g, topography, ore grade, degree of mechanization, etc. Many equipment are procured by the mines during project initiation. However midway into the life of the mines, half from the original list may remain untouched. Why are capital equipment’s needed in mining operations? Mining industry is constantly in search of rapid capacity expansion, increased productivity, digital technology adoption and reduced costs. Besides the economics the new dimension of development focuses on automation and cleaner mining system.
For faster rate of production, mechanization at high degree is imperative. Mine optimization deals with conventional tools of production planning ignoring the drain on capital and related GHG implications.
Increase in idle times of machineries leads to increase in production cost. In order to reduce the idle time or waiting time the number of machineries may be increased. Due to large number of machines greater capital investments are needed that contributes to higher total GHG. The limitation is JIT (Just in Time) model of procurement of spares, does not exist in mining towns.

Growing urbanization, increasing population and increased per capita income have boosted the demand for housing in India. This empirical study gives us an explanation of how the market leverage of the real state firms in India are affected by firm specific attributes and external market or macroeconomic factors. Property financing is known as infrastructure financing where there exits the problems of longer gestation period, less predictable cash flows and challenge of accessing capital. This paper compares the property firms from other firms to differentiate their financial characteristics. It analyses the determinants of the market leverage for a sample of 40 Indian listed property companies for 8 year period from 2005 to 2012 and shows that current market leverage is positively and significantly impacted by previous leverage and also fewer firm characteristics that include contemporaneous operational efficiency, growth option, and change in working capital, cost of funds, etc. We conclude that transparency in property markets and accuracy in financial disclosure can help property firms' access capital and maintain their leverage. We also emphasize that the recent guidelines of SEBI on the introduction of REITs (Real Estate Investment Trusts) and real estate funds (REFs) are policy initiatives to channelize funds for this sector.

This paper aims to assess the status and trends in employment achievements in the state of Odisha in India. It explores the extent to which rural development programs have responded to employment generation. This is a review of the achievements made under direct or indirect employment generation schemes implemented in Odisha. We compare and highlight the gaps in achievement during the study and reference period. We find that the multiplier outcome of rural programs have not been realized to their fullest extent because of their partial coverage. Similarly, the coverage of industrialisation are low to cause any fall in actual unemployment rates. We conclude that much more emphasis on the design of rural schemes are desirable to achieve full employment.

The purpose of this article is to identify the key elements of market determinants
of bond yield and the external borrowing environment. A reasonably integrated
bond market is safer for both investors as well as issuers. It assesses the robustness of
integration in corporate bond yields. Research method applied in this particular study
includes the overview of theoretical concepts, literature review and analysis of secondary
yield data. The results revealed significant differences between the sensitivity of
coupon bonds and zero coupon bonds. It demonstrated stronger relationship between
bond yield, money markets and external credit markets, respectively. Modern bond
portfolios can be constructed focusing on factors beyond coupon rates, duration and
credit rating, respectively. The outcome or further research could focus on examining
alternate anchors against secured overnight short term financing rates

This study presents an empirical evidence of the primary debt market in India. Bond markets rarely fulfill the alternate role to bank financing in India. The benefits of bond markets include diversifying credit risks across the economy by providing an alternative to conventional bank lending. Bond markets supply long-term funds for the growth of the infrastructure or other sectors to fulfill long-term investment needs. It can also lower funding costs of the firm by liquidity premium on secondary market. They provide diversity in financial products with flexibility to meet the specific needs of investors and borrowers. These benefits in the form of financial instruments and efficiency of the financial system with allocation of capital in the economy (Dudley and Hubbard, 2004; Turner, 2002, and Lian, 2002), reduced exposure to foreign exchange risk and financial crises, and the facilitation of monetary policy. The corporate debt market in India basically comprises PSU bonds and privat...

Credit Marketing has come a long way in today’s economy of hard-hitting competition and diminishing customer loyalty. With the increasing level of cut-throat competition, decreasing customer loyalty and the increasing commoditization of banking products, it has become essential in today’s sluggish economy for banks to proactively understand the changing customer preference. Understanding the changing customer preference can help build a value proposition for the Bank since banks today, are flexible enough to align their products towards the value needs of their customers. Traditional testing by the direct marketers has involved split groups, like an apple to apple, to compare customers’ reaction to different offers. Therefore, with changing times, the traditional process of testing has become cumbersome. This study is aimed at demonstrating the benefits of product testing using experimental design to the bank’s marketing team. We analyse a factorial model and demonstrates the result...