ICICI Bank 2013 Annual Report Download - page 48

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Business Overview
Credit Risk: Credit risk is the risk that a borrower is unable to meet its financial obligations to the lender.
All credit risk related aspects are governed by a credit and recovery policy which outlines the type of
products that can be offered, customer categories, targeted customer profile and the credit approval
process and limits. The credit and recovery policy is approved by our Board of Directors.
In order to assess the credit risk associated with any corporate financing proposal, we assess a variety
of risks related to the borrower and the relevant industry. We have a structured and standardised credit
approval process which includes a well established procedure of comprehensive credit appraisal and
credit rating. We have developed internal credit rating methodologies for rating obligors. The borrower
rating accounts for quantitative and qualitative issues as well as credit enhancement features specific to
the transaction. The rating serves as a key input in the approval as well as post-approval credit processes.
A risk based asset review framework has also been put in place wherein the frequency of asset review
would be higher for cases with higher exposure and/or lower credit rating. Industry knowledge is constantly
updated through field visits and interactions with clients, sector regulators and industry experts.
We have a strong framework for the appraisal and execution of project finance transactions that involves
a detailed evaluation of technical, commercial, financial, marketing and management factors and the
sponsor’s financial strength and experience. The Bank identifies the project risks, mitigating factors and
residual risks associated with the project. As a part of the due diligence process, we appoint consultants,
including technical advisors, business analysts, legal counsel and insurance consultants, wherever
considered necessary, to advise the lenders. Risk mitigating factors in these financings include creation
of debt service reserves and channelling project revenues through a trust and retention account. The
Bank’s project finance loans are generally fully secured and have full recourse to the borrower. In some
cases, we also take additional credit comforts such as corporate or personal guarantees from one or more
sponsors of the project or a pledge of the sponsors’ equity holding in the project company. The Bank’s
practice is to normally disburse funds after the entire project funding is committed and all necessary
contractual arrangements have been entered into.
In case of retail loans, sourcing and approval are segregated to achieve independence. The Credit Risk
Management Group has oversight on the credit risk issues for retail assets including vetting of all credit
policies and operating notes proposed for approval by the Board of Directors or forums authorised by
the Board of Directors. The Credit Risk Management Group is also involved in portfolio monitoring for
all retail assets and suggesting and implementing policy changes. The Retail Credit and Policy Group
is an independent unit which focuses on policy formulation and portfolio tracking and monitoring. This
group also includes the Credit Administration Unit that services various retail business units for credit
underwriting. In addition, we also have a Business Intelligence Unit to provide support for analytics, score
card development and database management.
Our credit officers evaluate retail credit proposals on the basis of the product policy approved by
the Committee of Executive Directors and the risk assessment criteria defined by the Credit Risk
Management Group. These criteria vary across product segments but typically include factors like the
borrower’s income, the loan-to-value ratio and demographic parameters. The technical valuations in case
of residential mortgages are carried out by empanelled valuers or technical teams. External agencies such
as field investigation agencies and credit processing agencies are used to facilitate a comprehensive
due diligence process including visits to offices and homes in the case of loans to individual borrowers.
Before disbursements are made, the credit officer checks a centralised delinquent database and reviews
the borrower’s profile. In making our credit decisions, we also draw upon reports from credit information
bureaus. We also use the services of certain fraud control agencies operating in India to check applications
before disbursement.
In addition, the Credit and Treasury Middle Office Groups and the Operations Group monitor operational
adherence to regulations, policies and internal approvals. We have centralised operations to manage
operational risk in most back office processes of the Bank’s retail loan business. The Fraud Prevention
Group manages fraud related risks through forensic audits and recovery of fraud losses. The segregation
of responsibilities and oversight by groups external to the business groups ensure adequate checks
and balances.