CREDIT COUNTRY RISK Management Consultants  - India

Country Risk Management in Credit Portfolio

Country Risk Management


Banks for Loans

 (country risk assessment, click)

(Rupee vs. Dollar,          click)


circulars & letters

*RBI letter -

Background of the Banks' CRM policy

While formulating CRM Policy, both the funded exposure which includes cash, bank balance, deposits, investments, loans & advances, trade creditors, receivables, overdraft in Vostro accounts and the non-funded exposure which includes letters of credit, line of credit, performance bonds, bid bonds, warranties, confirmation of L/C etc from their domestic as well as foreign branches, to be taken into account while identifying, monitoring, controlling country risks.

The CRM Guidelines for Banks

* With effect from 31/03/2005, The Bank have to make provision on its Net-Funded country exposure only with respect to those countries where the exposure is 1% or more of its total assets. The provision will be on exposure exceeding 1%.

* Exposure to be computed on net basis after deducting cash collaterals, guarantees/ insurances issued by countries in a lower risk category than the country on which exposure is assumed.

* Indirect country risk such as loan exposure to a domestic borrower with large economic dependence on a certain country is also to be considered at 50% of the exposure for the purpose of CRM guidelines.

* Banks may make a lower level of provisioning i.e. 25% of the requirement in respect of short-term exposures which are exposures with contractual maturity period of less than 180 days.

* The provision for country risk shall be in addition to the provision required to be made according to Asset Classification. Provisioning under country risk and asset classification together may not exceed 100% of its outstanding.

* Periodic review of country risk should be at least once in a year. Till Banks evolve their own risk assessment mechanism, ECGC's 7 fold country rating system may be used.

* Banks may treat provisions held under country exposure at par with provisions for standard assets for being reckoned as Tier-II Capital subject to the ceiling of 1.25% of risk-weighted assets.

* Banks may not make any provision for 'home country' exposures i.e. exposure to India. The exposures of foreign branches of Indian banks to the host country should be included. Foreign banks shall compute the country exposures of their Indian branches and shall hold appropriate provisions in their Indian books. However, their exposures to India will be excluded.


Format for reporting of country risks --click



Welcome to

Read more Comments