How Corporate Credit branches can be Risk Compliant
In conformity with the Management structure in corporate / Head office , the risk management function in branches / regional offices should be delineated, but has to be built in to the system. Credit Monitoring, which includes obtaining and examining stock / book debt statement, calculation of drawing power, valuation of assets, assigning stock/legal audit to empanelled service providers, obtaining insurance and assigning thereof, periodic visits, end use of term loan, examining irregularities in the account and reporting the same to competent authority , allotment of visit of factory / workplaces by bank officials etc should be a responsibility of departmental head. While assigning the jobs, the task of examination of stock/book-debts, calculation of drawing power, follow up of insurance submission of required information by the obligor etc should be vested in separate desks. The rating of account , documentation, creation of ROC charge, obtaining the valuation of assets charged to the bank should be segregated and assigned to separate desks. It should be borne in mind that the officer responsible of disbursement should not also be responsible for monitoring of account and assigning drawing power. The department should continuously create data base of various industries in the portfolios and keep an eye on the developments in various industries for detecting early symptoms of weakness in various sectors.
Assigning stock audit/legal audit etc to empanelled professionals is essential to ensure regular surveillance on the business units and value of securities thereof. The officials have to carry out rectification process, as mentioned in the reports submitted. The concerned officials also have to keep an eye on the quality of report submitted by the stock auditors engaged. The quality should not be compromised. While creating a job design, the concerned person has to club similar nature of works in one desk, so that the concerned official has access to related information from multiple sources for the purpose of monitoring of accounts. Certain accounts are stressed and on the verge of getting impaired. Such accounts are to be vested on a competent official who will examine the cases which require nursing at initial stage of weakness so that the account can avoid impairment. Valuation of assets should also be in regular intervals to ensure that value of assets charged to the bank is not eroded. Review / renewal provide a good insight in to the account which may be omitted during regular course of business.
Management of impaired assets
Over the time management of impaired assets has become an important aspect of overall credit and risk management. Banks are resorting to innovative means of recovering bank,s due in addition to taking legal recourse. Securitization involves coordination with various government authorities including police and administration. Frequent visit to work place of the borrower is an essential prerequisite in recovering bank’s dues. Consultation with legal professionals at each and every stage becomes necessary. A close watch has to be maintained on the market value of securities charged and the officials have to observe the behavior of watch and ward staff engaged to protect the factory/ workplaces. The deputed officials in such cases should have some flexibility to act based on the situation because there are risks in taking possessions , even with police help. Normally the people engaged in looking after the files in the branch can express themselves at various forums such as court etc. There are other process of selling to ARCs and also through NCLT, for which constant interaction with legal professionals are necessary.
Management information system
Management Information System plays a crucial role in risk management. Proper dissemination of information and analysis would provide an insight in to the risk management capability of the branch. The quality of data is largely dependent on the internal process and also availability of information from the borrowers. While reporting security /drawing power merely reporting from the stock statement submitted by the borrower may not reveal the fact. The statements should be scrutinized and facts should be judged by visiting places. Reporting of security /drawing power is dependent on the process adopted by the branch including visit by stock auditors , lenders engineer for examining the project implementation etc. The office order should clearly mention the roles each of the officials and staff should play so that at any point of time the information furnished by the branch should not be questioned. In many cases the auditors at the central office question the validity of the data based on cross check of information submitted. Considering the fact that corporate disclosures are dependant upon the submission of information by the branches, introduction of a proper system of data is necessary. Risk management function is highly dependent on the information provided by the branches/ offices. Properly designed process can only generate such reports which reflect the true state of affairs.
In a branch all functions require close coordination with other departments. Unless the role of each and every official is specified, such coordination may be interrupted. A carefully prepared job design can conceive of all the processes and distribute them in different desks in such a manner that the processes itself become competent to manage the risk. The process has to be established by team by mutual discussions. This is the best way to manage risk.
