90 / 316
AfrAsia Bank Limited and its Group Entities
Annual Report 2015
page 88
CREDIT RISK
Credit Policies
The Board has ultimate control and oversight of the credit risk policies for the Bank and these policies are reviewed on at least an annual
basis. The policies are designed to provide effective internal control within the Bank. Any development in the customers’ financial situation
is closely monitored by the Bank, thus enabling it to assess whether the basis for granting the credit facility has changed. However,
a new review is triggered when changes happen in regulations and guidelines. Credit facilities are generally granted on the basis of an
understanding of customers’ individual financial circumstances, cash flow assessment of market conditions and security procedures. The
facilities should match the customers’ creditworthiness, capital position and assets to a reasonable degree, and customers should be able
to substantiate their repayment ability. In order to reduce credit risk, the Bank generally requires collateral that corresponds to the risk for
the product segment.
Credit Rating
As per Basel II Capital Accord, a Rating System must have 2-Dimensions and provide for a separate assessment of borrower and transaction
characteristics to provide for a meaningful differentiation of risk. In that respect, over the reporting financial period, the Bank implemented
CRISIL Risk Solutions which provide a suite of software that is critical for ensuring compliance with regulatory guidelines, such as Basel
II. CRISIL’s Risk Assessment Model (RAM) is the largest deployed internal risk rating solution in India. This model as well as CRISIL Retail
Scoring Solution (CRESS) has been implemented to assist the Bank in complying with the requirements under the internal ratings-based
approach of the Basel II Accord. Both models now facilitate credit risk appraisal of a borrower through a judicious mix of objective and
subjective methodologies and act as a comprehensive database for all borrower-specific information.
CRISIL’s rating grades and description for each grade are as follows:
Rating
Grades
Description
Definition
AAA
Investment Grade - Highest safety
Borrowers rated AAA are judged to offer highest safety of timely payment.
AA+
Investment Grade - High safety
Borrowers rated AA+ are judged to offer high safety of timely payment.
AA
Investment Grade - High safety
Borrowers rated AA are judged to offer high safety of timely payment.
They differ in safety from AA+ only marginally.
A
Investment Grade - Adequate safety Borrowers rated A are judged to offer adequate safety of timely payment.
BBB
Investment Grade - Moderate safety Borrowers rated BBB are judged to offer moderate safety of timely payment
of interest and principal for the present.
BB
Investment Grade - Moderate safety Borrowers rated BB are judged to offer moderate safety of timely payment of
interest and principal for the present. There is only a marginal difference in
the degree of safety provided by borrowers rated BBB.
B
Investment Grade - Minimum safety Borrowers rated B are judged to carry minimum safety of timely payment
of interest and principal for the present.
CC
Sub-Investment Grade - Inadequate
safety
Borrowers rated CC are judged to carry inadequate safety of timely payment.
C
Sub-Investment Grade - High risk
Borrowers rated C have a greater susceptibility to default.
D
Highly susceptible to Default/Default Borrowers rated D are in default or are expected to default on maturity.
RISK MANAGEMENT REPORT (CONTINUED)