Lakshmi Vilas Bank (LVB) has tied up with rating agency Icra to put in place a risk management system for the bank.
LVB's chief general manager A Krishnamoorthy said: "The proposed exercise by Icra will reorient the risk analysis of the bank on assets. It will help move the bank from credit rating system of assets to credit risk assessment system of individual and borrower accounts. The study will help the bank for pricing of products and individual assets based upon risk-return portfolio."
The internal rating system, once implemented with database and risk matrix, will provide inputs for economic capital as desired under the Basle Committee recommendations. These recommendations are likely to come into effect by 2005.
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The risk management of the bank is being done in three phases-- diagnostic phase, synthesising existing system and procedures and implementation phase.
Icra will look at the entire portfolio of the bank-- the organisation of credit, appraisal methods, credit ratings, migration, monitoring, follow-up and recovery in case of defaults. The portfolio analysis will also include geographical basis, industry exposure, legal exposure, and operational risk.
According to Krishnamoorthy, the diagnostic phase, which lasted for six months, has been completed by Icra. The rating agency has identified the deficiencies in the system and the process of credit appraisal and monitoring. It has suggested restructuring to speed up decision making and the appraisals. This would mean that the sanctioning authority and the review authority would be independent, he said.
He said that Icra has also suggested the migration from conventional credit rating of borrowers to credit risk assessment.
The second phase of the exercise, which has commenced this month, would overhaul the credit appraisal monitoring. It would help the bank price the products based on the risk-return profile. The third phase of the process will be completed before March 2003.
The bank has 215 branches across the country, of which 158 branches are computerised. The bank is looking at networking its branches on cluster basis.
The old private bank plans to increase its fee-based income by selling insurance products. It has already tied up with CGU Life and is awaiting the Reserve Bank of India approval. Krishnamoorthy said the bank will sell insurance products to self-help groups and farmers. It has a client base of 11 lakh.