Banks and financial institutions should redraw their credit risk management techniques and put in place an effective mechanism, said Amitabha Guha, State Bank of Hyderabad former managing director and steering committee member of Hyderabad chapter of Professional Risk Managers' International Association (PRMIA).
At a seminar on 'Credit risk management-New Horizons', organised here by PRIMA today, he said the sub-prime crisis which impacted the economy has proved that the existing credit risk management system is not effective. There was a need for the risk management teams and those preparing the guidelines at the banks and financial institutions to work together for effective risk mitigation. Also, there was a need to develop an expert group on risk management to tide over the future crises, he said.
The banks and financial institutions should have a parallel system to validate the credit ratings given by various agencies to assess the credit worthiness of the loanees while disbursing loans. The banks should also price the loan based on the risk associated with the asset instead of going by competition in the market only, he said.
PRIMA regional director B Yerram Raju said that economies in most emerging nations were returning to normalcy after two-year recession. The two stimulus packages and infusion over Rs 4,00,000 crore into the Indian economy have ensured that there was enough liquidity in the system. However, there was a need for a rejig in the financial system. The collapse of giant institutions like Lehman Brothers and AIG indicated that size cannot prevent a fall.
