The National Bank for Agriculture and Rural Development (NABARD) on March 14, 2024, issued a guidance note on Credit Risk Management.
The following has been stated: -
•Please refer to letter No. NB.DoS.HO.POL. /4586/J-1/2009-10 (Circular No. 18/DoS - 04/2010) dated January 20, 2010, in which we provided a comprehensive 'Guidance Note on Credit Risk Management (CRM).
•This advisory aimed to guide banks in enhancing their risk management framework. The design of this framework should align with the unique needs of each bank, considering factors such as size, business complexity, risk philosophy, and market perception.
•As the banking system's balance sheet continues to grow, so does the anticipation of increased risks. The heightened competition within the banking industry has resulted in the broadening of both the diversity and operational scope of credit functions. Consequently, this expansion introduces new sources and dimensions of credit risk, necessitating a comprehensive approach to risk management within financial institutions.
•NABARD consistently adapts its supervisory methods to match the changing rural financial landscape. This involves frequent reviews, guideline updates, scheduled inspections, and rigorous monitoring of banks' compliance submissions. In line with the ongoing transition towards a risk-based supervisory approach, the Enhanced CAMELSC-based supervisory framework has been implemented for a specific set of Supervised Entities (SEs) from April 01, 2023, onwards.
•It has been felt that there is a need to revisit guidelines on credit risk management to enhance the risk management practices in SEs. SEs should have a keen awareness of the need to identify, measure, monitor, and control credit risk as well as to determine that they hold adequate capital against these risks and that they are adequately compensated for risks incurred. On these lines, the guidance note on Credit Risk Management has been revised.
•Banks are advised to put in place effective and robust Credit Risk Management by March 31, 2024.
The detailed circular is given in the document attached below.
[Circular No. EC No. 36 / DoS - 03 / 2023-2024]
