CRM Tools | Role of Security | Guarantee | Documentation | Banking Diploma| EP-16
Channel: BL Academy
Date: 20/03/2024

Related Link Video:
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https://www.youtube.com/watch?v=Z12uzLlGPb8&list=PLygTZRbySq_W0V4ReuamR65PKa_l3uo3E&index=16

What is Credit Risk Mitigation (“CRM”) ?
- Credit Risk Mitigation (“CRM”) refers to the attempt by lenders, through the application of various safeguards or processes, to minimize the risk of losing all of their original investment due to borrowers (companies or individuals) defaulting on their interest and principal payments. 
- Defaults can lead to significant revenue loss for lenders. 
- So, there some strategies to mitigate Credit Risk such as risk-based pricing, Securities & guarantees, documentations, post-disbursement monitoring, and limiting sectoral exposure
- For banks, having robust CRM strategies which is pivotal to avoiding a surge in defaults and non-performing assets (NPA), which can very adversely impact their financial performance or even result in insolvency.

Credit Risk Mitigation Challenges
- Increasing Complex Regulatory Requirements
- Data Quality and Availability
- Shortage of Skilled Personnel
- Rapidly Changing Market Conditions
- Counter party Risk
- Cyber security risks
- Economic downturns
- Accurate Risk Assessment.
- Business strategy alignment
- Adapting to new technologies
- Balancing risk and return

Strategies for Credit Risk Mitigation
- 5 Cs Strategy of credit Risk Assessment
- Loan Initial Risk assessment
- Loan Structuring  
- Credit memo/Loan Proposal  
- Security & Guarantee (Loan protection)
- Loan Pricing (Intt. Rate or Intt spread over base rate)
- Loan Documentation 
- Post Disbursement Monitoring