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Managing Risks in Commercial and Retail Banking by AMALENDU GHOSH

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CHAPTER 14

Credit Portfolio Review Methodology

14.1 PORTFOLIO CLASSIFICATION

Portfolio management is concerned with both investment and credit portfolios. The investment portfolio consists of a few subportfolios, such as the sovereign security portfolio, corporate bond portfolio, equity investment portfolio, mutual funds portfolio, and so on. Management of the investment portfolio is concerned with the protection of investment values against the volatility of market variables. Credit portfolio management deals with the evaluation of each portfolio at periodic intervals to judge the quality of assets held in the portfolio and protect them from losing values through appropriate corrective action in time. For managing the credit portfolio, banks may divide its total credit assets into different portfolios or subportfolios

Banks may decide the composition of portfolios keeping in view the nature and the distribution of its loans and advances. They may classify total credit exposure into purpose-wise, sector-wise, borrower-type-wise, or even product-wise portfolios. It is, however, advantageous to classify large credits into sector-wise portfolios, like infrastructure sector, manufacturing sector, trade sector, and real estate sector portfolios, and relatively medium- and small-size credits into retail portfolios, like residential housing loan portfolio, auto loan portfolio, personal loan portfolio, education loan portfolio, and credit card portfolio. Retail portfolio management is ...

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