17-06-2013, 01:01 PM
CREDIT RISK MANAGGEMENT ULTRATECH CEMENT
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ABSTRACT
Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximize a bank's risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Banks need to manage the credit risk inherent in the entire portfolio as well as the risk in individual credits or transactions. Banks should also consider the relationships between credit risk and other risks. The effective management of credit risk is a critical component of a comprehensive approach to risk management and essential to the long-term success of any banking organization.
For most banks, loans are the largest and most obvious source of credit risk; however, other sources of credit risk exist throughout the activities of a bank, including in the banking book and in the trading book, and both on and off the balance sheet. Banks are increasingly facing credit risk (or counterparty risk) in various financial instruments other than loans, including acceptances, interbank transactions, trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, and in the extension of commitments and guarantees, and the settlement of transactions.
Since exposure to credit risk continues to be the leading source of problems in banks world-wide, banks and their supervisors should be able to draw useful lessons from past experiences. Banks should now 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. The Basel Committee is issuing this document in order to encourage banking supervisors globally to promote sound practices for managing credit risk. Although the principles contained in this paper are most clearly applicable to the business of lending, they should be applied to all activities where credit risk is present.
The sound practices set out in this document specifically address the following areas: (i) establishing an appropriate credit risk environment; (ii) operating under a sound credit-granting process; (iii) maintaining an appropriate credit administration, measurement and monitoring process; and (iv) ensuring adequate controls over credit risk.
INTRODUCTION:
Trade credit arises when a firm sells in products or services on Credit and
does not receive cash immediately. It is an essential marketing tool, acting for the
moment of goods through production and distribution stages to customer. Affirm
grants trade credit. To protect is sales from the competitors and to attract the potential
customers to by its products at favorable terms. Trade creates “Accounts receivable or
trade debtors” that the firm is expected to in the near futures. The customers from whom
receivable or book debits have to be collected in the future is called trade debtors or
simply as debtors and represent the firms clime or asset.
A credit sale has characteristics:
i) It involves an element of risk that should be carefully analyzed. Cash sales
are totally risk less, but not the credit sales as the cash sales as the cash payment are yet too received.
ii) It is based on economic value to the buyer, the economic value goods services passes
immediately at the time of sales while the seller expects on the equivalent value to be
received later on.
iii) It implies futurity the buyer will make the cash payment for goods services
received by him in future period.
debtors constituted a substantial portion of customer assets several firms. For e.g.:- In
India, traders Debtors after inventories are the major components of current assets. They
from 1/3rd of current assets in India. Granting credit and creating Dr’s amount to the
blocking of the firms founds.
Thus trade debtors represent investment as substantial amount are tide-up in trade debtors
it needs careful analysis and proper management.
NEED AND IMPORTENCE:
Many business owners disregard the importance of Credit risk management because they unwittingly believe that their current financial standing can be construed from other financial reports and projections. Unfortunately, however, a cash flow statement is necessary to adequately assess the incoming and outgoing flow of cash and other resources in a business.
Not only will a business owner with a cash flow system be more aware of his or her financial standing, but it will also help investors to make educated decisions on future investments. A business with regular and reliable Credit risk management shows more economic solvency, and is more attractive to investors.
OBJECTIVES OF THE STUDY:
1. To analysis the credit policies and also credit risk in Ultra cement
2. To find out debtor turnover ratio and average collection period.
3. To find out weather. It is profitable to extend credit period or reduce credit
period.
4. To suggest measures to increase profits by decreasing the risk in the investment.
SCOPE OF THE STUDY:
The Credit risk management was previously known as the flow of funds statement. The cash flow statement reflects a firm's liquidity.
The balance sheet is a snapshot of a firm's financial resources and obligations at a single point in time, and the income statement summarizes a firm's financial transactions over an interval of time. These two financial statements reflect the accrual basis accounting used by firms to match revenues with the expenses associated with generating those revenues.
ULTRATECH CEMENT:
UltraTech Cement Limited has an annual capacity of 18.2 million tonnes. It manufactures and markets Ordinary Portland Cement, Portland Blast Furnace Slag Cement and Portland Pozzalana Cement. It also manufactures ready mix concrete (RMC).
UltraTech Cement Limited has five integrated plants, six grinding units and three terminals — two in India and one in Sri Lanka.
UltraTech Cement is the country’s largest exporter of cement clinker. The export markets span countries around the Indian Ocean, Africa, Europe and the Middle East.
UltraTech’s subsidiaries are Dakshin Cement Limited and UltraTech Ceylinco (P) Limited.
The roots of the Aditya Birla Group date back to the 19th century in the picturesque town of Pilani, set amidst the Rajasthan desert. It was here that Seth Shiv Narayan Birla started trading in cotton, laying the foundation for the House of Birlas.
Through India's arduous times of the 1850s, the Birla business expanded rapidly. In the early part of the 20th century, our Group's founding father, Ghanshyamdas Birla, set up industries in critical sectors such as textiles and fibre, aluminium, cement and chemicals. As a close confidante of Mahatma Gandhi, he played an active role in the Indian freedom struggle. He represented India at the first and second round-table conference in London, along with Gandhiji. It was at "Birla House" in Delhi that the luminaries of the Indian freedom struggle often met to plot the downfall of the British Raj.