The risk management function has a comprehensive framework for effective risk measurement, reporting and management. The function has been evolving and adapting to keep pace with the growth in size and diversification of the portfolio. The portfolio exposure is diversified across 30 states and 480 districts. The exposure comes from various asset classes like Microfinance, Vehicle finance, Affordable housing finance, Small business loans, and Agri finance.
The Risk Analytics and Risk Monitoring function feeds into each other in terms of utilization of analytics output to design monitoring visit and inputs from the field observation provides strong rationale to the performance analysis. This integrated approach risk management approach has resulted in consistently high quality portfolio across asset classes with a zero delinquency track record. Till date, there has not been any draw down upon the first loss credit enhancement for shortfalls in principal repayment of the securitized debt instruments. The instruments have consistently achieved the rating upgrades as well over the tenure.
Risk Analytics and Modeling
The risk analytics team is responsible for periodic reporting to internal and external stakeholders along with proactive surveillance of transaction and portfolio performance as well as monitoring adherence to credit exposure covenants. The team uses the proprietary models and matrices to calculate various risk and performance indicators such as Collection efficiency, Portfolio at risk , Prepayment rates along with the future expected cash flows on pool based products.
The risk modelling team aims to develop deep understanding of risk at all levels – asset class, originator, geography, transaction and overall portfolio for better estimation and mitigation of risk. With a wealth of data from over 7 million underlying loan contracts from more than 200 securitization transactions, financial and portfolio performance from more than 60 originators in four asset classes, across India , the risk modelling team carries out advanced data analytics using proprietary models to model the credit behavior of underlying borrowers under the base case and stress case scenarios. The output of such models forms a critical input for new product development, transaction structuring and investment decision-making. The Economic Capital framework developed in-house estimates value at risk against credit risk and extreme events including natural disasters to better estimate the risk at asset class, product and geography level.
Transaction and Performance Measurement
A transaction is managed throughout its lifecycle including its loss estimation, shortfall calculation, stress testing and cash flow reconciliation. Custom models are developed and implemented to estimate risk/exposure in structured transactions prior to investment in a transaction as well as till transaction maturity post its settlement. Portfolio exposure, credit enhancement and compliance to exposure limits across product and asset class are monitored closely.
Key transaction metrics such as Collection efficiency and Portfolio at Risk are calculated for the transactions and then aggregated at a sector, entity, geography level as an input for risk management. Client and the portfolio performance is analysed. Custom models are developed to query and map the risk and performance data. Portfolio exposure is standardized and a geo-analytical mapping is done based on the location of the originating branch of underlying loan in the portfolio. The mapping and standardization have enabled the risk analytics team to develop a querying and spatial mapping application.
Predictive Risk Modeling
Data Driven Decision Making
Role of Monitoring and Surveillance
The role of the monitoring and surveillance team is:
- To evaluate if the origination is being done as per the terms, conditions and covenants agreed upon in the legal documents
- To identify any gaps or material changes in the origination processes and management of the entity versus the processes and management as set out in the due diligence report
- To monitor the entity’s credit-worthiness, underlying asset performance, measures for compliance with applicable laws and regulations (to the extent feasible) and ability to continue to service ring-fenced assets (if any) under both external and internal stress events
- To identify stress situations before they arise and proactively engage with entity partners to manage the same
Core Functions of the Team
View Infrographic on the key attributes, process and scope of monitoring visits
View Report of the number of visits, meetings, entities covered and customers / organizations visited in the country along with a report on Pool Audits.