Indian banks are slowly but steadily shifting from traditional collateral-based banking model to risk-sharing and risk-transferring models by adopting derivatives, securitization and microfinancing.

In recent years, Indian banking has undergone a sea change in almost all spheres of its activities. In fact, it has become difficult to keep pace with the changes as it has not yet been adequately equipped and groomed to welcome and adopt such changes. This obviously provided the Indian banking great opportunities to counter the challenges with bold and innovative initiatives and strategies.

It would, therefore, be interesting to highlight some of the challenges and also such new models and financial instruments evolved over the years by banks in India to seize the opportunities with both hands. Traditionally, banks functioned as an intermediary to trade and industry by lending to them and or by subscribing their debt papers. This way apparently they took credit risk and accordingly they covered such risk by taking collaterals, personal guarantees and locking the cash flows of industrialists and traders.

However, it has now been universally realized that credit risk encompasses other risks like trade, management and market risks and banks are exposed directly and indirectly to such risks whenever they assume credit risks by granting loans to traders and industrialists. It has also been rightly realized that some of these risks are under the control of corporates and traders but banks should not shy away from these under this pretext. This has necessitated the creation of new instruments and institutions by banks and banking regulatory authorities to protect and mitigate losses to banks arising from such risks.

Professional Banker Magazine, Indian Banking, Financial Instruments, Credit Risk, Liability Management Departments, Financial Market, Banking Regulatory Authorities, Debt Market, Financial System, Retail Banking, Self-help Groups, SHGs, Non-government Organizations, NGOs, Non-banking Financial Companies, NBFCs, External Commercial Borrowing, Financial Services.