Country Risk Management System (CRMS) :
For an effective CRMS, as per the guidelines of the Reserve Bank of India, banks have to adopt the following. Some (a) Strict adherence to the “Know Your Customer” (KYC) principle in international transactions (b) Country risk factor should be given special attention while evaluating the counterparty risk (c) All exposures funded, non funded from domestic as well as international centers needs to be included while determining the country limits
The Statutory Auditors have to audit the country risk exposures of the bank as at the end of the year. In addition to the auditing being carried out by the Statutory Auditors, banks have to make necessary provisions for country risk exposures and should disclose them as part of the ‘notes to account’ of the balance sheet and report to the Reserve Bank of India as part of DBS return.
In respect of CRMS, the funded, non –funded and indirect exposures would include the following items: Some examples:
Direct Exposure – funded:
(i) Cash balances – Foreign currency, if any held by branches
(ii) Bank balances and deposit placements: Covers the bank balances and placements with banks incorporated outside India
(iii) Loans and Advances: Loans against NRI deposits exceeding the deposit amount, Travellers’ cheques purchased
(iv) Overdrafts in Vostro accounts etc.
Direct Exposure – non funded:
(i) Letters of Credit: Exposures on account of Letters of credit issued by branches on behalf of constituents resident outside India
(ii) Guarantees: Exposures on account of guarantees issued by branches on behalf of entities resident outside India iii Confirmed LCs issued by foreign banks etc.,
Short term country risk exposures are those exposures which have contractual maturity up to 179 days.