Page 15 - Risk Management Bulletin April -June 2021
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RMAI BULLETIN APRIL TO JUNE 2021







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             Introduction                                     In early stages of implementation of an NFR
                                                              framework, NFR was perceived as an evolving list of
             The business of banking today is synonymous with
             active risk management than it was ever before. The  uncontrollable variables, such as Operational Risk,
             success and failure of a banking institution heavily  Compliance Risk, Conduct Risk, IT Risk, Cyber Risk,
             depends on the strength of the risk management   Model Risk and Third–party Risk. We can understand
             system in the current environment.               NFRs as those risks that are not core or directly
                                                              associated to the primary business and revenue
                                                              generating activities, but can nevertheless have
             Banks and other financial institutions have made huge
             investments to strengthen and upgrade their risk  negative strategic, business, economic and/or
             management tools and they have come a long way   reputational implications.
             since the global financial crisis. This includes  The Nature of NFR
             compliance with stringent regulatory requirements.
                                                              Risk is the effect of uncertainties on objectives - always
             Most institutions now have well-developed risk
             management frameworks to manage market, credit,  linked to a loss which is uncertain. Any loss which is
             and liquidity risk, that is the financial risks. However,  certain is not a risk anymore; it is simply a cost.
             there is a growing recognition of the need to manage  Financial risk is always the consequence of specific
                                                              financial choices e.g. purchasing an asset or granting
             Non-Financial Risk (NFR).
                                                              a loan. Despite the uncertainty, the financial risks
                                 About the author             posed by these transactions can generally be
                                                              measured, in the sense that losses tend to be limited
                            Usha Yadav                        and associated with known events, which are likely to
                            AGM (Faculty)                     occur with a certain probability.
                            SBI CRM
                            Gurugram, Haryana                 The rationale of banks’ business models is to take on


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