Page 26 - Risk Management Bulletin April -June 2021

RMAI BULLETIN APRIL TO JUNE 2021

management at TDWI, points out, ultimate ethical practices and contribute to the development of
responsibility must remain with humans, not with environment and climate risk management in the
inanimate objects, no matter how intelligent they financial sector, while mobilising mainstream finance
seem. To prevent AI from "going rogue," it should to support the transition towards a sustainable
always incorporate human interests as a core element, economy. RBI joined NGFS as a member central bank
and this can manifest itself in everything from the in April 2021.
decisions it makes to the way it looks. As well,
RBI has also called for a crossindustry disciplinary
transparency in AI inferencing lineage may be
forum to launch a comprehensive climate risk
necessary to ensure there is an audit trail back to the assessment exercise for India. As a prerequisite, India
humans who created it.
needs to develop emission reduction pathways for
In the end, of course, managing AI is a matter of trust. energy intensive sectors and map them onto
Organizations would be wise to treat AI just like any macroeconomic and financial variables and integrate
other employee: Give it a limited set of responsibilities, them with quantitative climate risk related disclosures
see how it performs, and then promote it to higher to develop a holistic approach to addressing the
levels of authority after it has proven itself both financial stability risks arising out of climate change.
capable and worthy. Just like you don't appoint a
recent graduate as your new CIO, you don't place AI According to Emkay Research, this possibly indicates
in charge of C-level sales management or HR. the need for a comprehensive Environmental Social &
Governance policy framework in the long run, adding
While the risk of unintended consequences can never
to the cost of doing business. Indian banks' lending
be reduced to zero, the odds are good that in some
portfolio (mainly corporate sectors such as power,
way, somehow, humans and AI will find a way to work
infra, metals, auto and chemicals/paper; vehicle in
together. And since both forms of intelligence provide
retail) remains vulnerable to growth/asset quality risks
strengths that compensate for the other's weaknesses,
from climate change in the long run, and thus it needs
it is more than likely their relationship with be
to be addressed, it said.
mutually beneficial relationship, not hostile.
Courtesy :https://venturebeat.com/ According to the FSR report, climate risk stress tests
are different from the traditional regulatory stress-
Need for policy framework to assess testing framework in terms of time horizon, reporting
frequency, sectoral specificity, modelling approach and
climate risk on financial stability: RBI nature of output. The attempts to quantify climate
The climate change risk to financial stability is rising risks to the financial system can take two forms - top
and there is a need for an appropriate policy down and bottom up. Under a top down approach, the
framework to identify, assess and manage this risk, magnitude of risks can be estimated by using the
according to Reserve bank of India. In it's financial sensitivity of exposures of the banking system to
stability report, RBI said that some central banks have physical risk based on geography and transition risk
started to prepare to monitor and manage climate mostly based on carbon emissions of the sector. In the
risks. alternative bottom up approach, financial institutions

The Bank of England for instance has announced plans themselves compute the impact of climate risk on their
to undertake Biennial Scenario analysis in order to test respective portfolios based on a common scenario
the resilience of the financial system to the physical specified by the central bank.
and transition risks associated with different climate
pathways. Banque de France has also started taking Sebi boosts liquidity risk management
into account the high-level scenarios given by the
Central Banks and Supervisors Network for Greening for open-ended debt schemes

the Financial System (NGFS). Launched at the Paris One The Securities and Exchange Board of India (Sebi) on
Planet Summit on December 2017, the NGFS is a group Friday came out with a circular on prudential norms
of central banks and supervisors willing to share best for liquidity risk management of the open-ended debt

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