Page 40 - Risk Management in current scenario

management oversight. The 2008 economic crisis highlighted many
gaps in providing risk oversight at the Board level that may be used
as a reference point.

Future Opportunities

The application of risk management in India is likely to rise due to
regulatory requirements by different financial regulators and requirement
under Company law, where the Board is to report development and
implementation of risk management policies.

Risk management in India is new, but it is going to stay because all
financial regulators have recommended setting up a Risk Management
Committee as part of the corporate governance process. This includes
the establishment of separate risk management function within the
Company headed by the Chief Risk Officer. The role of risk management
function is a part of the three lines of defense model, where the first line
of defense is the function which runs the business and does the
operational management within the Company including owning the risk
and its management. The second line of defense is the risk management
function that provides the oversight and challenge on the risks identified
by the first line of defense. The third line of defense is the Audit ~unction
that provides the assurance on the effectiveness of the risk management
process and controls.

The SEBI has a listing requirement that top 100 listed companies must
have a risk management committee, the 100 listed entities are
determined on the basis of market capitalization at the end of the
immediate previous financial year. On all the listed companies, the risk
management practice of oversight is likely to increase because any
adverse news about the Company may impact share price.

The Reserve Bank of India issued guidelines on Basel-III reforms on capital
regulation in May 2012, to the extent applicable to banks operating in
India. The Basel-III capital regulations have been implemented from April

38 | Risk Management in Current Scenario