Page 48 - Banking Finance October 2015

ARTICLE

tions. This framework visualizes empowerment of Busi- respective policies. Presently, market risk capital is
ness Units at the operating level, with technology being computed under Standardized Measurement Method
the key driver, enabling identification and management of (SMM).
risk at the place of origination.
The Bank has decided to migrate to advanced approaches
5.1. Credit Risk Management: under Basel-M for market risk i.e. Internal Models Ap-
proach (IMA) and submitted its Letter of Intent to the
The Bank has strong credit appraisal and risk Assessment Reserve Bank of India. The IMA is a Value at Risk (VaR)
practices in place. The Bank uses various internal Credit based tool for monitoring of Bank's trading portfolio. The
Risk Assessment Models for assessing credit risk under dif- VaR methodology is supplemented by conducting stress
ferent exposure segments. Internal ratings of the bank testing of the trading portfolio at quarterly intervals. The
are subject to comprehensive rating validation frame- Bank is currently conducting parallel run of SMM and IMA
work. Credit risk is inherent to the business of lending methodologies.
funds to the operations linked closely to market risk vari-
ables. The main objectives of the Bank's Operational Risk Man-
agement are to continuously review systems and control
The objective of credit risk management is to minimize mechanisms, create awareness of operational risk
the risk and maximize bank's risk adjusted rate of return throughout the Bank, assign risk ownership, align risk
by assuming and maintaining credit exposure within the management activities with business strategy and ensure
acceptable parameters. The management of credit risk compliance with regulatory requirements, which are the
includes:- key elements of the Operational Risk Management Policy
a) Measurement through credit rating/ scoring, of the Bank.

b) Quantification through estimate of expected loan Important policies, manuals and framework documents in
losses, line with RBI guidelines on Operational Risk Management
Framework (ORMF) and Operational Risk Measurement
c) Pricing on a scientific basis and System (ORMS) for migration to Advanced Measurement
Approach (AMA) are in place. The following types of op-
d) Controlling through effective Loan Review Mechanism erational risks are:
and Portfolio Management. i. Strategic Risk

5.2. Market Risk Management: ii. Political Risk

Market Risk is the possibility of loss a Bank may suffer on
account of changes in values of its trading portfolio due to
change in market variables such as exchange rates,
interest rates, equity price, etc. The Market Risk manage-
ment process at the Bank consists of identification, and
measurement of risks, control measures, monitoring
and reporting systems. The following types of market risks
are:
i. Interest Rate Risk

ii. Liquidity Risk

iii. Currency or forex Risk

iv. Country Risk

Market risks are controlled thought various risks limits
such as Net Overnight Open position, modified Duration,
Stop loss, Management Action Trigger, Cut Loss Trigger,
Concentration and Exposure Limits etc mentioned in the

48 | 2015 | OCTOBER | BANKING FINANCE

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