Page 46 - Banking Finance April 2016

ARTICLE

in the Bank: Due to high volumes of business in the
banks, operating staff are diluting the laid down norms,
thereby frauds are also on high side.

o 100% Adherence of Systems and Procedures designed
by the Bank.

o Strengthening "All Types of Audit" and in particular
"Risk Focused Internal Audit - RFIA".

o Train the Staff on Risk Mitigation Areas along with prod-
uct, process and marketing Training.

o Invite suggestions from the Staff on 'Operational Risk
Mitigation Areas'.

o Focus on High Risk Areas and Processes and Risks are tors, banks can develop good risk profiles and develop
to be classified through VED Analysis based on Risk strategies to mitigate the same.
Profile (V=Vital, E=Essential and D=Desirable) and de-
velop suitable systems to mitigate the same. Job family concept has to be introduced in Audit De-
partment of the Bank. NO 'Job Rotation' of Auditors
o Develop matrix for quantifying the risks for various i.e., from Audit to General Banking Department or
other departments. This system contributes to
operational risk areas. - increase the skills set of the audit staff and they can
contribute in identifying operational risks areas in the
o Implement the best risk mitigation practices imple- banks and are better judges to quantifying the Opera-
tional Risk.
mented by banks in the Banking Industry both domes-

tic and international banks i.e., Inter-firm or Intra-firm

studies.

o Take feedback from the operational level staff from
time to time in respect of risk mitigation measures and
tighten the processes / systems.

o Implement the Rewards and Punishments in High Risk - Operational Risk areas can be mitigated through cover-
prone processes. age of suitable Insurance Policies for certain high risk
operational areas. This is an opportunity to insurance
o Develop suitable system of Annual Appraisal Report of companies in India to develop innovative insurance prod-
the Personnel to access the capabilities and skills of the ucts to the banks for various operational risks. Thereby
people in mitigating the various risks in their area of banks need not provide higher capital requirements for
operations. operational risks and General Insurance Companies in
India are having good knowledge on various Operational
Conclusion: Risk areas and they can provide good suggestions and
strategies to mitigate the Operational Risks.
Systematic and proactive identification, assessment, mea-
surement, monitoring, mitigation and reporting of the op- Arriving at Capital Requirements for Credit, Market and Op-
erational risks are need of hour in Banking Industry. Follow- erational Risk is not difficult task and it requires less human
ing are important aspects in mitigating Operational Risks intervention, systems will calculate the Capital Require-
in Banks. ment amounts if we provide formulae. But the role of the
key personnel in the bank have to devise the control / miti-
- People working in Audit Department of the Bank are gate mechanism for these three important risks and they
best source in identifying operational risks areas. Audit should manage the "bank business show" with the help of
Department should fully involve in risk identification and existing capital is the need-of-hour (as capital rationing
mitigation process of Operational Risks of the Bank. exist in the economy).
Based on the audit reports and feedbacks from audi-

46 | 2016 | APRIL | BANKING FINANCE