Part - I

Abstract

Risk management is relatively new and emerging practice as far as Indian banks are concerned and has been proved that it’s a mirror of efficient corporate governance of a financial institution. Globalisation and significant competition between foreign and domestic banks, survival and optimizing returns are very crucial for banks and financial institutions. However, selecting the efficient customer and providing innovative and value added financial products and services are another paramount factors. In a volatile and dynamic market place for achieving sustainable business growth and shareholder’s value, it is essential to develop a link between risks and rewards of all products and services of the bank. Hence, the banks should have efficient risk management framework to mitigate all internal and external risks.

Objjective

The objective of this article is to envisage ideal framework of bank-wide risk management for Indian Banks. The presence of accurate measures of bank-wide risk management practice increase shareholder’s returns and allows the risk-taking behavior of bank to be more closely aligned with strategic objectives. Bank-wide risk management practice should aim to enhance the drivers of shareholder’s value such as: -

• Growth;
• Risk adjusted performance measurement;
• Consistency of earnings; and
• Quality and transparency of management.

The important steps of the efficient framework of banking concern should ensure all risks are identified, prioritized, quantified, controlled and managed in order to achieve an optimal risk-reward profile. This entails ideal and dedicated coordination of risk management across the bank’s various business units. However, the approach to monitoring and enforcing the adherence of business units within the bank may vary. The factors that influence this decision are: -

• The feasibility decisions of the business unit.
• The regulatory requirements in respect of the business unit.
• The cost of effective monitoring and controlling steps.

Next