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Part - III

The sheer size and wide coverage of banks is a big hurdle to integrate and generate a cost effective real time operational data for mapping the risks. Most of the financial institutions processes are encircled to ‘functional silos’ follows bureaucratic structure and yet to come up with a transparent and appropriate corporate governance structure to achieve the stated strategic objectives.

Steps to achieve stated objjective

1. Corporate governance

Establishment of dedicated risk management department * with the articulation of roles and responsibilities pertaining to identifying, measuring, controlling, monitoring and managing bank-wide risks and a comprehensive articulation of risk management framework comprising the following: -

• ultimate accountability of the board of directors to the shareholders for management of all risks;

• risk committee comprising of CEO, one or two non executive board member, and senior management from business units; and

• delegation of responsibility to risk committee.

The key responsibilities of the Board of Directors should be: -

• assess risks and maintain a sound system of internal control and risk management by adopting a suitable framework;

• setting the risk management policies in place; and

• establishment of comprehensive system of control to ensure that the bank’s risk are mitigated and objective of shareholders and stake holders are attained.

The key responsibility of the Risk Committee should be: -

• oversee the risk management function, review and recommendation of policies of the bank;

• approving limits and evaluating the overall effectiveness of bank’s control and risk management infrastructure;

• assess risk-reward profile with respect to risk appetite and recommendation of strategies; and

• evaluation of risk profile for any new product, service, project, strategic investments and bank’s plan of mergers and acquisitions.

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* Schematic diagram of ideal Risk Management Framework for Indian Banks.