This credit rating based tracking of the defaulting borrowers helps the bank to assess the cost of default to it, and can determine the pricing of the loans so that the cost of default is recovered. With risk management, it allows business owners to regulate procedures to avoid these risks and minimize their negative impacts and overcome them. 7. It has been found from studies that the behaviour of a group of borrowers with similar credit rating, in terms of their default in meeting the obligations, has been found to be consistent and within bounds. 2. Reconciliation of inter-branch/inter-bank accounts. Segregation of dormant accounts, specimen signature cards for dormant accounts. down-gradation of the credit rating of borrowers over a period.
‘The risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events’. 9. Credit rating of an account is done with the primary objective to determine whether the account would continue to be performing after a given period of time. Real-Life Risk Management Needs To Go Beyond The Five Risk Response Types; 12 Project Risk Management Strategies You Can Only Learn From Experience. Adherence to exposure norms for individual/groups. 6. 2.
The updated/new policy measures on internal control are advised through circulars from time to time. How-to: How to Manage Risk A lightweight process for risk management that can be applied to any business. Rotation of staff should be carried out at regular intervals. 12. Rectification of discrepancies pointed out by the Internal/External/Concurrent/Revenue Auditors and the regulatory authorities. What risk management really means. Systems backup are taken at the end of each day and stored in fireproof safe and also stored off-site on regular basis. This migration table implies that an A’ rated borrower would have 2% default probability. In this article we will discuss about the types of risk faced by banks and its management. The Basel Committee has suggested different tools and approaches for measuring Credit Risk, Market Risk and Operation Risk and recommended a minimum regulatory capital of 8% (RBI has made it 9% for India) for the three categories of risk. The Basel Committee on banking supervision has recommended several tools and approaches for addressing the issues relating to market risk that the trading portfolio of a bank is exposed to.
the organisation"The part of risk management
Types of Risk: 1. Credit Risk: Credit Risk arises from potential changes in the credit quality of a borrower. Knowledge about the competitors and market share of the branch. Strict Adherence to Know Your Customer (KYC) norms while opening new accounts and operations in accounts, reporting of suspicious transactions, etc. All the functional areas of a bank are exposed to operational risk and the Basel Committee has recommended tools and approaches to quantify and allocate capital for the probable operational loss. These risks may include: Reconciliation and monitoring of various suspense accounts.
Credit risk has two components, viz., Default Risk and Credit Spread Risk.
Operational risks encompass various segments of functioning of the bank and it is faced by all organisations due to deviations from normal and planned functioning of systems, procedures, technology and human failures of omission and commission. Branches should meticulously observe the systems and procedures. Judicious use of lending and non-lending powers by delegates. 4. Follow-up for submission of financial statements and other details for annual review of accounts. There are four types of risk mitigation strategies that hold unique to Business Continuity and Disaster Recovery. Filing of Suits in time and follow up of legal process. Monitoring movement of credit rating, more particularly down- gradation in ratings. Monitoring end-use of funds through scrutiny of ledger accounts, post- sanction inspection and calling for bills/receipts in case of term loan. Follow-up for weeding out accounts where cheques are returned frequently on account of financial reasons. 9.
10. NPA management: The trend of slippages to NPA category and new accounts added is an indicator of the effectiveness of recovery management and quality of appraisal of new advances. 3. 12. Banks undertake several activities and transactions that are vulnerable to the market fluctuations. The treasury products of the banks are generally exposed to the market risk. 2. Cash and Travellers’ Cheques are kept under dual control. Expected loss can be arrived at through tracking the portfolio behaviour over five or more years. 1.