‘Safe, Secure & Sure' are the three fundamentals of life that are always sought after but seldom achieved. Human who is the only being blessed to analyze & anticipate the future has always been a spectator when it comes to being a perfectionist. As the future has disclosed the unpredictable & unpleasant situations circumstances, human being in spite of his knowledge, skill, technology & ability to sustain has till date remained a subject prone to risk & danger of meeting the unpleasant tune of distress, loss & misinterpreted calculations. Money which has always shared the priority since the time of emergence of this materialistic world has made man & his well being a subject of outmost concentration, consideration & concern to keep a suitable & stable check of all the activities & attributes marking it. This is the only universal truth & fact that relates to common man as well as to a business tycoon in terms of its priority thrust area. The concept of seeking a satisfaction in terms of security & opportunity to earn on a better preposition minimizing the risk to the best possible extent has what contributed to the emergence of the most driving & deterministic variable of the economy of an individual alone & also the net worth of the country's financial strength i.e. the banking sector. The only assure way of making investments & exploiting limited resources to safeguard against mismatch of reality to a fantasized proposal is what guarantees a contract being entered with a bank.
Banks has always remained a backbone to facilitate & implement economic reforms & provide a medium for a common man to make his dreams of earning a respectable & deserving livelihood. Therefore, a well planned, developed, analyzed, implemented & monitored in terms of policies & procedures comprising a well directed approach is required to minimize & check the risk associated with it in terms of efficiency, profitability & above all susceptibility to future trends & requirements.
Tags: Risk management in indian banking industry, Risk management in banking sector, Risk management in Indian banks, Banking risk management
[...] Risk Management in Banking Risk is not something new to the banking and financial service sector exception. The very essence of banking and financial service industry is based on the principle of taking risk. For prudent business management, the entities have to ensure that the risk they take on to themselves are acceptable in terms of the level and the possible loss that they could wreak in the event of an adverse market event. Even absence from the market will not necessarily protect an entity from risk completely- it may reduce the impact but not completely remove it. [...]
[...] Risk management facilitates decision making: By calculating the various parameters involved, wherein a bank decides to give a home loan, it simultaneously facilitates in decision making for the bank & the bank can thus carry out its tasks with minimum risks. Risk management addresses uncertainty: Seeing the fall of Financial Institutions throughout the developed world, one can assume safely that the Banking Sector, which follows such a strict regulatory system, must be least averse to such kind of risks. Risk management takes into account human factors: Risk management facilitates transparency and inclusiveness: Limitations If risks are improperly assessed and prioritized, time can be wasted in dealing with risk of losses that are not likely to occur. [...]
[...] Risk in banking Risk being a futuristic event oriented requires a proper quantification & identification so as to avoid any kind of damage being caused to the net worth of the bank. The portfolio of risks can be broadly classified into: Balance Sheet Risks o Asset Management Risk(Liquidity & Credit Risk) o Liability Management Risk o Interest Rate Risk o Operating Risk o Capital Adequacy Risk Off Balance Sheet Risks o Technology risk o Customer Risk o Regulatory Risk Each & every risk listed above is very important & hence is dealt with utmost care & consideration because even if any one the above mentioned is not given the required treatment than a default may arise which may further result in NPA & the total net worth of the bank may seem a picture of inefficient & incapable managerial & operational policy & procedure. [...]
[...] In case of person who takes loan is the bread earner of the family if he dies in such a case bank will take away his home & his family will come on road. In such a case bank covers his risk by issuing LIC to the person. Resource Management- How banks provides money for financing? If the bank finances Rs.1 crore in such a case timely recovery of loan is to be done against bank. To finance such amount bank borrows money from market by bonds at particular interest. Bank has to repay that amount also either by the borrower repayments or by again borrowing from the market. [...]
[...] This partly explains the current trend of consolidation in banking industry. Profitability: Competition among banks' for highly rated corporates needing lower amount of capital may exert pressure on already thinning interest spread. Further, huge implementation cost may also impact profitability for smaller banks. Risk Management Architecture: The new standards are an amalgam of international best practices & call for introduction of advanced risk management system with wider application throughout the organization. It would be a daunting task to create the required level of technological architecture & human skills across the institution. [...]
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