training to ia on risk management

7/25/2019 Training to IA on Risk Management

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OVERVIEW OF RISKMANAGEMENT

Mr. T. P. Nageswara Rao, GM (ERM)


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Presentation Outine

!n"erstan"ing o# Ris$ Manage%ent

Roe o# Au"it in Ris$ Manage%ent

Ris$ Manage%ent & S'I Ris$ Goernane Struture 'ase II A**roa+es 'eon" 'ase II

Roe o# Au"it in 'ase I%*e%entation

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Ris$ Manage%ent!n"erstan"ing

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W+at is Ris$1

Ris$!nertaintie

s1

2osses1

3anger1

Restritions1

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Intro"ution

Ris$ 3e4nition

5T+e 6uanti4a7e i$ei+oo" o# "eiations #ro%

e8*etations9

Ris$ is a *erasie

Ris$ is unaoi"a7e

Ris$ :usti4es rewar"s

Ris$ Manage%ent 3e4ne"

5T+e *roess 7 w+i+ organisations i"enti#, assess,ontro, %onitor an" %easure t+eir signi4ant ris$s #ro%

a soures #or t+e *ur*ose o# inreasing s+ort an" ong

ter% aue to sta$e+o"ers.9

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Ris$ Manage%ent in

'an$ing

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Ris$ Manage%ent is o# ut%ost i%*ortane#or 'an$s on aount o# #oowing;


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T*es o# Ris$s

>Peo*e Ris$

>Sste% Ris$>Proess

Ris$?..

>=onentrationRis$

>=ontagionRis$

>EarningsVoatiitRis$?

>'usiness Ris$

>Strategi Ris$

>Re*utationRis$??

>=re"it Ris$

>Mar$et Ris$

>2i6ui"it Ris$

>Interest RateRis$ ??..

FinaniaRis$

'usinessreate"Ris$s

O*erationa Ris$

Ot+erRis$s

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Inter"e*en"enies o# Ris$s8

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Roe o# Au"it in Ris$Manage%ent

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Interna Au"it @ Ris$Manage%ent Interation

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Au"it seres twin *ur*oses; Faiitating I"enti4ation an" Eauation o# Ris$s

Fee"7a$ on eBetieness o# e8isting Interna =ontros Assessing A"e6ua o# Ris$ Manage%ent Proesses

I"enti# Strengt+s an" Ga*s in an Esta7is+e" Ris$Manage%ent *roess

Inrease" Signi4ane o# Interna Au"it inMeasuring an" Managing =or*orate Ris$ In t+e wa$e o# 4nania rises, as a %easure to

en+ane @ i%*roe ris$ %anage%ent *roess Au"it In"e*en"ent o# Ris$ Manage%ent;

Diferent Responsibilities, ComplementaryFuntions


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Ris$ Manage%ent & S'I

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Ris$ Goernane Struture

CGM (RM)

DMD & CCRO

GM

(Credit Risk)

GM

(Enterprise

Risk)

DGM

(Basel II)DGM

(Market Risk)

DGM

(Operational

Risk)

Credit Risk

Management

Team

Enterprise Risk

Management

Team

Market Risk

Management

Team

Basel II, Admin

& MIS Team

Operational Risk

Management

Team

Risk Management Committees

Credit Risk Management Committee

(CRMC) MD(IB), DMD & CCRO,

DMD (CBG, MCG, GM)

Market Risk Management Committee

(MRMC) MD&C!O, DMD&CCRO,

DMD (GM)

Operational Risk Management Committee

(ORMC) MD(IB), MD("B),

DMD&CCRO, DMD (I&A)

Gro#p Risk Management Committee

(GRMC) MD (IB), MD&C!O,

DMD&CCRO, DMD (GM)

Board o$ Dire%tors

Risk Management Committee o$ te Board

(RMCB)

Asset 'iailit Management

Committee (A'CO)

Inspe%tion and Management

A#dit (I&MA)

A#dit Committee o$ te Board

(ACB)

DGM

(Gro#p Risk)

Gro#p Risk

Management

Team

12

GM (CISO)

CISO Team

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'ASE2 II13

'='SCs 'ase Aor"; Pat#or% #orstrea%ining t+e Ris$ Manage%entPraties

Basel II

!inimumCapital

Re"uirement

!ar#etDisipline

$uper%isoryRe%ie& 'roess

'illar ( 'illar((

'illar(((

Cre)it Ris#

!ar#et Ris#

*perationalRis#

+i"ui)ity Ris#

(nterst Rate

Ris#Conentration

Ris#

$tratei Ris#

Reputation Ris#an) many more

Dislosures

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Piar I; Mini%u% =a*itaRe6uire%ents14

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=re"it Ris$ Manage%ent

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=re"it Ris$; Possi7iit o# osses assoiate" wit+"i%inution in re"it 6uait o# 7orrowers orounter*arties

Stan"ar"ise" A**roa+

Ris$ Weig+ts are assigne" to arious asset asses 7ase"

on Ratings 7 Eigi7e E8terna =re"it Rating Agenies

3o%esti =ARE, I=RA, =RISI2, FIT=< IN3IA

Internationa MOO3DS, FIT=


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=re"it Ris$ Manage%ent

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Interna Ratings 'ase" (IR') A**roa+es =a*ita is 7ase" u*on %easures on E8*ete" 2oss

(E2) (i.e. Aerage 2oss) an" !ne8*ete" 2oss (!2)

Ris$ o%*onents an" ris$ weig+t #untions *roi"e"

7 'ase II to arrie at E2 @ !2 'an$s an arrie at its own esti%ates #or Ris$

=o%*onents (P3, 2G3, EA3, M), su7:et to a**roa#ro% R'I

Foun"ation (on P3 esti%ates #or =or*orate) sA"ane" (a esti%ates)

'an$ +as engage" =onsutants #or assistane in4ing t+e a**iation to R'I #or IR' A**roa+es


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=re"it Ris$ =o%*onents

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Pro7a7iit o# 3e#aut (P3) is t+e i$ei+oo" o# a7orrower "e#auting oer a gien ti%e +orion,usua a ear

E8*osure at 3e#aut (EA3) is t+e a%ount t+at t+e

7orrower owes t+e 7an$ at t+e ti%e o# "e#aut 2oss Gien 3e#aut (2G3) is t+e oss, e8*resse" as a

*erentage o# t+e EA3, on a re"it #aiit, i# t+e'orrower "e#auts

EBetie Maturit (M) is t+e ongest *ossi7ere%aining ti%e 7e#ore t+e ounter*art is s+e"ue"to #u4 its o7igation, ta$ing into aount ana**ia7e grae *erio"


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Mar$et Ris$ Manage%ent

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Mar$et Ris$; t+e ris$ o# osses in on an" oB7aanes+eet *ositions arising #ro% %oe%ent in %ar$et

*ries i.e. interest rate, urren e8+ange rates, an"

e6uit an" o%%o"it *ries

Stan"ar"ise" Measure%ent Met+o" (SMM)

A**ia7e to o%*ute a*ita +arge #or interest rate reate"

instru%ents in tra"ing 7oo$, e6uities in tra"ing 7oo$ #oreign

e8+ange ris$ (inu"ing go" an" ot+er *reious %etas) in

7ot+ tra"ing an" 7an$ing 7oo$

'an$ urrent #oows SMM an" *ans to %igrate to

A"ane A**roa+es wit+ assistane o# =onsutants


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Mar$et Ris$ Manage%ent

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Interna Mo"es A**roa+

!se o# 7an$sC own interna %ar$et ris$

%anage%ent %o"es #or "eriing ris$%easures #or "eter%ining reguator a*ita

re6uire%ents #or %ar$et ris$, su7:et to

su*erisor a**roa

T+e a*ita re6uire%ent un"er IMA wou" 7e a

#untion o# VaR e8*aine" as un"er; T+e %a8i%u% a%ount o# %one t+at %a 7e ost on a

*ort#oio oer a gien *erio" o# ti%e wit+ a gien ee o#on4"ene un"er nor%a %ar$et on"itions

To 7e o%*ute" on a "ai 7asis


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O*erationa Ris$Manage%ent

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O*erationa Ris$; t+e ris$ o# oss resuting #ro% ina"e6uateor #aie" interna *roesses, *eo*e an" sste%s or #ro%e8terna eents

'asi In"iator A**roa+ ('IA) =a*ita #or o*erationa ris$; aerage oer t+e *reious t+ree ears o# a 48e"

*erentage (0H "enote" as a*+a) o# annua gross ino%e.

Gross ino%e is "e4ne" as net interest ino%e *us net noninterest ino%e,e8u"ing reaie" *ro4tosses #ro% t+e sae o# seurities in t+e 7an$ing 7oo$an" e8traor"inar an" irreguar ite%s

T+e Stan"ar"ise" A**roa+ 'an$Cs atiities are "ii"e" into J 7usiness ines an" =a*ita +arge #or ea+

7usiness ine is auate" 7 %uti*ing gross ino%e 7 a 7eta #ator

'an$ urrent #oows 'IA an" *ans to %igrate to a"ane"a**roa+es "iret wit+ assistane o# onsutants


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A"ane" Measure%ent A**roa+ =a*ita re6uire%ent su% o# E8*ete" 2oss

an" !ne8*ete" 2oss.


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O*erationa Ris$A**roa+es22 2oss 3ata Mo"eing

Interna an" E8terna 2oss 3ata a*ture" aross oss eentt*es #or ea+ o# t+e J 7usiness ines

Se*arate "istri7utions use" to %o"e #re6uen an" seerit o#osses an" %o"ee" into t+e O*erationa VaR o%*utation

-usiness +ine

=or*orate Finane

Tra"ing an" Saes

Pa%ent an"

Sette%ent=o%%eria 'an$ing

Agen Series

Retai 'an$ing

Asset Manage%ent

Retai 'ro$erage

+oss .%ent types

Interna Frau"

E8terna Frau"

E%*o%ent *raties an" wor$*aesa#et

=ients, Pro"uts @ 'usinessPraties

3a%ages To P+sia Assets

'usiness 3isru*tion An" Sste%Faiures


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'EI=F T+e In"iators o# an institutionCs o*erationa ris$ *ro4e t+at

reLet a urrent an" #orwar" oo$ing assess%ent o# its

un"ering 7usiness ris$ #ators an" interna ontro

eniron%ent Toos !se" to su**ort 'EI=F Re6uire%ent;

Ris$ @ =ontro Se#Assess%ent (R=SA) Ena7es %anage%ent

to rate an" anae signi4ant ris$s 7ase" on i%*at

(seerit) an" i$ei+oo" (#re6uen) an" i"enti# ontros #or

ris$ %itigation

Ke Ris$ In"iators Ear warning signas use" to %onitor O*

Ris$, genera "erie" #ro% $e ris$s i"enti4e" in t+e R=SA

e8erise to ena7e t+e 7an$ tra$ t+e tra:etor o# ris$s


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Piar II @ Piar III

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Piar II; Su*erisor Reiew @ Eauation Proess

(SREP)

It enisages esta7is+%ent o# suita7e ris$ %anage%ent

sste%s in 7an$s an" t+eir reiew 7 t+e su*erisor

aut+orit

Interna =a*ita A"e6ua Assess%ent Proess (I=AAP)

"ou%ent un"erta$en #or SREP oering %ateria ris$s #ae"

7 t+e 'an$ in a""ition to =re"it, Mar$et, O*erationa Ris$s

Piar III; Mar$et 3isi*ine It see$s to a+iee inrease" trans*aren t+roug+

e8*an"e" "isosure re6uire%ents #or 7an$s


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'eon" 'ase II

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Grou* Ris$ Manage%ent

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Grou* Ris$ Manage%ent oo$s a#ter t+e Ris$ to t+eState 'an$ Grou* as a w+oe

A**ia7e to a assoiate 7an$s su7si"iaries :oint entures 7ot+ "o%esti an" oerseas

entities wit+ E6uit s+are o# S'I - or %ore,=o%%on 'ran" Na%e an" Manage%ent =ontro

GRM *oi in *ae #or esta7is+ing 7roa" ris$%anage%ent #ra%ewor$ #or Grou*

Monitoring an" Re*orting o# Grou* E8*osuresinu"ing Intra Grou* E8*osures, =a*ita A"e6uaan" 2i6ui"it

Pre*aration o# Grou* I=AAP


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Enter*rise Ris$Manage%ent

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New Initiatie Ta$en 7 t+e 'an$ ERM is "e4ne" as 5Enterprise Risk Management is

a processprocess, efected by an entitys board oboard odirectors, management and other personneldirectors, management and other personnel,

applied in strategystrategy and across the enterprise,designed to identiy potential eventsidentiy potential events that mayafect the entity, and manage risk to be within itsrisk appetiterisk appetite, to provide reasonable assurancereasonable assuranceregarding the achievement o entity objectivesentity objectives

!ommittee " #ponsoring "rgani$ations %!"#"& =urrent ERM oo$s a#ter atiities eno%*assing a

ris$s su+ as I=AAP, Ris$ A**etite, et.


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Au"it @ 'ase II

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Roe o# Au"it in 'ase II

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'ase II "ou%ent States 5An in"e*en"ent re%ie& o/ teRis# !easurement $ystem s+ou" 7e arrie" outreguar in te -an#s o&n internal au)itin proess. Areiew o# t+e oera ris$ %anage%ent *roess s+ou" ta$e*ae at reguar interas (i)eally not less tan one a

year)9 Para 0H S*ei4 %ention %a"e to t+e interna au"it #or arious

%ini%u% re6uire%ents #or =re"it, Mar$et an" O*erationaRis$

E.g. 5Interna au"it or an e6ua in"e*en"ent #untion %ust

reiew at east annua t+e 7an$Cs rating sste% an" itso*erations, inu"ing t+e o*erations o# t+e re"it #untionan" t+e esti%ation o# P3s, 2G3s an" EA3s. Areas o# reiewinu"e a"+erene to a a**ia7e %ini%u% re6uire%ents.9


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To =onu"e

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Au"it ats as an i%*ortant o%*i%entar #untion to Ris$

Manage%ent at o*erationa ees as we as goernane

ees

EBetie Au"it ontri7utes to t+e Ris$ Manage%ent

sste%sC eBetieness

Roe o# au"it is 7eo%ing %ore an" %ore ritia wit+ t+e

onset o# new reguations

Reent re6uire%ents o# ris$ %anage%ent reate" au"its

as #or +ig+ ee o# ris$ in#or%ation an" e8*ertise

Au"it %oe" #ro% *ost %orte% anasis to *roatie

#ee"7a$ %e+anis%


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I"enti4ation o# To* - Ris$s #ae" 7 t+e'an$ in t+e *resent senario 7ase" onour e8*eriene in au"it assign%ents

Grou* Wor$

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