RISK IN BANKING: AN INEVITABLE THING THAT NEEDS TO BE MITIGATED NOT AVOIDED

As we all know that the banking is a business of trust where we are dealing with public money with utmost care and earn the profit which makes the bank afloat. Risk is involved in every business decision of banking be it fund based decision, Non-fund-based decision, Financial decision or Non-financial decision.

- Md Nasim Anwer

Risk goes hand in hand which we can not separate from banking. The profit of a bank depends on the risk management of the bank as the better risk management gives better financial result and on the other hand the bad risk management puts the bank on risk and some time that may become the reason of having huge loss to the bank. The recent crisis of Yes Bank, PMC Bank etc. have shown the severity of risk management.

If we define Risk in a simple language we can say that the Risk is the probability of happening some thing bad which is not expected or desired. It means that the risk implies future uncertainty about deviation from expected outcome. Bank being a financial intermediary is exposed to various risks, primarily Credit risk, Market risk, Liquidity risk, Operational risk, Technology risk, compliance risk, Legal risk and Reputational risk. Every bank is committed to managing all the material risks and participating in opportunities as part of the strategic approach of risk calibrated growth in core operating profit with a less scope of provisions.

Major Risks which the Bank Faces:

Risks are part and parcel of the banking business which every bank faces and mitigates them with its laid down guidelines and policies in the broad framework of Reserve Bank of India. The major risks which the bank faces are:

Operational Risk: The risk which arises due to inadequate or failed internal processes, people and systems or from any external events. Major activities that comes under operational risk are Internal fraud, External fraud, Employment practices and workplace safety, Clients, Products and Processes, Damage to Physical assets of the bank, Execution and delivery of services etc.