BANKING RISKS

The major risks in banking business are

 Credit Risk: Default by the borrower to repay the borrowings

 Market Risk: Volatility in the banks’ portfolio due to change in market factors.
 Operational risk: Risk arising out of banks’ inefficient internal processes, systems,
people or external events like natural disasters, robbery etc
 Liquidity risk: Arises from funding of long term assets by short term liabilities
 Interest rate risk: Exposure of a bank`s financial conditions to adverse movements in
interest rates.

Management of Risks

It begins with identification and its quantification. It is only after risks are
identified and measured we may decide to accept the risk or to accept the
risk at a reduced level by undertaking steps to mitigate the risk, either fully
or partially. In addition pricing of the transaction should be in accordance
with the risk content of the transaction. Management of risks may be sub
divided into following five processes.

 Risk identification
 Risk measurement
 Risk pricing
 Risk monitoring and control
 Risk mitigation
The Indian Economy is booming on the back of strong economic policies and a
healthy regulatory management. The effects of this are far-reaching and have the
potential to ultimately achieve the high growth rates that the country is yearning for.
The banking system lies at the nucleus of a country’s development robust reforms
are needed in India’s case to fulfill that. The BASEL II accord from the Bank of
International Settlements attempts to put in place sound frameworks of measuring
and quantifying the risks associated with banking operations

Banks need risk management packages not only to adhere Basel II, also for
effective risk management and mitigation, effective capital allocation, gain
competitive advantage, develop the robust system and process, improve
reporting systems and transparency, and cost reduction through detailed data
analysis.