Introduction

Indian banking sector an overview

In the year 1870 Bank of Hindustan was set up, which was the earliest Indian Bank. Modern
lines of Banking were started with the establishment of 3 Presidency banks under presidency
Bank’s Act, 1876, i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras.

In 1921, all Presidency banks were amalgamated to form the Imperial Bank of India. Imperial
Bank carried out Limited Central banking functions also Prior to establishment of Reserve
Bank of India (RBI). It engaged in all types of commercial banking business accept dealing in
foreign exchange.

RBI Act was passed in 1934 and RBI was constituted as an Apex Bank without major
government ownership. Banking Regulation Act was passed in 1949. This regulation brought
RBI under government control. Under the Act, RBI got wide ranging powers of supervision
and control of Banks. The Act also vested licensing power and authority to conduct inspections
in RBI.

The nationalization of 14 binger major banks with deposit of Rs. 50 crores or more on July 19,
1969 and others 6 banks in 1980 was described as “historic”’ “moment”’ “bold” and “timely”.
Challenges scenario in banking sector

Today banking sector operates in more and more advanced competitive and international
markets, further it has operations across geographies, products, asset classes, client segments
and functional departments.

With the Rapid growth of public capital market worldwide, there has been a mild step down in
the dependence of the borrowers on the trade for funding their activities. This
‘disintermediation’, not only by the borrowers but also by the bank depositors directly
investing their funds in capital market instruments, has caused a significant change in the
business of Banking.

To know why there is a fall in the customer business base owing to disintermediation, Bank
have entered into a host of fee-based services such as cash management, fund transfer, etc.,
capital market activities such as merchant banking, public issue Management, private
placement of issues and advisory services to diversify from the fun-based to fee-based
activities. Another outcome of disintermediation is the rapid rise in the size of the investment
portfolio of banks over a period at the cost of advances portfolio, which can be attributed to
various other reasons apart for apart from disintermediation, thereby changing their
complexion of Banking risk.

Indian financial system and financial stability

In recent years, there has been a consider widening of the Indian financial system, coupled with
the increasing globalization of financial services. India is fast approaching era of financial
conglomeration and building in the provision of financial services. These developments are
opportunities for the market participants but nevertheless pose serious challenges to regulation
and supervision of banking system.
 1. In India, the pursuit of financial and macroeconomic stability has emerged as a central
plank of financial sector reforms.

2. A stable financial system facilitates efficient transmission of monetary policy initiates

and the smooth operations of payment systems.

3. From the prospective of regulation and supervision, safeguarding depositors interest

and ensuring strong risk management within payment, clearing and settlement system.
The RBI has put in place prudential supervisory reporting system which serves as early
warning system.

4. Banks reporting in India need to compile macro prudential indicators which covers the
areas of capital adequacy, asset quality, risk management, management soundness,
earnings and profitability, liquidity, interest rate, maturity structure of assets and
liabilities and various indicators pertaining to major segments of financial markets such
as debts, forex, capital market segments besides macroeconomics indicators such as
growth, inflation, interest rate and exchange rate.

Basel committee on banking supervision

The basic committee is a committee on banking regulators and supervisory practice

established by the central bank governor of the group of 10 country at the end of 1974. It meets
regularly 4 times a year. The primary objective of the comedy is to improve banking relation
and supervision system and reducing the gap between systems in different countries.

The committee’s proposal does not have legal for us but the accepted international standard of
best practices in banking supervision. The committee formulate broad superior customary and
pointers and recommends statement of best practices within the expectations that individual
authorities can take steps to implement then through detail arrangements - statutory or
otherwise that are best suited to their own national systems.
The 1988 basil an Accord by the Basel committee on banking supervision established
minimum capital requirements standard for bank credit exposure. the initial accord was
extended to include market risk that banks incur in their trading account during 1996. During
June 1999 the BCBS brought out of consultative paper on New Capital Adequacy framework
which was expected to take effect in members countries. these measures developed in to the
Basel II Accord.

BASEL - 2 Requirements

Unlike Basel 1 which is simple Basel 2 is complex, which was released in a consultative paper
in April 2003. the focus has been on strengthening the regulatory capital framework for large
and internationally active banks through minimum capital requirements which is more
sensitive to risk profile and risk management.

The objective of new capital accord is to have an improved capital adequacy framework to
foster a strong emphasis on risk management. further the banks around the world should have
similar standard of risk assessment and measurement. Thus the expressed purpose of Basel 2
norms is to better align regulatory capital with actual risk.

Basel II
Framework

Pillar I Pillar II Pillar III

Minimum Capital Supervisory Market

Requirements Review Process Discipline
The new accord of three pillars are:
• Minimum capital requirement (pillar l)
• Supervisory review process (pillar ll)
• Market discipline and public disclosure (pillar lll)

THE FIRST PILLAR – MINIMUM CAPITAL REQUIREMENT

.
The first pillar sets out minimum capital demand for the bank. The new framework maintains
minimum capital requirement of 8% of risk assets.
Basel II focuses on improvement in measuring of risks. The revised credit risk measuring
strategies are additional elaborate than the present accord. It proposes for the primary time, a
live for operational risk, whereas the market risk live remains unchanged.

THE SECOND PILLAR – SUPERVISORY REVIEW PROCESS

Supervisory review method has been introduced to confirm not solely that bank have adequate
capital to support all the risks, however additionally to encourage them to develop and use
higher risk management techniques in watching and managing their risks. The process has four
key principles-

a) Banks should have a process for assessing their overall capital adequacy in relation to their
risk profile and a strategy for monitoring their capital levels.

b) Supervisors should review and evaluate bank’s internal capital adequacy assessment and
strategies, as well as their ability to monitor and ensure their compliance with regulatory capital
ratios.

c) Supervisors should expect banks to operate above the minimum regulatory capital ratios and
should have the ability to require banks to hold capital more than the minimum.
d) Supervisors should seek to intervene at an early stage to prevent capital from decreasing
below minimum level and should require rapid remedial action if capital is not mentioned or
restored.

THIRD PILLAR – MARKET DISCIPLINE AND PUBLIC DISCLOSURE

Market discipline imposes sturdy incentives to banks to conduct their business in an

exceedingly safe, sound and effective manner. It is projected to be established through a series
of speech act necessities on capital, risk exposure etc. so that market participants will assess a
bank’s capital adequacy. These disclosures ought to be created a minimum of semi-annually
and additional oftentimes if acceptable. Qualitative disclosures like risk management
objectives and policies, definitions etc. may be published annually.

Advantages of Basel II

1. higher allocation of capital and minimal impact of ethical hazard through reduction within
the scope for restrictive arbitrage: By assessing the number of capital needed for every
exposure or pool of exposures, the advanced approach will away with the oversimplified risk
buckets of current capital rules.

2. Improved signal quality of capital as associate indicator of solvency: the planned rule is
meant to a lot of accurately align restrictive capital with risk, which is able to improve the
standard of capital as associate indicator of financial condition.

3. Encourages banking organizations to boost credit risk management: one among the principal
objectives of the planned rule is to a lot of closely align capital charges and risk. For any kind
of credit, risk will increase as either the likelihood of default or the loss given default will
increase.

4. a lot of economical use of needed bank capital: raised risk sensitivity and enhancements in
risk measuring can enable prudent objectives to be achieved a lot of with efficiency.
5. Incorporates and encourages advances in risk measuring and risk management: The planned
rule seeks to boost upon existing capital rules by incorporating advances in risk measuring and
risk management revamped the past fifteen years.

6. acknowledges new developments and accommodates continued innovation in monetary

product by that specialize in risk: The planned rule additionally has the advantage of facilitating
recognition of latest developments in monetary product by that specialize in the basics behind
risk instead of on static product classes.

7. higher alignment of capital and operational risk and encourages banking organizations to
mitigate operational risk: Introducing a precise capital calculation for operational risk
eliminates the implicit and inexact “buffer” that covers operational risk beneath current capital
rules.

8. increased superordinate feedback: all 3 pillars of the planned rule aim to boost superordinate
feedback from federal banking agencies to managers of banks and thrifts. increased feedback
might any strengthen the security and soundness of the banking industry.

9. increased revealing promotes market discipline: The planned rule seeks to assist market
discipline through the restrictive framework by requiring specific disclosures with reference to
risk measuring and risk management.

10. Preserves the advantages of international consistency and coordination achieved with the
1988 metropolis Accord: a crucial objective of the 1988 Accord was competitive consistency
of capital necessities for banking organizations competitor in international markets. metropolis
II continues to pursue this objective.

Limitation OF Basel II:

1. Lack of adequate public information: knowledge regarding banks’ portfolios and their future
risk-weight, since this can additionally rely on whether or not banks will use the standardized
or IRB approaches.
2. Lack of precise knowledge: on however operational risk prices are charged. The banks
square measure expected to profit from sharpening up some aspects of their risk management
practices preparation and for the introduction of the operational risk charge.

3. Lack of consistency: a minimum of at this stage, on however insurance activities are

accounted for. One treatment printed within the Capital Accord is that banks deduct equity and
different restrictive capital investments in insurance subsidiaries and important minority
investments in insurance entities. another to the current treatment is to use a risk weight age to
insurance investments.

Challenges for Indian banking industry under Base II

• Costly information Creation and Maintenance Process: the foremost obvious impact of
metropolis II is that the want for improved risk management and measuring. It aims to convey
impetus to the utilization of internal classification system by the international banks.

• Additional Capital Requirement: Here could be a worrying facet that a few the banks won't
be ready to place up the extra capital to go with the new regulation and that they are also
isolated from the world banking industry.

• Large Proportion of NPA's: an outsized variety of Indian banks have important proportion
of NPA's in their assets. in conjunction with that an outsized proportion of loans of banks square
measure of poor quality. there's a danger that an outsized variety of banks won't be ready to
reconstitute and survive within the new surroundings. this could result in forced mergers of the
many defunct banks with the prevailing ones and a loss of capital to the banking industry as an
entire.

• Increased Pro-Cyclicality: The raised importance to credit ratings beneath metropolis II might
really imply that the minimum necessities might become pro-cyclical as banks square measure
needed to boost capital levels for loans in times of economic crises.
• Low Degree of company Rating Penetration: Asian nation has as few as 3 established rating
agencies and therefore the level of rating penetration isn't terribly important as, so far, ratings
square measure restricted to problems and not issuers. whereas metropolis II provides some
scope to increase the rating of problems to issuers, this can solely be associate approximation
and it'd be necessary for the system to makeover to ratings of issuers. Encouraging ratings of
issuers would be a challenge.

• Cross Border problems for Foreign Banks: In Asian nation, foreign banks square measure
statutorily needed to keep up native capital and therefore the following problems square
measure needed to be resolved;
1. Validation of the inner models approved by their head offices and residential country
supervisor adopted by the Indian branches of foreign banks.
2. Date history maintained and utilized by the bank ought to be distinct for the Indian branches
compared to the world knowledge utilized by the pinnacle workplace
3. Capital for operational risk ought to be maintained one by one for the Asian nationn branches
in India

IMPACT OF BASEL II IMPLEMENTATION ON THE INDIAN BANKING

INDUSTRY

1. Changes in Capital Risk Weighted Assets magnitude relation (CRAR): Most of the banks
square measure already adhering to the metropolis II pointers. However, the govt has indicated
that a cushion ought to be maintained by the general public-sector banks and so their CRAR
ought to be on top of twelve-tone system. metropolis I targeted mostly on credit risk, whereas
metropolis II has three risks to be thought of, viz., credit risk, operational risk and market risks.
As metropolis II considers of these three risks, there square measure possibilities of a decline
within the Capital Adequacy magnitude relation.

2. High prices for up-gradation of technology: Full implementation of the metropolis II

framework would need up-gradation of the bank-wide info systems through higher branch-
connectivity, which might entail immense prices and will raise IT-security problems. The
implementation of metropolis II also can raise problems with reference to development of 60
minutes skills and management. tiny and medium sized banks could got to incur monumental
prices to amass needed technology, moreover on train workers in terms of the danger
management activities. there'll be a requirement for technological up gradation and access to
info like historical knowledge etc.

3. Rating risks: issues embedded in metropolis II norms embody rating of risks by rating
agencies. whether or not the country has adequate variety of rating agencies to discharge the
functions in a very metropolis II compliant banking industry, could be a question for thought.
Further, to what extent the rating agencies will be relied upon is additionally a matter of
dialogue.
Entry forms for recognition of rating agencies ought to be stricter. solely companies with
international expertise or background in ratings business ought to be allowed to enter. this can
be essentially providing the Indian rating trade is in its growth section, particularly with the
implementation of latest metropolis II capital norms that encourage corporations to induce
rated.

4. Improved Risk Management & Capital Adequacy: One facet that wait the critics of
metropolis II is that the incontrovertible fact that it'll tighten the danger management method,
improve capital adequacy and strengthen the banking industry.

5. Curtailment of Credit to Infrastructure Projects: The norms need a better weight age for
project finance, curtailing credit to the current is extremely crucial sector. The long impacts for
this might be unfortunate.

6. Preference for Mortgage Credit to line Lower Risk Weights to Mortgage credit: Preference
for Mortgage Credit to line Lower Risk Weights to Mortgage credit would intensify bankers’
preference towards it vis-à-vis line.

7. metropolis II: Advantage huge Banks: it'd be way easier for the larger banks to implement
the norms, raising their quality of risk management and capital adequacy. This combined with
the upper value of capital for smaller players would queer the eat favour of the previous. The
larger banks would even have a definite advantage in raising capital in equity markets. rising
Market Banks will flip this challenge into a plus by active implementation and increasing their
horizons outside the country.
8. IT spending: Advantage to Indian IT corporations: On the flipside, Indian IT companies, that
have extended experience within the BFSI phase, stand to realize. Major Indian IT corporations
like I-flex and Infosys have already got the product, that might facilitate them develop a grip
over their rivals from the developed countries.

Basel new Capital Accord

Bankers’ for International Settlement (BIS) meet at urban centre located at Switzerland to
handle the common problems regarding bankers everywhere the globe. The urban centre
Committee on Banking direction (BCBS) may be a committee of banking superordinate
authorities of G-10 countries and has been developing standards and institution of a framework
for bank direction towards strengthening monetary stability throughout the globe. In
consultation with the superordinate authorities of a number of non-G-10 countries as well as
India, core principles for effective banking direction within the style of minimum necessities
to strengthen current superordinate regime, were mooted. The 1988 Capital Accord primarily
provided only 1 choice for mensuration the acceptable capital in regard to the danger weighted
assets of the financial organization. It centred on the whole quantity of bank capital therefore
on scale back the danger of bank financial condition at the potential price of bank’s failure for
the depositors. As AN improvement on the higher than, the New Capital Accord was printed
in 2001 by urban centre Committee of Banking direction. It provides spectrum of approaches
for the activity of credit, market and operational risks to work out the capital needed. The unfold
and nature of the possession structure is very important because it impinges on the propensity
to induct extra capital. whereas obtaining support from an oversized body of shareholders may
be a troublesome proposition once the bank’s performance is adverse, a smaller stockholder
base constrains the flexibility of the bank to garner funds. Tier I capital isn't owed to anyone
and is on the market to hide doable sudden losses. it's no maturity or compensation demand,
and is predicted to stay a permanent part of the core capital of the counter party. Whereas urban
centre standards presently need banks to own a capital adequacy quantitative relation of 8 May
1945 with Tier I not but four-dimensional, tally has mandated the banks to take care of
automobile of September 11. The upkeep of capital adequacy quantitative relation is like
aiming at a moving target because the composition of risk-weighted assets gets modified each
currently and so on account of fluctuations within the risk profile of a bank. Tier I capital is
thought because the core capital providing permanent and pronto on the market support to the
bank to fulfil the sudden losses. within the recent past, homeowners of PSU banks, the govt.
provided adequate capital to weaker banks to ease the burden. In doing therefore, the govt.
wasn't acting as a prudent capitalist as come on such capital was ne'er a thought. Further, capital
infusion didn't lead to any income to the receiver, as all the capital was needed to be reinvested
in government securities yielding low returns. Receipt of capital was simply a book entry with
the sole advantage of financial gain from the securities.

Capital Adequacy

Subsequent to nationalization of banks, capitalization in banks wasn't given due importance

because it was felt necessary for the explanation that the possession of the banks reinvigorated
with the govt., making the desired confidence within the mind of the general public. Combined
forces of globalisation and relaxation compelled the general public sector banks, heretofore
protected from the vagaries of economic process, come back by the condition of terms market
realities, wherever sure minimum capital adequacy must be maintained within the face of stiff
norms in respect of financial gain recognition, quality classification and provisioning. it's clear
that multi-pronged approach would be needed to fulfil the challenges of maintaining capital at
adequate levels within the face of mounting risks within the banking sector. In banks, quality
creation is a happening beyond the capital formation and deposit mobilization.

Risk Aggregation and Capital Allocation

Capital Adequacy in reference to economic risk may be a necessary condition for the long
soundness of banks. mixture risk exposure is calculable through Risk Adjusted Return on
Capital (RAROC) and Earnings at Risk (EaR) technique. Former is employed by bank with
international presence and also the RAROC method estimates the value of Economic Capital
& expected losses that will prevail within the worst-case situation and so equates the capital
cushion to be provided for the potential loss. RAROC is that the start towards examining the
institution’s entire record on a mark to promote basis, if solely to know the chance come trade
off that are created. As banks persevere the business on a large space network basis, it's
essential that they're ready to unceasingly monitor the exposures across the whole organization
associate degreed mixture the risks so an integrated read may be taken. The Economic Capital
is that the quantity of the capital (besides the restrictive Capital) that the firm should place in
danger thus on cowl the potential loss underneath the intense market conditions. In different
words, it's the distinction in mark-to-market worth of assets over liabilities that the bank ought
to aim at or target. As against this, the restrictive capital is that the actual Capital Funds
command by the bank against the chance Weighted Assets. when mensuration the economic
capital for the bank as a full, bank’s actual capital should be allotted to individual business
units on the idea of varied forms of risks. This method may be continuing until capital is allotted
at transaction/customer level.

Risk Based Supervision (RBS)

The Reserve Bank of India presently has its superior mechanism by approach of on-the-spot
examination and off-site observation on the idea of the audited record of a bank. so as to
reinforce the superior mechanism, the run has set to place in situ, a system of Risk based mostly
management. below risk based mostly management, supervisors square {measure} expected to
concentrate their efforts on guaranteeing that monetary establishments use the method
essentially to spot measure and management risk exposure. The RBS is anticipated to focus
superior attention in accordance with the chance profile of the bank. The run has already
structured the chance profile templates to alter the bank to form a self-assessment of their risk
profile. it's designed to confirm continuous observation and analysis of risk profile of the
establishment through risk matrix. this could optimize the use of the superior resources of the
run therefore on minimize the impact of a crises state of affairs within the national economy.
The dealing based mostly audit and management is obtaining shifted to risk targeted audit. Risk
based mostly management approach is an endeavour to beat the deficiencies within the ancient
point-in-time, transaction- validation and worth based mostly superior system. it's forward
wanting facultative the supervisors to differentiate between banks to focus attention on those
having unsound profile. The implementation of risk based mostly auditing would imply that
bigger stress is placed on the interior auditor’s role for mitigating risks. By specializing in
effective risk management, the interior auditor wouldn't solely provide remedial measures for
current trouble-prone areas, however conjointly anticipate issues to play a lively role in
protective the bank from risk hazards.
MEANING OF RISK

When we use the term “Risk”, we tend to all mean money risk or surprising loss. If we tend to
think about risk in terms of likelihood or occur ofttimes, we tend to live risk on a scale, with
certainty of incidence at one finish and certainty of non-occurrence at the opposite finish. Risk
is that the greatest phenomena wherever the likelihood of incidence or non-occurrence is equal.
As per the banking concern of Republic of India tips issued in Gregorian calendar month. 1999,
there are a unit 3 major styles of risks encountered by the banks and these area unit Credit Risk,
Market Risk & Operational Risk. additional once eliciting views of banks on the draft tips on
Credit Risk Management and market risk management, the tally has issued the ultimate tips
and suggested a number of the massive PSU banks to implement thus on gauge the impact.
Risk is that the potentiality that each the expected associate degreed surprising events might
have an adverse impact on the bank’s capital or its earnings. The expected loss is to be borne
by the recipient and thus is taken care of by adequately rating the merchandise through risk
premium and reserves created out of the earnings. it's the quantity expected to be lost because
of changes in credit quality leading to default. Whereas, the surprising loss on account of the
individual exposure and also the whole portfolio is entirely borne by the bank itself and thus
care ought to be taken. Thus, the expected losses area unit coated by reserves/provisions and
the surprising losses need capital allocation.

Risk generally means exposure to uncertainty

Thus, risk has two components:
▪ Uncertainty and
▪ Exposure to that uncertainty

Risk has been defined as the potential that events, expected or unexpected may have an
adverse impact on a bank’s earnings or capital or both.
Risk and expected return are positively related; higher the risk , higher the expected return
and vice versa.
 TYPES OF RISK

CREDIT RISK

MARKET RISK

INTEREST
RATE RISK

LIQUIDITY
RISK

OPERATIONAL
RISK

Credit Risk

In the context of city II, the danger that the obligor (borrower or counterparty) in respect of a
selected plus can default fully or partially on the requirement to the bank in relevancy the plus
is termed as Credit Risk.
Credit Risk is outlined as “The risk of loss arising from outright default thanks to inability or
disposition of the client or counter party to satisfy commitments in relevancy disposition,
trading, hedging, settlement and alternative monetary group action of the client or counter party
to satisfy commitments”.
Credit Risk is additionally outlined, “as the potential that a receiver or counter party can fail to
meet its obligations in accordance in in agreement terms”.
CREDIT RISK APPROACHES

Credit Risk

Standardized approach Advanced Approach

Foundation IRB Advanced IRB

The differences between Foundation IRB and Advanced IRB

Data Input Foundation IRB Advanced IRB

Probability of Default Provided by bank based on Provided by bank based on own
own estimates estimates
Loss Given Default Supervisory values set by the Provided by bank based on own
Committee estimates
Exposure at Default Supervisory values set by the Provided by bank based on own
Committee estimates
Effective Maturity Supervisory values set by the Provided by bank based on own
Committee estimates Or At the national
discretion, provided by bank
based on own estimates
MARKET RISK

It is outlined as “the risk of loss caused by changes within the market variables like rate of
interest, interchange rate, equity worth and artefact price”. it's the danger of losses in, numerous
record positions arising from movements in market costs.
RBI has outlined market risk because the risk of loss to a bank caused by changes within the
market rates/ costs. tally steering Note specialize in the management of liquidity Risk and
Market Risk, any categorised into rate of interest risk, interchange risk, artefact worth risk and
equity worth risk.
Market risk includes the danger of the degree of volatility of market costs of bonds, securities,
equities, commodities, interchange rate etc., which can amendment daily profit and loss over
time; it’s the danger of surprising changes in costs or rates. It additionally addresses the
problems of Banks ability to meets its obligation as and once due, in alternative words, liquidity
risk.

MARKET RISK APPROACHES

Market Risk

Standardized Internal Model

Approach Based approach

Maturity Duration
Based Based
Interest Rate Risk

Interest rate is felt when changes in the interest rate structure put pressure on the net interest
margin of the bank. Interest rate risk refers to the potential impact on net interest margin or
market value of equity, caused by unexpected changes in market interest rates.

Liquidity Risk

Liquidity risk is the risk of being unable to meet to meet the commitments to pay as they
arise. Liquidity risk intricately related to credit, interest rate and market risk.

OPERATIONAL RISK

Operational risk is that the risk related to the operations of a corporation. it's outlined as “risk
of loss ensuing from inadequate or failing internal method, individuals and systems or from
external events.”
It includes legal risk. It excludes strategic and reputational risks, because the same don't seem
to be quantitative.
Operational risk includes the danger of loss arising from fraud, system failures, commercialism
error and plenty of alternative internal structure risks further as risk thanks to external events
like hearth, flood etc. the losses thanks to operation risk are often direct further as indirect.
Direct loss means that the monetary losses ensuing directly from a happening or a happening.
E.g. forgery, fraud etc. indirect loss means that the loss incurred thanks to the impact of a
happening.
OPERATIONAL RISK APPROACHES

Operational
Risk

Basic Indicator Standardized Advanced

Approach Approach Measurement
Approach

Meaning of Risk Management

Risk management is basically identification, measurement, analysis and control of risk arising
from the business in an attempt to alter in a desirable manner, the states a system may reach
and their probabilities or manage their consequences.

Risk management is a crucial function in today's environment of heightened and volatility. It

reduces the cost of distress and aims at strengthening the decision-making process for an
optimum risk return trade off.

Objectives of Risk Management

The very basic objectives of risk management system is to put in place and operate a systematic
process to give a reasonable degree of assurance to the top management the ultimate corporate
goals that are vigorously pursued it would be achieved by in the most efficient manner. In this
way all the risk that comes in the way of Institution achieving the goals it as set for itself would
be managed properly by the risk management system. In the absence of such a system no
institution can exist in the long run without being able to fulfil the objectives for which it was
set up.

Steps in Risk Management

1. Risk identification: it's crucial that each one the chance have to be compelled to be
known initial the methodology ordinarily followed is that the risk Matrix approach.

2. Risk measure: this step is most important step of all. Having establish the chance, tools
for measure of every one in every of the risks have to be compelled to be place in situ
to live every one of the risks quantitatively. the foremost difficult task is that the choice
of associate applicable tool or live for quantification of risks. The live for quantification
vary from terribly easy to high complicated. what's vital is to use associate applicable
quantification strategies or tool appropriate for the bank.

3. Risk management and observance: it deals with fitting for limits to every one amongst
the remainder and monitoring to make sure that the particular exposure to every one
amongst the chance outline is within the limit prescribed within the risk management
policy has to be totally investigated to establish the explanations for violation and to
avoid such violation in future.

The standard management based mostly risk management ends with the preceding step.
the fashionable risk management, that strives to align risk management with overall
company objectives and techniques, involves 2 further steps within the variety of capital
allocation and risk adjusted performance mensuration

a) Capital allocation: underneath the step activities of a bank would be softened into
numerous major businesses like retail banking company banking government business
proprietary mercantilism accident all may be viewed as a strategic business unit with target
of come performance all of the SBU is found a little of the bank equity capital the allocation
 of capital relies on the contribution of every SBU to varied risk of the bank rent the
contribution of SBU to the chance of the banks higher are the capital allotted

b) Risk adjusted performance measurement: Having allocated capital to every SBU

corresponding with its contribution to the risk of the bank, a target come on the capital
allotted got to be set. the question of whether or not the target come to be achieved by
every SBU is that the same bank level target or is completely different for every SBU
dependent upon risk contribution is that the most contentious issue occupying the eye of
the chance management community.

All of the chance is reticulated to the opposite. it's been ascertained that one kind of risk
and rework itself into other varieties if not managed properly thereby inflicting losses to
the bank.

Requirements for an Effective Risk Management System

The Basel committee on banking supervision has set out the requirement for an effective risk
management system as under:
• well informed board of directors and oversight of board
• capable management
• adequate risk management policies and processes
• high-high quality MIS Risk Management and
• appropriate staffing of the risk management function

The job of the board is to establish banks strategic direction and define risk tolerances for
various types of risk. The risk management policies and standards need to be approved by the
board. The senior management of the bank is responsible for implementation, integrity and
maintenance of the risk management system.
REVIEW OF LITERATURE

Rudra Sensarma, M Jayadev (2009) in this paper “Are Bank stock prices sensitive to risk
management” has focused that it attempts to summarise the information in bank financial
statement on the risk faced by bank which respond to risk manager behaviour

Through this it also concludes saying that the paper focus on risk management behaviour and
its impact in bank.

Radovan Chalupka, Petr Teply (2008) “Operational risk management and implications for bank
economic capital” has focused on the review of actual operational data of Central European
bank using two approaches and extreme value theory (EVT) the two methods are Standard
maximum likelihood estimation method and probability weighted method though the data is
limited but still it has attempted to provide reasonable and consistent capital estimates.

Through this he would also like to conclude that in this paper has attempted to analyse the
operational data of Central European Bank by two models for mature markets.

Guenthur Helbok, Christian Wagner (2005) “Determination of operational risk reporting in the
banking industry” helps to know the importance of operational risk in a bank and also enhance
is market discipline in net banking system

Through we can conclude saying that this study helps to identify the fundamental changes in
the operating environment in financial institution

Nicholas Apergis (2016) “Operational risk management in Financial Institutions” studies in

regarding to three pillars structure of the Basel two and three Framework where it surveys 279
academic papers on operational risks covering the period from 1998 to 2014.

Through this it concludes that it focused on the discussion on various operational risk and also
several estimation methods and it also highlights the gap in operational risk
Dr. Frane Etu- Menson “Operational risk management in banking industry of Ghana” examines
in his paper that the management of operational risk in Ghanaian bank where it involves both
qualitative and quantitative techniques to disclose the management of operational risk.
Through this we can identify the results where the Indian Bank experience major changes with
entry of Nigerian Bank and result in more competency among the bank and due to this forcing,
them to introduce technologies in operation and this led to the exposure of operational risk

Fathima Zahra EI Arif (2014) “Methods of quantifying operational risk in bank” define in his
paper that operational risk is a challenge because it is difficult to identify independently the
other risk occurring in banking activities and through this it can be concluded stating that it is
necessary that the model of an operational risk and in the future will provide the level of
transparency and accessibility in market or credit risk.

Oliveira,J., Rodrigues, L.L and Craig.R Voluntary risk reporting to enhance institutional and
organisational legitimacy evidence from Portugal banks this paper finds out the factors which
is affected in disclosing of individual annual report of 2006 related to voluntary yes it also
makes our research on report related to Basil to requirements for the purpose of voluntary
disclosure of operational risk capital structure and adequacy matters

By disclosing the voluntary risk report they enhance the lawfulness for two reason

1. They are show the effectiveness of market discipline

2. They can manage Corporation reputation through stakeholder’s perception

P.K. Gupta Sanjeev Gupta, (2015) “Corporate frauds in India perception and emerging issues”
in this paper examines the nature and opinion of Corporate frauds in India and the consequences
in the business and it also highlights the issues that is emerging of existing legal and regulatory
obligation which can be redefined and structured

Through this the paper focus that the regulatory system is weak and need to redefine the role
of the auditor's the coordinators among the difference authorities is less due to this there is a
blame game in every scam bank and financial institution are ineffective due to lack of
professionalism

Charan Singh, Deepanshu Pattanayak, (2016) “Frauds in Indian banking industries”, in this
paper is studies their experience of Indian banking after the growth and changes liberalisation
of economy in 1991 though banking sector are well regulated but still it faces a set of challenges
related to ethical practices financial distress and corporate governance it also aims at finding
out banking fraud and credit card debt.

Finally, paper suggest some recommendation to reduce the future frauds in banking sector and
also focus on credibility of third parties

Ashu Khanna Bindu Arora (2009) “A study to investigate the reason for bank frauds and the
implementation of Preventive security controls in Indian banking industry” in this paper it
evaluates the techniques implemented in internal control and also identify various causes for
bank fraud it also studies the opinion of bank employee about bank fraud.

Through this paper find out that the employees are not well trained in finding out the bank
fraud and majority of them does not show favourable attitude for the RBI to find out the
difficulties it might be due to their work pressure competency and etc.
Uket Eko Ewa, Joseph Offiong Udayang (2012) “The impact of internal control design on
banks ability to investigate staff fraud and lifestyle and fraud detection in Nigeria”. This paper
investigates the star fraud and stars lifestyle and fraud detection and all these are due to the
internal design of the bank so true finding the paper suggest that the bank has to adopt the
effective and efficient internal design control and also a serious attention on the lifestyle of
staff members as it would be easy to identify the frauds

Rashidah Abdul Rahman, Irda Sayahira Khair Anwar (2014) “Effectiveness of fraud
prevention and detection techniques in Malaysian Islamic banks” this paper analyse the
perception of the banker's about the effectiveness of the fraud prevention and detection
techniques in Malaysian Islamic banks so the findings indicate that the adoption of high
protection software for fraud prevention techniques and tricks protection in bank reconciliation
password protection and internal control review

Through this the paper concludes that the bank has adopted a strict prevention technique for
the internal risk controls so bad this would help them to retain customers for their banks

Marliana Abdullah, Shahida Shahimi and Abdul Ghafar Ismail (2011) “Operational risk in
Islamic Banks: examination of issues”, this paper states in measurement and monitoring of
operational risk in Malaysian Islamic Bank it also helps in giving knowledge on operational
risk and it also identify the behaviour implication in Islamic bank

Through this is studies about the implications for understanding operational risk and these have
become more complicated compared with banking because it has unique features and legal
environment
COMPANY PROFILE

The Bank's motto "Sarve Janah Sukhino Bhavanthu" in Sanskrit, which means "Prosperity for
All" is well-professed by the Bank in its day-to-day operations.

The Bank's logo has various components, namely Kamadhenu (denoting wish-fulfillment),
Kalpatharu (eternity), Balance (justice for all), Wheel (industrial progress) and Wheat Grains
(agricultural prosperity) which stand for universal prosperity and as a wish-fulfilling credo. The logo
in its present form was incorporated in 1972 when the name of the Bank was changed from Canara
Banking Corporation (Udupi) Ltd. to Corporation Bank Ltd.
HISTORY

Corporation Bank came into being as Canara Banking Corporation (Udupi) Limited, on 12th
March, 1906, in the temple town of Udupi, by the pioneering efforts of a group of visionaries.
The Bank started functioning with just Rs.5000/- as its capital and at the end of the first day,
the resources stood at 38 Rupees-13 Annas-2 Pies.

The Founder President Khan Bahadur Haji Abdullah Haji Kasim Saheb Bahadur, committed
to fulfil the long felt banking needs of the people and also to inculcate the habit of savings,
provided the much-needed impetus to founding a financial institution that would bring about
prosperity to the society.

The content of the first Appeal to the public dated 19th February, 1906 speaks volume about
the lofty ideals and ethos behind the foundation. The Founder President Haji Abdullah declared
that:

"The Primary object in forming ‘Corporation’ is not only to cultivate habits of thrift amongst
all classes of people, without distinction of caste or creed, but also habits of co-operation
amongst all classes”.

“This is ‘Swadeshism’ pure and simple and every lover of the country is expected to come
forward and co-operate in achieving this end in view”
The initial growth was consciously cautious and need based. The first branch of the Bank was
opened at Kundapur in 1923, followed by the second in Mangalore in 1926. The Bank stepped
into the then Coorg State in 1934 by opening its seventh branch at Madikeri. In 1937 the Bank
was included in the second schedule of Reserve Bank of India Act, 1934.

PROSPERITY
In 1939, the Bank’s name changed from Canara Banking Corporation (Udupi) Ltd., to “Canara
Banking Corporation Ltd.,” and strongly put forth its vision with the motto- “Sarve Janah
Sukhino Bhavantu” which means “Prosperity to All”
The second change in the name of the Bank occurred in 1972, from ‘Canara Banking
Corporation Ltd.’ to ‘Corporation Bank Limited.’ and finally ‘Corporation Bank’ following its
nationalization on 15th April, 1980.

NATIONAL OBLECTIVES
The Bank took on the priorities of nationalization in full stride and emerged successful in
fulfilling the national objectives, while sustaining its performance-oriented culture and profit
augmenting record. Amidst all this, the Bank crossed Rs.1000 crore-deposit mark in the year
1985 and launched into the 1990s with focus on high quality growth by embracing newer
technology.

The end of first phase of Banking sector reforms in India had seen the Bank emerging as the
most innovative and dynamic bank in the public sector, outshining other banks in terms of asset
quality, capital adequacy, operational efficiency, well diversified income base, profitability,
productivity, and strong balance sheet.

The tremendous amount of confidence and loyalty reposed by the public in general and
customers in particular, manifested itself in the overwhelming response to the IPO of the Bank
in the year 1997.
As on 30th September 2017, the Total Business of the Bank was Rs.3,29,300 crore. The Total
Deposit stood at Rs.2,01,488 crore and the Total Advances were at Rs.1,27,812 crore. The Net
worth rose to Rs.11,737 crore.
Presently, the Bank has a network of 2501 fully automated CBS branches, 3169 ATMs and
4724 Branchless Banking Units across the country. The Bank has Representative Offices at
Dubai and at Hong Kong.

The Bank has extended Branchless Banking units to 4724 villages and has issued Smart Cards
to all account holders in these villages for enabling them to operate their accounts at their
doorsteps through the Business Correspondents appointed by the Bank.

From 38 Rupees-13 Annas-2 Pies to a business level of Rs.3,29,300 crore and from a Net worth
of Rs.5,000/- to Rs.11,737 crore, the evolution of the Bank from a Nidhi to graduate as a
Premier Public Sector Bank and from the early days of Swadeshism to post-Liberalisation days
has been a corporate success story.
Weathering two world wars, economic depressions, imbibing the latest in technology,
responding to financial reforms and the unique record of uninterrupted posting of profits right
from its inception in 1906, only further strengthened its commitment to the people.

CORPORATE VISION

“Emerge as a Model for Inclusive Growth and Innovative Banking Services”.

CORPORATE MISSION

▪ To expand our reach to meet the financial needs of people

▪ To provide full range of banking services with innovative products
▪ To continue to adopt modern technology for superior banking experience
▪ To create a rewarding environment for all stakeholders
▪ To continue as a model organisation for transparent and ethical practices

THE JOURNEY

Every institution has its start in modest initiatives but what makes it great is the passion of the
people behind it. Carrying the legacy forward with an undaunted commitment to its vision, the
journey of Corporation Bank truly epitomizes this. Started about 111 years ago in 1906, with
an initial capital of just Rs.5000/-, Corporation Bank has recorded Rs. 3,03,185 Crore mark in
business and even far more, with over 9,955 service outlets across the nation, served by
committed and dedicated 19,000 plus Corp Bankers. Proof of which is seen in its enviable track
record in financial performance. We have many reasons to cheer, predominant of them is, being
able to participate in nation building by empowering the rural and urban population alike.
Today, we are proud that we are significant contributors to the growth of the country's
economy.
EARLY MOVER

Nationalised in 1980, Corporation Bank was the forerunner when it came to evolving and
adapting to the financial sector reforms. In 1997, it became the Second Public Sector Bank in
the country to enter capital market, the IPO of which was over- subscribed by 13 times. the
Bank has many " firsts " to its credit - Cash Management Services, Gold Banking, m-
Commerce, " Online " approvals for Educational loans, 100% CBS Compliance and more
recently, its pioneering efforts to take the technology to the rural masses in remotest villages
through low-cost branchless banking - Business Correspondent model. All of which symbolise
Bank's unserved commitment to its customers to provide convenience banking.

At Corporation Bank, what motivates us is the passion to excel in banking by maintaining

highest standards of service to our customers, backed by innovative products and services
which makes us one of the leading Public Sector Banks in the country, catering to a wide range
of customers - from individuals to corporate clients.

SUBSIDIARIES

The Bank has one Subsidiary viz. Corp Bank Securities Ltd formed as a Primary Dealer to deal
in Government Securities. The Subsidiary has recorded impressive performance over the years.

Corp Bank Securities Limited

Corp Bank Securities Limited is a wholly owned subsidiary of Corporation Bank in Securities
Trading. Having built core competence in treasury operations over the years, the Bank has
identified securities business as a thrust area and has set up an exclusive subsidiary, with an
authorised and fully paid up capital of Rs. 100 crores. The objective behind setting up the
subsidiary is to provide depth and breadth in the Government of India Securities market. The
subsidiary primarily deals in trading of government securities, bonds and treasury bills. The
Registered Office of the subsidiary is at Mumbai. The subsidiary declared was open by Hon'ble
Shri Balasaheb Vikhe Patil, Union Minister of State for Finance at Mumbai on 22nd January,
2000.

AWARDS AND RATINGS

RATING:

CARE CRISIL

Tier I Perpetual Bonds CARE AA+ CRISIL AA+/Negative

Upper Tier-II Bonds CARE AA+ CRISIL AA+/Negative

Lower Tier-II Bonds CARE AAA CRISIL AAA/Negative

Fixed Deposit Programme - FAAA/Stable by CRISIL

Certificate of Deposits - CRISIL A1+

AWARDS & ACHEIVEMENTS

The Bank has bagged three “SKOCH Order-of-Merit 2018 Awards under the following
categories on 22nd December 2018:

1) Financial Inclusion
2) Road Map to be Best in Insurance Penetration
3) Implementation of Technology in Forex Operations

• The Bank has bagged the “BEST MSME BANK-WINNER 2018” award during 6th
ASSOCHAM SMEs Excellence Award – 2018 instituted by The Associated
Chambers of Commerce & Industry of India (ASSOCHAM) on 24th October, 2018.
• The Bank has bagged three awards under the Aadhaar Excellence Awards instituted by
Unique Identification Authority of India (UIDAI).
• The Bank has bagged Best Community Development Award at the National CSR
Leadership Congress on 5th September, 2018.
• The Bank has bagged three awards instituted by Chamber of Indian Micro Small &
Medium Enterprises [CIMSME] consistently for the 5th year in a row under the
following categories:

I. Best MSME Bank Award - Runner up (Emerging Category). II. CSR Initiatives &
Business Responsibility Award - Winner (Emerging Category) III. Best Bank for
Promotional Schemes Award - Runner up (Emerging Category)
• The Bank has bagged “Investor Relations Awards 2018” under category- Best
Expectation Management (Mid Cap) for the FY 2017-18.
• The Bank has bagged “National Payments Excellence Awards 2017” winner in
commercial Banks Category B for excellent performance in RuPay Cards, instituted by
NPCI for Financial year 2017-18.
• The Bank bagged the winner award under Best Social Bank and Joint runner-up award
under Priority Sector Lending for Large Bank class category for 2017 instituted by The
Associated Chambers of Commerce & Industry of India (ASSOCHAM).
• The Bank bagged the “Best SME Lending -2017” award during Fifth ASSOCHAM
SMEs Excellence Award 2017 instituted by The Associated Chambers of Commerce
& Industry of India (ASSOCHAM).
• The Bank has bagged “SKOCH Award for MUDRA Performance - 2017” and
“SKOCH Order-of-Merit Award for A Road Map to be Best in Insurance Penetration”
instituted by SKOCH Group for Financial year 2017-18.
• The Bank bagged the Rajbhasha Kirti Puraskar instituted by Department of Official
Language, Ministry of Home Affairs, Government of India. The Bank was awarded
Second prize under Nationalised Banks category in ‘C’ region for excellent
implementation of Official Language policy of the Govt. of India in its offices and
branches spread across the country.
• The Bank bagged two First Prizes under Annual Best Performance Awards for the
SHG- Bank linkage Programme for Karnataka State for FY 2015-16 and 2016-17 from
NABARD.
• The Bank was awarded the SKOCH Financial Inclusion Award 2017, and SKOCH
Order-Of-Merit Award, 2017 for Financial Inclusion, instituted by SKOCH Group at
the 48th SKOCH Summit held in Mumbai on 20th June, 2017.
• The Bank has bagged 2 awards for the year 2016 instituted by Chamber of Indian Micro
Small & Medium Enterprises [CIMSME] under the following categories:
 A] Eco-Technology Savvy Bank Award – Winner [Mid-Sized Category]

B] Best MSME Bank Award – Runner-Up (Mid-Sized Category)

• The Bank bagged three Runner up awards under Social Banking Excellence Awards
instituted by the Associated Chambers of Commerce & Industry of India
(ASSOCHAM). The bank bagged the awards for Agriculture Banking, Priority Sector
Lending and Best Social Bank under Large Bank category for 2016.
• The Bank bagged the “Best MSME Bank Award 2016” instituted by The Associated
Chambers of Commerce & Industry of India (ASSOCHAM).
• The Bank has bagged "Excellence Award on Empowering MSMEs 2016".
• The Bank has bagged "SKOCH Achiever Award - 2016" for National SME enablement.
• The Bank bagged ten awards from NABARD for ‘Best Performance under Self Help
Group (SHG)/Joint Liability Group (JLG) Bank Linkage Programme’ in Karnataka
state for the F.Y. 2013-14 & 2014-15.
• The Bank has bagged “MSME Banking Excellence Awards – 2015” instituted by
Chamber of Indian Micro Small & Medium Enterprises [CIMSME]. The Bank has won
under the categories Best MSME Bank Award for Mid-Sized Bank - Winner, CSR &
Business Responsibility Award for Mid-Sized Bank- Runner Up and Best Bank Award
under MUDRA Yojna for Mid-Sized Bank- Runner Up.
• The Bank has bagged Best Social Bank Award-Winner, Best Rural Bank Award-
Winner and Best Bank for participation in Govt. Schemes Award-Winner under mid-
sized category.
• The Bank has bagged National Payments Excellence Awards 2015 insituted
by National Payments Corporation of India (NPCI). The Bank received the winner
award jointly with Indian Bank for Cheque Truncation System under the mid-sized
category. The Bank also received two runner up awards for National Financial switch
(NFS) for excellent performance in acquirer transactions and Immediate Payment
Service (IMPS).
• 'SKOCH Achiever Award-2015' for National SME enablement.
• The Bank has bagged “MSME Banking Excellence Awards – 2014” instituted by
Chamber of Indian Micro Small & Medium Enterprises. The Bank has won two awards
under the categories ‘Best MSME Bank Award for Other Bank (Winner)’ and ‘Best
Bank Award (Runner Up)’.
• The Bank has bagged Skoch Achiever Award for outstanding performance in SME
Enablement during 2014 instituted by SKOCH Consultancy Services Pvt. Ltd

• “Indira Gandhi Rajbhasha Puraskar 2014“for outstanding work in implementation of

official Language. Our Bank was conferred with two awards, First Prize under Town
Official Language implementation committee category & Second Prize under Public
Sector Banks’ category for ‘C’ region.
• The Bank has won IBA Banking Technology Award 2012-13 for “Best Use of Mobility
Technology in Banking”. Indian Banks’ Association (IBA) gives away this award to
the Banks to encourage the use of technological innovations for the benefit of
customers. The Bank has bagged the 2nd Runner Up in Public Sector Banks (PSB)
category.
• The Bank is ranked Number One under “National Awards for Excellence in MSE
Lending” and Second under “National Awards for Excellence in Lending to Mirco
Enterprises” for the year 2012-13 under Public Sector Banks from Ministry of Micro,
Small and Medium Enterprises.
• ‘SKOCH Financial Inclusion Award 2013’ for SHG Initiatives.
• “Caring Company Award” at World CSR Congress 2013 held at Mumbai on 18th
February 2013.
• “Number Two Public Sector Bank” at “FE – India’s Best Banks Awards”. The Best
Banks Survey was conducted by Financial Express in association with Ernst & Young
– the Knowledge partner for the survey.
• Best Mid-Size Public Sector Bank (Commendation) Award at “India Best Banks and
Financial Institutions Awards 2012” by CNBC-TV18 & MCX SX
• “Safest Banker” Award by 'The Sunday Standard FINWIZ 2012 – Best Bankers’ Award
• Financial Express - Ernst Young India's Best Banks Survey 2010-11 ranks Corporation
Bank as Second-Best Public-Sector Bank
• SKOCH Financial Inclusion Award 2012 for SHG Initiatives instituted by SKOCH
Consultancy Services Pvt. Ltd.
• Ranked “Number One Nationalised Bank 2010-11” at “FE – India’s Best Banks
Awards”. The Best Banks Survey was conducted by Financial Express in association
with Ernst & Young – the Knowledge partner for the survey.
• ‘Best Mid-Size Public Sector Bank’ Award in the CNBC-TV18 Best Bank and
Financial Institution Awards presented by MCX for FY11
• First Prize under "National Award for Excellence in Lending to Micro Enterprises" for
2010-11 from Ministry of Micro, Small & Medium Enterprises, Govt. of India
• “Best Manpower Efficiency Award” by FICCI-IBA at FIBAC Banking Awards 2011
• Ranked No.1 in India’s Most Customer Friendly Bank, a first ever Survey jointly
conducted by Outlook Money and TNS
• “Best PSU Bank of the Year” by Bloomberg UTV ‘Financial Leadership Awards 2011’
• “Best Financial Inclusion Initiative”, “Best Use of Technology in Training & eLearning
Initiatives” Winner Awards & Runner Up Award - under the category “Best Online
Bank” amongst PSBs in the Banking Technology Awards-2010.
• SKOCH Financial Inclusion Award 2011 - for Financial Inclusion initiatives
• Dalal Street Investment Journal [DSIJ] Public Sector Undertakings Awards 2010 - on
the basis of study conducted by KPMG
• SKOCH Challenger Award, 2009 - Financial Inclusion Champion of the Year
• Banking Technology Awards 2009 for its efforts in implementing innovative
technologies in its business initiatives under the auspices of the Indian Banks
Association [IBA], Finacle and the Trade Fairs & Conference International [TFCI].
• Best Bank Mid-size 2009 Award – Business world
• Banking Technology Awards, 2008 - Runner Up Award - For Best On Line and Multi-
Channel Banking Team
• SCOPE Meritorious Award, 2008 - For Best Managed Bank
• IDRBT Best Bank Award of Banking Technology Award, 2008 - For Use of
Technology for Financial Inclusion
• SKOCH Challenger Award, 2008 - For Customer Relationship Management
• Best P.S. Bank - Business Today, 2007
• India's Best Bank Award - FE, 2007
• One among India’s Best Public Sector Banks - Business Today, 26th February, 2006
• One among the Best 200/100 companies in Asia/Pacific and Europe having turnover
under a billion US $ -Forbes Global, Hongkong dated 1st November, 2004
• India’s Best Public Sector Bank - Outlook Money, 15th March, 2004
• India’s Strongest and Asia’s Second Strongest - The Asian Banker, Singapore dated
15th December, 2003
• India’s Best Public Sector Bank - Business Today - KPMG Survey dated 7th December,
2003
 • One of the Best 200 companies world over outside the US having a turnover under a
billion US$ - Forbes Global, Hongkong, issue dated 27th October, 2003
• Runner-up Awards in the “Best Online and Multi-channel Banking Team” and
“Outstanding achiever of the year-corporate” categories in recognition of outstanding
achievement in Banking Technology for 2004, instituted under the aegis of Indian
Banks Association and Trade Fairs & Conferences International.
• Best Bank Award for Delivery Channels from Institute for Development and Research
in Banking Technology (IDRBT), Hyderabad (2003)
• Best Bank Award for Innovative Usage and Application on INFINET (Indian Financial
Network) from Institute for Development and Research in Banking Technology
(IDRBT), Hyderabad (2002)
• Best Bank Award for Excellence in Banking Technology from Institute for
Development and Research in Banking Technology (IDRBT), Hyderabad (2001)
• Shiromani Award 1992 for Banking from Union Minister for Commerce
• Gem & Jewellery Export Promotion Council Award successively for 5 years from 1981
to 1985
• National Award for Assistance to Exporters from the President of India (1976-77)
• For “Best Use of Mobility Technology” for encouraging the use of technological
innovations for the benefit of customers.
• The Bank bagged the 2nd Runner Up Award in Public Sector Banks (PSB) category
• Best Use of Mobility Technology in Banking” Award by Indian Banks’ Association
Banking Technology Award 2012-13
• SKOCH Achiever Award 2014’ for Outstanding Performance in SME Enablement.

New Products launched:

Bank has launched New Corp e-Passbook officially on the Founder’s Day i.e. 12.03.2018
Customers can download their account statement up to last 3 months through excel or PDF
format, besides viewing their account details, balances, Bank holidays and maintaining
personal account ledger using the App.
New Initiatives:

✓ The coveted technology upgradation project of the Bank - migration from the COBOL-
based legacy CBS to contemporary FINACLE-based New CBS was successfully
completed on 31.10.2017.

✓ As a part of technology transformation, Bank has revamped the existing Mobile

Banking application with a New Mobile Banking Application, viz., "Corp EASE". The
facility is available for Android as well as iOS platforms, in addition to the normal
features of mobile bank, Corp EASE provides the feature of blocking/unblocking of
debit card to the customers through the App.
✓ The Bank went live on "Corp m-Token" mobile app, an alternate facility for second
factor authentication in lieu of OTP This is specifically targeted for NRI customers
where delivery of OTP on international numbers was a challenge. The facility is
available for Android as well as iOS platforms.
✓ The Bank went live on "OAOS - Online Account Opening Solution", which enables
customers to submit their request to open Savings Bank Account online, by visiting the
Bank's web portal www.corpbank.com. Customer can subsequently visit the branch of
his choice within 30 days along with the mandatory KYC documents to complete the
account opening process

Corporate Social Responsibility

As a responsible Corporate citizen, the Bank initiated several welfare measures aiming at the under
privileged section of the society in fulfilment of its commitment to social priorities during the financial
year 20172018

Corporation Bank Economic Foundation [CBEDF]

The Corporation Bank Economic Development Foundation® a non-profit economic outfit

Trust has been pursuing its objectives of fulfilling social obligation in tune with corporate
mission. All CSR activities of the Bank are conducted under the aegis of CBEDF. Financial
grants to the extent of 324.34 lakh were disbursed for execution of various projects of social
concerns during. the year 2017-18 through CODE Amongst other CBEDF implemented
following major CSR project during FY 2017-18.

CSR Activities through "Corp Kiran"- Association of Spouses of Bank

Executives
For the welfare of underprivileged, through "Corp Kiran Bank granted 17.09 lakh to various
Institutions during 2017-18. The major activities included providing Bench Desk, Cupboards,
computers, water purifier etc., to poor school children and inmates of orphanages, old ag
homes, destitute homes, helping physically and mentally challenged people, Hopper Tipper for
Swachh Bharat Abhiyan.

CSR through Corporation Bank Self Employment Training Institutes [COBSETI]

The Corporation Bank Self Employment Training Institutes are operating in Chikmagalur and
Kodagu Districts catering to the training needs of the rural us employed youth hailing from
both the districts, where the Bank has the Lead Bank responsibility. Around 32000 candidates
have been trained under regular and other programmes by both the institutes since inception
Under Entrepreneurship Development Programme (EDP), 16407 candidates have been trained,
of which 12637 candidates have established their own enterprise indicating a success rate of
77%. The Bank has incurred an expenditure of 50.18 lakh during the year 2017-18, for
conducting the training programmes at both the Institutes. COBSETI, Chikmagalur has been
grade as "AA" Training Institute and COBSETI- Kudige is graded as "A" by the Ministry of
Rural Development for the year 2017.

CSR through "Grameena Abhyudaya Financial Literacy Trust "[GAFL Trust]

The Bank has sponsored Grameena Abhyudaya Financial Literacy Trust for establishing
“Financial Literacy Centers" [FLCs] at various locations. These Centers educate people about
the usefulness of the Bank account for all their economic needs and empowerment. The Centers
also provide counselling for the borrowers on the basis of financial aspects including insurance,
savings and credit related products/services in the Bank etc. As on 31.03.2018, GAFLCC Trust
has established 4 District level and 21 Block level FLC centers. The Bank has provided 58.00
Lakh for meeting the recurring cost of the Trust, during the year 2017-18. The Trust has
conducted 1669 Financial Literacy Camps at villages, schools, colleges, other institutions,
SHGs and others, covering about 66000 persons.

CSR through SHG formation

During the year, the Bank has spent 172.45 Lakhs for promoting 17245 new SHGs in 6 districts
of Karnataka Through this major CSR initiative, Bank has helped about 172450 families of the
members of SHG groups to become financially empowered. They now have access to banking
facilities including deposits and loans. They also receive training in record maintenance and
account keeping of their respective groups. Regular meetings of the groups encourage the
members to freely interact and become more vocal.

Banking Trends in 2017-18

As per RBI data, Scheduled Commercial Banks (SCB) credit growth accelerated to 10.3% in
FY18 as against a growth of 4.5% of FY17. Outstanding credit stood at R86.51 lakh crore as
on 30.03.2018. Deposits of Scheduled Commercial Banks (SCB) grew by 6.7% in FY18 as
against 11.3% in FY17, with Outstanding deposits of 114.75 lakh crore as on 30.03.2018.
Following this, the banks' credit to deposit ratio had risen to 75.4% compared to 72.9% a year
period.

As far as the interest rates are concerned, the RBI had reduced the repo rate by 25 bps in 2017-
18 on 2nd August 2017 bringing the Repo rate down to 6.0%. The RBI had decided to hold the
policy rate in the October 2017, December 2017 and February 2018 meetings of its bi-monthly
schedule.

With regard to monetary policy transmission, the banking system found itself unable to pass
on the benefits of an easing monetary policy to its customers with rising non-performing assets.
The NPA problem had an impact on monetary transmission, as banks charge higher premiums
on loans despite benefitting from a consistent regime of low-cost funding. The pace of decline
in the base rate had loosened since April 2016, as the transmission of policy rate cuts to
outstanding loans amounted to 55 bps during 2017-18 (up to February), as against 40 bps
during 2016-17. Since January 2015, the median base rate has declined by 80 bps, whereas
there been a cumulative decline of 200 bps in the policy repo rate. Deposit and lending rates
have been moving upwards since December 2017, in line with interest rates in another financial
sector
Since the beginning of August 2017, yields in the secondary government securities (G-sec)
market hardened almost monotonically, driven mostly by domestic factors up to early March
2018. G-sec yields rose by 67 bps during third quarter of 2017-18. In the fourth quarter,
notwithstanding the announcement of reduction of additional borrowings by the central
government by 30,000 crore (from the amount 50.000 crore extra borrowing announced in
December) on January 17, 2018, the upward pressure on yields resumed from mid-January as
still elevated crude prices and spill overs from Episodes of global bond sell-off accentuated
fears of oversupply of domestic paper. These fears materialised with the f slippage announced
in the Union Budget on February 1. Yield traded with a tightening bias till early March, scaling
a two-year peak of 7.81% on March 5, 2018. However, yields softened sharply by around 45
bps thereafter due to the lower inflation print for February released on March 12 and the
decision by the Government not to front-load its borrowings in the first half of 2018-19 which
resulted in a sharp fall in G-sec yields of 29 b n a single day on March 27, 2018.

The Reserve Bank's approach to managing large and persisting liquidity surpluses in the post
determination period was set out in the Monetary Policy Reports of April and October 2017
Pro-active liquidity management measures undertaken I second half of 2017-18 drew upon this
framework. During the third quarter, the Reserve Bank deployed variable rate reverse repo
auction of tenors ranging from overnight to 28 day and conducted open market sales on three
occasions to absorb 30,000 crore on a durable basis (20,000 crore in October and 10,000 crore
in November) in addition to the regular mopping up of liquidity through LAF fixed rate reverse
reno Accordingly, net average daily absorption of liquidity under the LAF declined from 1.4
lakh crore in October 2017 to 71800 crore in November, also aided by the ongoing increase in
currency in circulation and pick-up in credit growth.

In the fourth quarter, surplus liquidity declined with intermittent deficits on account of the
drying up of government spending and large tax collections. The RBI resorted to fine tuning
variable rate auctions on both sides, in addition to the regular operations. Average daily net
liquidity absorbed under Liquidity Adjustment Facility (LAF) (including Marginal Standing
Facility (MSF)) declined from 2.67 lakh crore in the second quarter to Rs 81200 crore in the
third quarter and further to 3000 crores in the fourth quarter. Consequently, the weighted
average call rate (WACR) inched closer to the repo rate. During the fourth quarter, the liquidity
situation moved from absorption mode during January - with average daily net liquidity
absorbed under LAF (including MSF) amounting to 35300 crores to injection mode during
February and March amounting to 6000 crore and 21300 crores respectively.
operational Risk

➢ Operational Risk is embedded in all business operation and the management of

operational risk is an important p of the sound integrated Risk Management Structure.
Du size, complexity of business and risk philosophy of the Ba emphasis is being given
to impart knowledge at the field l through continuous training process
➢ The Bank has implemented Operational Management Policy for managing the
operational risk in an effective manner. The Bank has also implemented framework
documents for Business Line Mapping. Loss Data Capturer Control Self-Assessment
(RCSA), Key Risk Indicator (KRI) Loss Data Modelling and Scenario Analysis. At
present Bank is calculating capital charge for operational risk under Basic Indicator
Approach. The Bank has received approval from RBI to migrate to The Standardized
Approach (TSA) for calculating operational risk capital charge on parallel run basis.
➢ The Bank has rolled out Incident Reporting module in intranet portal where any
operational risk incident can be reported by the branches/offices as and when the
incident is detected
➢ The Bank has also rolled out Risk & Control Self-Assessment (RCSA) module in
intranet portal where employees can suggest controls to improve systems and
procedures in the Bank
➢ All the issues related to operational Risk are deliberated in the Operational Risk
Management Committee meeting

Compliance
▪ The Bank has a Compliance Division headed by an Executive of the Rank of
Deputy General Manager who represents as the Chief Compliance Officer
(CCO) of the Bank, as per the directions of the Reserve Bank of India.

▪ The Compliance Division ensures that the relevant instructions and guidelines
from RBI/IBA/NABARD/SEBI/IRDA/CVC/BCSBI etc. are complied with in spirit
and substance so as to assist the top management in managing effectively the
Compliance risks faced by the bank.
 ▪ The Compliance Division also ensures dissemination of instructions to the operational
departments, assisting them in designing of suitable internal instructions and controls,
maintaining liaison with internal and external auditors, etc. Bank is covered under Risk
Based Supervision since 2015-16 under Supervisory Programme for Assessment of
Risk and Capital (SPARC). The Compliance Division monitors and test compliance by
performing sufficient and representative compliance testing.

Committees 0f the Board

1. Management Committee

The Management Committee is constituted as per the provisions of the Nationalised Banks
(Management and Miscellaneous Provisions) Scheme, 1980 as amended. The Committee
comprises of 5 directors as on 31.03.2018 under report, viz. Shri Jai Kumar Garg, MD & CEO,
Shri Gopal Murli Bhagat, Executive Director, Shri Pradyumna K. Jena (RBI Nominee
Director), Shri Devarakonda Dipti Vilas, (Non official Director, since 28.12.2017) and Ms.
Chitra Gouri Lal (Shareholder Director, since 11.03.2018). The Managing Director & Chief
Executive Officer Chairs the Committee Meeting. The Management Committee exercised the
powers of the Board in respect of credit proposals above 250 crores for single borrower and
500 crores for group of borrowers which were beyond the delegated powers of the Credit
Approval Committee

2. Credit Approval Committee

As per the directions of the Government of India, Ministry of Finance, Department of Financial
Services, New Delhi, vide their communication reference No.13/1/2006-BO.1 dared 31st
January 2012, the Board of the Bank at its meeting held on 01.03.2012, constituted the Credit
Approval Committee of the Board. The Credit Approval Committee exercises the powers of
the Board in respect of any credit proposal where the aggregate exposure shall not exceed 250
crores. The credit proposals which exceed such limits are being considered by the Management
Committee of the Board. In view of the above, the Credit Approval Committee exercises the
powers of the Board in respect of credit proposal where the aggregate exposure shall not exceed
250 crores to single borrower and 500 crores for group borrowers.
The Committee is also empowered

(i) to consider loan compromise/write-off proposals including early mortality cases

involving sacrifice up to 1.00 crore and

(ii) to approve/modify/permit modification/s in sanction terms in respect of sanctions

accorded by the Management Committee of the Board and to modify the terms of sanction
accorded by it.

The members of the committee are Shri Jai Kumar Garg (MD & CEO), Shri Gopal Murli
Bhagat (Executive Director), General Managers in charge of Credit Division, Financial
Management Division and Credit Monitoring Division. The committee meetings are chaired
by Shri Jai Kumar Garg, Managing Director Chief Executive Officer. General Manager in
charge of Agriculture and Financial Inclusion Division, General Manager, SME and Retail
Lending Division and General Manager, Recovery Division, also present their proposals to the
Committee as member whenever there is such proposal.

Further to this, as per the directions dated 3rd April, 2012 received from the Government of
India, Ministry of Finance, Department of Financial Services, Credit Approval Committees
have been constituted at Zonal office and Circle office levels with effect from 1st May 2012.
These committees exercise sanctioning powers, which are beyond the delegated lending
powers of the Branch Managers, but are within the delegated lending powers of the Executives
heading such committees Proposals which are beyond the delegated lending powers of the
General Managers at Circle Office level are being referred to the Head Office level Credit
Committee/Credit Approval

3. Information Technology Committee

To keep pace with the fast-changing business dynamics and customer needs, the Bank has been
taking up various IT initiatives under the umbrella of e-governance to enhance customer
convenience. To guide the Bank for accelerated implement of these projects and also to explore
the possibility of proving innovative technology based products and services that perfume suit
the requirements of the customers: Information Technology Committee has been constituted
The Committee comprises of 5 members viz., Shri Jai Kumar Garg (Managing Director &
Chief Executive Officer), She Gopal Murli Bhagat (Executive Director), Shri Deverakond
Diptivilasa, Non-official Director, Shri Pradeep Kumar Jain (since 11.09.2017) and Ms. Chitra
Gouri Lal (sine 11.09.2017), Shareholder Directors, are the members of the Committee. Shri
Jai Kumar Garg, Managing Director & Chief Executive Officer of the Bank chairs the
Committee Meetings

4. Risk Management Committee

The Risk Management Committee of the Board was formed provide adequate checks and
balances, transparency and disclosure, robust risk management systems, risk containment
Procedures, early warning systems and prompt corrective action to avoid default. The
Committee comprises of 6 Directors and is chaired by Shri Jai Kumar Garg, Managing Director
& Chief Executive Officer. The other members of the Committee a Shri Gopal Murli Bhagat,
Executive Director of the Bank, Shri K. Srinivasa Murthy, Chartered Accountant Category
Director Shri Deverakonda Diptivilasa, Non-official Director, Shri Pradeep Kumar Jain (since
11.09.2017) and Ms. Chitra Gouri Lal (since 11.09.2017), Shareholder Directors

5. Customer Service Committee

With a view to safeguard the rights of individual customers and to deliver better customer
service, the Bank has constituted the Customer Service Committee of the Board, in line with
the directions of the Reserve Bank of India. The committee as on date under report comprises
of 5 members. The members are Shri Jai Kumar Garg, Managing Director & Chief Executive
Officer, who chairs the committee meetings, Shri Gopal Murli Bhagat, Executive Director of
the Bank, Shri K. Srinivas Murthy (since 23.01.2018), Shri Deverakonda Diptivilasa and Shri
Pradeep Kumar Jain (since 11.09.2017), Directors.

6. Human Resources Committee

As per the directives of the Department of Financial Services, Ministry of Finance, Government
of India, New Delhi, vide their communication dated 21.03.2012, the Board of the Bank at its
meeting held on 26.03.2012, constituted the HR Committee of the Board to provide for
interaction between unions/associations and the management. Shri Jai Kumar Garg, Managing
Director & Chief Executive Officer of the Bank, Shri Gopal Murli Bhagat, Executive Director
of the Bank, Shri Manish Gupta, Government of India Nominee Director and Shri Pradyumna
K. Jena, RBI Nominee Director are the members of the committee. The committee meetings
are chaired by Shri Jai Kumar Garg, Managing Director Chief Executive Officer of the Bank

7. Other Committees

The Board also formed other Sub-committees of the Board namely,

a. Remuneration Committee (dissolved vide minute no.20 dated 22.01.2018)

b. Review Committee for Non-Cooperative Borrowers,
c. Committee to consider voting for shareholder Director,
d. Committee for Selection of Business! Management/Operational Consultant,
e. Committee to Review the Appraisal report of General Managers (APAR Committee)
and
f. Appeal Committee to review the appeal against the Regular Departmental Action for
major penalty for General Managers,
g. A Special Committee is also formed to look into the matters of compulsory Retirement
of Officers who completed the service of 30 years and above. The Frequency of these
committee Meetings is on need basis.
PARTICULARS SCHEDULE YEAR YEAR
NO. ENDED ON ENDED ON
31.03.2018 31.03.2017

INCOME
Interest earned 13 17628,33,27 19471,47,18

Other income 14 2313,08,08 3090,30,87

TOTAL 19941,41,35 22561,78,05

EXPENDITURE
Interest expended 15 12790,10,86 15020,46,17

Operating expenses 16 3200,88,85 3101,78,98

Provisions and contingencies 8004,35,95 3878,32,29

TOTAL 23995,35,66 22000,57,44

NET PROFIT/(LOSS) FOR THE -4053,94,31 5,612,061

YEAR
APPROPRIATIONS
Transfer to statutory reserves - 140,30,15

Transfer to staff welfare fund - 1,50,000

Transfer to investment reserves (1,068,161) -24,61,91

Transfer to capital reserves - 374,78,83

Transfer to special reserves - -

Transfer to general reserves - -

Dividend paid - -

Dividend - -

Tax on interim dividend paid - -

Balance carried over to B/S (39,471,270) 55,73,52

TOTAL (40,539,431) 561,20,60

EARNING PER SHARES (35.30) 5.17

BALANCE SHEET AS ON 31st MARCH 2018

PARTICULARS SCHEDULE YEAR YEAR

NO. ENDED ON ENDED ON
31.03.2018 31.03.2017

CAPITAL AND LIABILITIES

Capital 1 333,10,97 229,41,13
Reserves and surplus 2 10512,74,23 12482,53,28
Deposits 3 183315,94,99 220559,61,92
Borrowings 4 22171,08,37 6468,17,35
Other liabilities and provision 5 5558,37,00 8151,3169
TOTAL 221891,25,56 247891,05,47
ASSETS
Cash and balance with RBI 6 11140,15,36 17496,63,49
balance with bank and money at call 7 177,47,67 7553,32,14
and short notice
Investment 8 70349,75,60 64072,97,65
Advances 9 119868,8371 140356,79,37
Fixed assets 10 1229,21,10 1290,01,39
Other assets 11 19125,82,12 17121,31,43
TOTAL 221891,25,56 247891,05,47
Contingent liability 12 87356,57,84 81533,07,49
Bills for collection 13893,39,89 17304,90,39
Significant accounting policies 17
Notes on accounts 18