USE OF

INFORMATION
SYSTEM IN RISK
MANAGEMENT IN
BANKING INDUSTRY
By:-
Pranav Desai (10)
Akshay Goyal (16)
Abhishek Sahay (26)
Chirag Verma (37)
Sharmistha Sahoo (38)
WHY IS RISK MANAGEMENT
IMPORTANT FOR BANKS?
 MAJOR RISKS FOR A BANK

Liquidity Credit
Risk Risk

Market Operation
Risk al Risk
LIQUIDITY RISK
 Liquidity is the ability to
pay, whether it is to pay a
bill, to give a depositor
their money, or to lend
money as part of a credit
line
 Customer demands for
funds are highly
unpredictable, especially
demand deposits
 Off-balance sheet risks,
such as loan commitments,
letters of credit
CREDIT RISK
 Traditional banking
products
 Loans
 Commitments to lend
 Letters of credit
 Traded products
 OTC derivatives
 Repos (and reverse
repos)
 Securities borrowing and
lending
 Plus settlement risk
 Foreign exchange
MARKET RISK
 Greater profits can be
made by taking greater
risks
 Bank's leverage ratio is
limited by law, but it
can try to earn greater
profits by trading
securities
 Rogue traders can cause
stupendous losses for
banks, even causing
their bankruptcy
OPERATIONAL RISK
 Arises from faulty
business practices,
when property required
to run the business are
damaged
 Also arises because of
unforeseen calamities
Eg.Banks in the vicinity
of the World Trade
Center suffered
considerable losses as a
result of the terrorist
attacks on September,
11, 2001
WHAT ARE THE CHALLENGES IN
RISK MANAGEMENT IN BANKING
INDUSTRY?
 THE TOP FIVE RISK MANAGEMENT
CHALLENGES REVEALED IN THE
SURVEY (BY ERNST & YOUNG)
 Dealing with regulatory uncertainty. Multiple regulatory
proposals complicate planning as banks anticipate systemic
reform.
 Anticipating new capital requirements. Stricter regulatory
proposals are driving banks to reallocate capital, rebalance
portfolios and rethink market strategies.
 Shifting the risk culture. Banks are strengthening their risk
culture and governance processes with more senior management
involvement and reinvigorated risk procedures.
 Navigating the fluid economy. Uncertainty about the economy
poses a challenge to long-term and short-term planning.
 Repairing the balance sheets. Many banks are still dealing with
fallout from the economic crisis.
 SO WHY IS RISK MANAGEMENT
SUCH A BUZZ WORD IN BANKING
INDUSTRY?
BASEL NORMS
 Basel norms – Banking supervision accords
developed by BCBS.
 Formed in response to liquidation of
Herstatt bank.
 Developed in order to minimize the risks.
 Basel I, II and III
 BASEL NORMS
 Basel I:
1. Round of deliberations by central
bankers in 1988.
2. Minimal capital requirements for
banks.
3. Focus mainly on Credit Risk.
 BASEL NORMS
 Basel II:
1. Published in 2004 and an
improvement over Basel I.
2. Separating operational and credit risk
and quantifying both.
3. Capital allocation more risk sensitive.
4. Encourage modern management
techniques.
5. Still in implementation in some
countries.
 BASEL NORMS AND RBI
GUIDELINES
 Basel II makes it mandatory to make
system and processes compliant with
standards.
 RBI guidelines to the banks for
implementation.
 Pillar 1:

1. Calculation of capital ratio.

2. Permits the bank to choose between
two methods SA (Standardized
approach)and IRB (Internal risk
based).
 BASEL NORMS AND
RBI GUIDELINES.

 Pillar 2:
1. Discusses key principle of supervisory
review.
2. Supervisors are entitled to review and
evaluate banks.
3. Banks are expected to hold excess
capital.
 BASEL NORMS AND
RBI GUIDELINES.

 Pillar 3:
1. Aims at market discipline.
2. Complement with pillars 1 and 2.
3. Encourages discipline by developing a
set of disclosure requirements.
HOW CAN IT HELP?
RISK ASSESSMENT AND ROLE OF IT
 SOME IT SOLUTIONS FOR
COMPLIANCE & RISK MANAGEMENT

Oracle
CURAReveleus
DS
 IMPLEMENTING BASEL II : OBSERVED CHALLENGES
Multi- Data Quality
Data Gap
jurisdictional Checks & GL
Reporting
Analysis Study Reconciliation

Stress Comprehensiv
Testing e Approach

Coverage for Importance of

Focus on the
Pillar 2 and Domain
ICAAP Long Term Expertise

Actionable Transparency,
Insights into Auditability and
Enterprise Risk Scalability
 ORACLE REVELEUS BASEL II
Built-in Enterprise
Risk Customer
comprehensiv Financial
e calculations Management Insight
Performance
 ORACLE REVELEUS BASEL II

Uses an
advanced data
management Pre- Pre-
Pre-built Unifying
approach to
packaged designed
provide a fully data informati referenc
transparent computat
"ready to go" structure on e
set of advanced ional
analytical s delivery language
applications
engines
that combine templates
ORACLE REVELEUS BASEL II ENABLES FINANCIAL
INSTITUTIONS TO:

Increase the accuracy of Reduce compliance Cost-effectively modify rules

capital calculations for management to suit the
complexity and cost
estimation of PD, LGD, EAD, demands of new jurisdictions,
and allocation of credit risk
through greater readiness changed business needs, or
mitigants to exposures and easier deployment new regulatory requirements
BENEFITS TO THE FINANCIAL INSTITUTIONS BY USING
IT
achieve
Basel II
compliance
in a quick,
"de-risked"
manner

increase
their
competiti
eliminates the
need for
expensive custom
programming and
time-consuming
application
maintenance

ve
advantage

drastically
reduce
their time-
to-
production
ORACLE REVELEUS BASEL II: TIER 1 CLIENTS

Citibank Wachovia

Wells
HDFC Lloyds
Fargo ICICI
TSBBank
Bank
 CURA DS
 Subsidiary of SoftPro Systems, traded on India’s NSE &
BSE Stock Exchanges.
 Governance, enterprise wide risk management and
compliance (GRC)
 Fast implementation, easier configurability and true
enterprise architecture.
 Established in 2001, Cura is used by over 250 customers

Thiess, Anglo American plc, Westfield, Vodafone plc, Allianz, V/Line, GlaxoSmithKline,
Standard Bank
 CHALLENGES FACED IN
IMPLEMENTING RISK MANAGEMENT

Common risk language

Linking ERM to strategy

Reporting

Accountability
 CURA'S ENTERPRISE RISK
MANAGEMENT (ERM) SOLUTION

Manage risk within one flexible,

configurable solution.

Deploy Easily and

Quickly.

Obtain Clarity Through

Convergence.

Work in Virtual
Autonomy.

Invest for the future.

 THE COMPLETE CURA ERM
SOLUTION
 ERM Advisory.
 advisory services and partners
 best theory, practice, process and frameworks
 Deployment.
 therequisite skills
 experience and handholding
 Training.
 user guides and system manual
 on premise and off premise training
 Video tutorials
 Ongoing Support.
 local and global support options
 TQM: regular health checks and quality assurance.
IMPLEMENTATION
Enforce
Accountabil
Manage ity.
organizational and
individual
performance for
ERM.

Link risk
management to
decision
making.

Communicate
risk and risk
treatment
widely.

Embed and
integrate risk
management in
business processes.
A
D
V
A
N
T
A
G
E
S
CASE IN POINT :- CITIGROUP

Turnover of
More than
More than $
200 million
1 trillion
customers
across 100
countries
Business divided
into Global
Consumer, Global
Wealth
Management, and
Corporate and
Investment Banking

Huge Challenge for Implementation of Basel II

Mandate
THE CHALLENGES
THE REQUIREMENTS

Reveleus
 THE PLAN

 Installation across countries and regions in

consolidated phases

 Separate Instances for Investment & Corporate

Banking and Consumer Retail Banking
 THE IMPLEMENTATION

Pilot Complete Capturing

Impleme National
imple ntation discretio
ment of ns
Securitiz required
ation ed & Non in each
on Securitiz
ed
jurisdicti
on &
Indivi Exposure defining
s and rules
dual related meeting
Produ Basel II local
impleme reporting
cts in ntations requirem
USA in USA ents
 THE ROAD AHEAD
 As and when the local jurisdiction decide and
publish the applicable rules, Reveleus will
provide to these standardized rules to
Citigroup ‘out of the box’
 Concurrent Computation of Capital using
multiple approaches of Risk Management can
be easily done and compared on periodic
basis.
 REFERENCES
 http://www.oracle.com/us/industries/financial-
services/046833.html
 http://www.oracle.com/us/industries/financial-
services/045874.pdf
 http://www.moneycontrol.com/news/business/r
eveleus-leaderbasel-ii-application-marketindia_2
79889.html
 http://bis.org
 http://rbi.org.in
 http://thismatter.com/money/banking/bank-
risks.htm