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The potential loss an asset

or a portfolio is likely tosuffer due to a variety of

reasons.

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Survival of the organization

Efficiency in Operations

Uninterrupted OperationsIdentifying and achieving acceptable level ofrisk

Earning StabilityContinued and sustained Growth

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RISKS

FINANCIAL RISK NON FINANCIAL RISK

CREDIT RISK MARKET RISK

TRANSACTION RISK

PORTFOLIO RISK

INTEREST RATE RISK

LIQUIDITY RISK

FOREX RISK

OPERATING RISK

SYSTEMATIC RISK

POLITICAL RISK

HUMAN RISK

TECHNOLOGY RISK

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CREDIT RISKRisk that the counterparty will fail to perform or

meet the obligation on the agreed terms .

TYPES OF CREDIT RISKS

Transaction Risk

Risk relating to specific trade transactions,sectors or groups.

Portfolio Risk

Risk arising from lending to sectors non relatedto the core competencies of the Bank /concentrated credits to a particular sector /

lending to a few big borrowers.

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MARKET RISKMarket risk is the risk to a banks financial condition that

could result from adverse movements in market price.

TYPES OF MARKET RISK

Interest Rate Risk

Risk felt, when changes in the interest ratestructure put pressure on the net interest margin ofthe Bank.

Liquidity RiskRisk arising due to the potential for liabilities todrain from the Bank at a faster rate than assets.

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TYPES OF MARKET RISK(continued)

FOREX RISKThis risk can be classified into three types.

Transaction Risk is observed when movements in price of acurrency upwards or downwards, result in a loss on a particulartransaction.Translation Riskarises due to adverse exchange rate movementsand change in the level of investments and borrowings in foreigncurrency.Country Risk. The buyers are unable to meet the commitment dueto restrictions imposed on transfer of funds by the foreign govt. orregulators.When the transactions are with the foreign govt. the risk is called asSovereign Risk.

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NON-FINANCIAL RISKS

Operational Risk arises as a result of failure ofoperating system in the bank due to certain reasonslike fraudulent activities, natural disaster, humanerror, omission or sabotage etc.Systemic Risk is seen when the failure of onefinancial institution spreads as chain reaction tothreaten the financial stability of the financial systemas a whole.Political Risk arises due to introduction of Servicetax or increase in income tax, freezing the assets ofthe bank by the legal authority etc.

Human Risk Labour unrest, lack of motivation,inadequate skills, problems faced by the bank afterimplementation of VRS lead to Human Risk.Technology Risk Obsolescence, mismatches,breakdowns, adoption of latest technology by

competitors, etc, come under technology risk

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MANAGEMENT OF CREDITRISK

Measurement through Credit Rating /scoring

Quantification through estimate ofexpected loan losses

Pricing on a scientific basis

Controlling through Effective loanreview mechanism and portfolio

management