14 Sep 2014

Risk Management In Banking Sector

Risk management is a relatively newer practice, but has already shown to increase the efficiency of the workings and procedures of these banks. In times of fluctuations and uncertainties in the market a bank should be able to prove its stay by withstanding these situations. Hence, a reliable risk management system is required to conquer these internal and external risks. Indian banks are facing a lot of technological advancements, expansions, greater market share etc. which in return are making them more prone to risks. Higher the returns, greater are the risks involved. Therefore, the evolution of risk management systems in banks is a fast growing trend.

In recent news, our finance minister Arun Jaitely pointed his views on tightening the risk management systems in banks, while responding to the recent scandals which raised his doubts on the lending practices of the state banks. Mr Jaitely has decided to initiate an investigation on whether Syndicate bank took bribes to extend a loan towards Bhushan Steel. A major part of the Indian banks are into extending bad loans. Therefore, a powerful risk management system is the need of the hour. The risk management systems should therefore focus on the following areas:

1. organisational structure
2. comprehensive risk management approach
3. periodical review and evaluation

Adopting these methodologies by the risk management teams would probably help in reducing such internal and external risks. The primary power of such risk management should be vested into the hands of the Board of Directors ensuring that the risks are appropriately managed. The risk-bearing capacity of the banks should also be taken into consideration by the top management in order to increase the returns of these financial institutions.

Keeping into mind the fast growing technological advancements, risk management is a newer and powerful device or check on the financial institutions that is proving to be one of the major tools of managing the financial resources of our country. The risk management system in the banking sector is therefore a step towards the economic growth, betterment and welfare of the society on the whole.

This Article is written by Anindita Chatterjee (PGDM 2014-16)

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