P

roj
ectR
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rt:R
is
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eme
nti
nBa
nki
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ect
or

P
roj
ectTi
t
le

Anexp
lo
rat
orys
tud
yo n
“
Ris
kMana
gementi
nBank
in
gS ec
tor
”

S
ubmi
t
tedB
y

Mr
.XXXXXXXXXXXX

MB
AinB
ank
in
g(F
ina
nce
)

XXXXXU
niv
ers
it
y

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ect
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gra
mmer2
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mme r
.ne
t
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ectR
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rt:R
is
kMa
nag
eme
nti
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ect
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CHAP
TERI
I
NTR
ODUCTI
ON

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oj
ect
.com
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gra
mmer2
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mme r
.ne
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ectR
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rt:R
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nti
nBa
nki
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ect
or

1
.1TH
EMEOFTH
ESTUDY

Ri
skmanagementunder
sco
resthefactthatthesur
viv
alofanorgan
iz
ati
ond ep
endshea
vil
yonit
sc a
pabi
l
it
i
es
toant
ic
ipa
teandprepar
eforthechan
gerathertha
njustwai
ti
ngforth
ec han
geandreac
ttoit
.Theo b
jec
ti
ve
ofri
skma nag
eme nti
sn ottop r
ohi
bi
to rp r
eventri
sktaki
ngac t
i
vit
y,b uttoe n
sur
et h
attheris
ksa r
e
cons
ci
ousl
ytakenwi t
hful
lknowle
d g
e,p urp
osea ndcle
arunder
stan
din
gs othatitcanbeme asur
edand
mit
ig
ated
.Itals
op rev
ent
sa nins
ti
tut
ionfr
o ms u
ffer
in
gu na
ccep
tabl
elosscaus
inganin
sti
tu
ti
ontosuffe
ror
mater
i
al
lydamageitscompeti
ti
vep o
si
tio
n.F unct
io
nso fri
skmanagementshoul
dactua
ll
ybeb a
nks p
eci
fi
c
di
cta
tedbythes i
zeandqual
i
tyofb a
lan
ces heet
,comp l
ex
it
yoffuncti
ons,tec
hni
cal
/pro
fess
io
nalmanpo
wer
andth
estatu
so fMISi
npl
aceinthatbank
.

1
.2I
NTR
ODUCTI
ON

Ri
sk:themea n
in
go f‘Ri
sk’a sperWe bs
ter
’scompreh
ensi
vedi
cti
onar
yis“achan
ceo fe n
coun
teri
nghar
mo r
l
oss,hazar
d,danger
”o r“ toexposetoac hanc
eo fi
nju
ryorloss
”.Thus,somet
h i
ngthathaspoten
ti
alto
cau
seh a
rmo rl
osstoo n
eo rmo r
epla
nnedobjec
ti
vesi
sc a
ll
edRi
sk.
Thewo r
dri
skisderi
vedfro
ma nIt
al
ia
nwo rd“Ri
si
car
e”wh i
chmeans“ToDare”.I
tisane xp
res
sio
no fda
n g
er
ofanadver
sed e
viat
i
oninth eactua
lres
ul
tfromanyexpect
edres
ult
.
BanksforI
nter
nati
onalSet
tlement(BI
S)hasd e
fi
neditas-“Ri
skisthethre
atthata neventoracti
onwill
adver
sel
yaffec
ta nor
g a
niz
a t
ion’
sabil
i
tytoachi
evei
tsobj
ecti
ve
sa ndsu
cces
sful
l
yexecuteit
sstr
ategi
es
.”
Ri
skMa n
agement:Ris
kMa nagementisaplan
nedmethodofdeal
i
ngwithth
epotent
i
a l
lossordamage.I
tisan
ong
o i
ngpro
cessofri
ska p
praisa
lthr
oughvari
ou
sme t
hodsandtoo
lswhi
chcont
in
uous
ly

 As
ses
swh
atc
oul
dgowr
ong
 De
ter
min
ewh
ic
hri
sk
sar
eimp
ort
antt
ode
alwi
t
h
 I
mpl
eme
nts
tr
ate
gi
est
ode
alwi
t
hth
oser
i
sks

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ect
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gra
mmer2
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gra
mme r
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ectR
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rt:R
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nti
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ect
or

1
.3S
TUDYP
ROB
LEM

B
ase
lI
In
ormsca
measa
natt
empttor
educ
ethega
pinp
oin
to fv
ie
wsb e
twe
encon
fl
ictp
ract
ic
es.The
ref
ore
,
t
hei
mpl
emen
tat
i
ono
fth
oser
eso
lut
i
onsemer
gedb
ytheb
anks.Reg
ard
in
gthi
si
ss
uethesur
veyhasbe
enmade.

St
udyp
rob
le
mc a
nbest
ate
da sf
oll
ows
:
Towha
texte
ntban
ksh
aveimpl
ement
edB
ase
lI
In
ormsr
el
at
edt
oen
han
ci
ngi
nt
ern
alc
ont
rol
int
heb
ank
s?

1
.4OB
JECTI
VES

Cov
eri
ngdi
ffer
entaspe
ctsofri
skas
sess
me n
t
I
den
ti
fyi
ngkeysforef
fect
iv
eri
skma n
agement
Tound
erst
andthechal
l
enge
sandimpac
tofImpl
emen
ti
ngB
ase
lI
I
Toana
lyz
ethecurre
ntpro
gres
so fB
asel
IIi
nHub
li
.

1
.5ME
THODOL
OGY

Li
t
e r
atur
eRevi
ew
Dat
ac ol
l
ecti
on
Pr
i
ma r
yinfo
rmatio
n:P e
rso
nali
nt
erv
ie
w/Ques
ti
onna
ir
e
Second
aryin
formati
on:Thr
oughi
nte
rne
t,Ma
nual
s
,J o
urn
al
s,Au
di
t/
Ann
ual
rep
ort
s
TheBenef
it
sa n
dli
mita
ti
o nofBasel
I
I
TheChal
le
ngesofImpl
eme n
ti
ngBasel
II
I
mpactofBaselI
I
Re
searchmethod
Fi
ndi
ngsandsugg
esti
ons
Concl
usi
on

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oj
ect
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mmer2
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mme r
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ectR
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rt:R
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eme
nti
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nki
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ect
or

CHAPTE
RII
L
ITR
ETUR
ER E
VIE
W

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oj
ect
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mmer2
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mme r
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ectR
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eme
nti
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2
.1I
NTR
ODUCTI
ON

Basel
IAccor
d:TheBas
elCommit
teeonB anki
ngSu
per
vis
io
n,whichcameint
oe x
is
ten
cein1
974,vol
un
tee
red
todevel
opaframe
workforso
undba n
ki
n gpra
cti
ce
sint
ern
ati
onal
l
y.In1988theful
ls
etofre
commenda
ti
ons
wasd o
cument
edandgiv
entot h
eCe ntralb
anksofthecoun
tr
iesforimpl
ement
ati
ontosu
itth
ei
rnati
ona
l
syst
ems.Thi
sisca
ll
edth
eB a
selCapi
talAccor
dorBase
lIAccor
d.Itpr
ovid
edleve
lpl
ayi
ngf
ie
ldbyst
ip
ul
ati
ng
theamoun
tofcapi
ta
lth
atneed
stob ema i
nta
in
edbyin
ter
nati
on
al
lyacti
vebanks
.

Ba
selIIAccor
d:Bank
in
gh ascha
ngeddramati
ca
ll
ysin
cet h
eB a
selIdoc
umentof1988.Adva
nce
sinri
sk
manag
e men
tandthei
ncr
easi
ngcompl
exi
t
yo ffi
nanci
ala
cti
vi
ti
es/in
str
ument
s(l
ik
eo p
ti
ons,h
ybr
ids
ecu
ri
ti
es
et
c.)prompt
edin
ter
nat
io
nalsu
per
vis
orstorevi
ewtheappro
pri
at
enes
sofregul
at
orycapi
t
als
tan
dar
dsun
der
Ba
selI
.Tome ett
hi
srequ
ir
ement
,theBaselI
accor
dwasa men
dedandr
efi
ned
,wh i
chcameou
tasth
eBase
lI
I
ac
cord
.

Thenewp r
opo
sali
sbasedonthre
emu tua
ll
yre
inf
orc
in
gpi
ll
ar
sthatal
lo
wb ank
sa n
dsupe
rvi
sor
stoeval
ua
te
pro
perl
ytheva
ri
ousr
is
ksthatbankshav
et ofa
cea n
dreal
i
gnre
gul
ator
yc a
pi
talmor
ecl
osel
ywit
hunde
rl
yi
ng
ri
sk
s.Eachofth
eseth
reepi
ll
ar
shasri
skmit
ig
ati
onasi
tsce
ntr
alb
o a
rd.Thenewri
skse
nsi
t
iveap
proa
chsee
ks
tostr
eng
thent
hesaf
etyandsoun
dnes
so fth
ein
dust
rybyfo
cusi
ngon:

●R
is
kba
sedca
pit
al(
Pi
ll
ar1
)
●R
is
kba
sedsu
per
vis
io
n( P
il
l
ar2
)
●R
is
kdi
sc
lo
sur
etoenfo
rcemark
etd
is
ci
pl
i
ne(
Pi
l
la
r3)

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ect
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eme
nti
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ect
or

2
.2B
ASE
LII
FRAME
WOR
K

Thenewpr
opo
sali
sba
sedont
hre
emutu
al
lyr
ei
nf
orc
in
gpil
l
ar
stha
tal
lo
wbank
sandsu
per
vi
sor
stoev
al
uate
p
rope
rl
yth
evar
iou
sri
sk
stha
tban
ksfa
ceandr
eal
i
gnr
egul
at
oryc
api
ta
lmor
ecl
ose
lywi
t
hunde
rl
yi
ngr
i
sks.

B
asel
I
I
F
ramewo
rk

Pi
l
l
arI Pi
l
l
arI
I Pi
ll
arI
I
I
Mi
ni
mumCap
it
al S
upe
rvi
so
ry Marke
t
Re
qui
re
men
ts R
evi
ewProc
ess Di
sc
ipl
i
ne

2
.2.
1TH
EFI
RSTP
ILL
AR–MI
NI
MUMCAP
ITALR
EQUI
REME
NTS

Thefi
rs
tp i
l
l
arsetsoutmini
mumcapi
ta
lrequ
ir
ementf
ortheba
nk.Thenewframe
workmain
tai
nsmin
imu
m
cap
it
alr
equi
re
me n
tof8%o fri
ska
sset
s.
Bas
elI
Ifocu
sesonimpro
vementi
nmeasur
ementofri
sk
s.Ther
evi
sedcr
edi
tri
skmeas
ure
mentmethod
sare
moreel
abor
ateth
anthecu r
re
ntac
cor
d.Itpr
opos
esforth
efi
rs
tti
me,ame a
suref
oroper
ati
on
alri
sk
,whil
e
th
ema r
ketri
skmeas
ureremai
nsu
ncha
nged.

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oj
ect
.com
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gra
mmer2
pro
gra
mme r
.ne
t
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ectR
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rt:R
is
kMa
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eme
nti
nBa
nki
ngS
ect
or

2
.2.
2TH
ESE
CON
DPI
LL
AR-S
UPE
RVI
SOR
YRE
VIE
WPR
OCE
SS

S
uper
vi
sor
yrevi
ewpro
cesshasbeenin
tr
o d
ucedtoen
surenotonl
ytha
tbankhav
ea d
equa
tecapi
t
altosup
port
a
ll
theri
sk
s,butal
s
otoen co
ura
get he
mt odevel
opandusebett
erri
skmana
gementte
chni
qu
esinmoni
tor
in
g
a
ndmanagi
ngt
hei
rri
sk
s.Thep r
ocesshasfou
rkeypr
in
cipl
es
-
a
)Bankssh
oul
dhav
eap r
ocessforass
essi
ngthe
irov
eral
lca
pit
alad
equac
yinre
lat
i
ontothei
rr
is
kp r
ofi
l
eanda
s
tr
ateg
yformoni
to
ri
ngth
e i
rcap
it
all
evel
s.

b
)Su
per
vi
sor
sshou
ldr
evi
ewandev
al
uat
ebank
’si
nte
rna
lca
pi
tal
adeq
uacyas
sess
men
tan
dst
rat
egi
es
,aswe
ll
a
sth
ei
rabi
l
i
tytomoni
t
orande
nsu
reth
ei
rco
mpli
an
cewit
hreg
ul
at
orycap
it
alr
ati
os
.

c
)Supe
rvi
so
rssho
ul
dexpe
ctban
kstoope
rat
eabov
ethemi
ni
mumr
egu
la
tor
yca
pi
ta
lra
ti
osa
nds
hou
ldh
avet
he
a
bi
li
t
ytorequ
ir
ebank
stohol
dcap
it
ali
nex
cesso
fthemi
ni
mum.

d
)Supe
rvi
so
rssh
oul
dseektoi
nt
erv
eneata
near
lys
tag
etopr
even
tcap
it
alf
romde
cre
asi
ngb
el
owmi
ni
mum
l
ev
ela
ndshou
ldr
equ
ir
era
pidr
emed
ia
lact
i
oni
fca
pi
tal
isn
otme
nti
on
edorr
est
ore
d.

2
.2.
3TH
ETH
IRDP
ILL
AR–MAR
KETDI
SCI
PLI
NE

Mark
etdisc
ipl
i
nei
mposesstr
onginc
e n
tiv
estobankstocond
uctthe
irbu
si
nes
sinas af
e,sou
ndandeffe
cti
ve
manner
.Iti
spropo
sedtobeeffect
edt h
roug
has e
ri
esofdi
scl
osur
erequ
ir
ement
so nca
pi
tal
,ri
ske
xposu
reetc
.
sothatmarke
tpart
ic
ipa
ntscanassessabank’
scapi
tala
dequa
cy.Thesedi
scl
osu
ressh
oul
dbema d
eatlea
st
semi
-annu
al
lyandmorefre
quentl
yifappr
opri
at
e.Qu a
li
t
ati
vedi
scl
osur
essuc
ha sri
skmana
gementobj
ect
i
ves
andpol
ic
ie
s,defi
ni
ti
onset
c.ma ybepu b
li
sh
edannu
a l
l
y.

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2
.3TYP
ESOFR
ISK
S

Wh enweu s
et heterm“ Ri
sk” ,wea l
l meanfin
an c
ial
ri
sko runex
pectedfi
nanci
all
oss.Ifwec ons
iderri
skin
te
rmso fpr
ob a
bil
i
tyoro c
c u
rf r
equentl
y,weme asur
eris
ko nascale
,withcert
aint
yo foccurr
enceato n
ee nd
andcert
ain
tyo fnon-occur
renceatt heotherend.R i
skisthegreat
estphenomenawh eretheproba
b i
l
i
tyo f
occur
ren
ceo rnon-o
ccurr
enceise qua
l.Asp ertheR es
erveBankofIndi
aguid
el
ine
sissuedinOct.1999,th e
re
ar
et hr
eema j
ortypesofris
kse ncount
eredb ythebanksandtheseareCredi
tRis
k,Ma r
ketR i
sk&Op erat
iona
l
Ri
sk.Furt
herafterel
i
cit
ingviewso fbanksont h
ed raf
tgu i
del
i
nesonCredi
tR i
skManageme n
ta n
dma rketri
sk
management
,t heRBIhasis
sue dthefi
na l
gui
del
in
e sandadvi
sedsomeo fthela
rgePSUb ankstoimpl
eme ntso
astog a
uget h
eimpact.R i
skisthep otent
i
ali
tythatboththeexpect
eda n
du nexp
ectede vent
sma yhavea n
adver
seimpactont h
eb ank’sc a
pi
taloritsearn
ings.Thee xp
ectedlos
sistob eborneb ytheborr
owera nd
hencei
stakenc ar
eo fbya dequat
e l
ypric
ingthep r
oduct
st hr
oughri
skpremi
uma ndreservescr
eatedo utof
th
ee arn
in
gs.Iti
st h
ea mo u
nte xpect
edt obelostduetoc hang
esincredi
tqual
it
yresul
ti
ngind e
faul
t.Wh ere
as,theunex
p ec
tedlossona ccoun
to ftheindi
vi
du a
lexposu
reandthewh ol
ep or
tf
oli
oise nt
i
rel
yb o
rnebyt he
bankit
sel
fandhenceca r
eshou l
dbetake n
.Th us
,t heexpect
edloss
esarecovere
db yreserv
es/pr
ovi
si
o n
sa nd
th
eu nex
pectedl
o s
sesrequi
reca p
it
alal
l
o cat
ion.

2
.3.
1CR
EDI
TRI
SK

I
nthecontextofBas
elI
I,t h
eris
kthattheobl
ig
o r(
borr
o werorcoun
terpar
ty)i
nres
pecto fapar
ti
cul
aras
set
wi
ll
defau
lti
nf u
ll
ori
nparto nth
eo b
li
gat
i
ont othebankinrel
ati
ontotheasse
tister
meda sCre
di
tRis
k.
Cr
edi
tR i
skisdefi
ne
da s
-“ Theri
skoflo
ssa r
is
in
gf romo utr
i
ghtdefa
ultduetoin
abi
l
it
yo runwi
ll
i
ngn
essofthe
cu
stomerorcount
erpar
tyt omeetcommitment
sinrel
ati
o ntol
endi
ng,tra
din
g,hedgi
ng
,s ett
l
ementandoth
er
fi
na
ncia
ltr
ansact
io
nofthec ust
omerorcounte
rpa r
tytome etcommi
tme n
ts”.
Cr
edi
tR i
ski
sa l
sodefi
ne
d ,“ a
sthepoten
tial
thatab or
rowerorcounterpa
rtywi
llf
ai
ltome et
sit
sobl
iga
ti
ons
i
naccor
danceinagr
eedterms”.

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gra
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ectR
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eme
nti
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ngS
ect
or

2
.3.
2MAR
KETR
ISK

I
tisdefi
nedas“thepossi
bil
i
tyo flo
ssc a
usedbychangesi
nthema r
ketvari
abl
essuc
ha si
nter
estra
te,for
ei
gn
excha
ngerate,equi
typ r
i
cea ndc ommodi
typ r
ic
e”.Itisth
eris
ko fl
ossesi
n,v ar
i
ousb a
la
ncesheetpos
it
i
ons
ar
isi
ngfro
mmo ve
me n
tsinma r
ke tpri
ces
.
RBIhasdefi
nedmarke
tr i
skasth epossi
bi
l
it
yo fl
osstoab an
kcausedbyc h
angesi
nt hemark
etrat
es/pr
ice
s.
RBIGui
danceNotefocusonthema nagementofli
qui
di
tyRi
skandMa r
ketRi
sk,fur
thercat
egor
iz
edint
oint
ere
st
ra
teris
k,forei
gnexchang
erisk,c o
mmo di
typri
ceri
skandequi
typri
ceri
sk.
Marke
tr i
skincl
ude
st heris
ko ft hed egr
eeo fvol
ati
li
tyofma rk
etp r
ice
so fb o
n d
s,s e
curi
ti
es
,e qu
it
ie
s,
commo d
it
ies
,f or
ei
gne xcha
nger ateetc.,whic
hwillcha
ngedai
lyprofi
tandlos
so verti
me;it
’stheri
skof
unexp
ectedchange
sinp r
ice
so rr a
tes.I
ta l
soaddr
essesth
eissu
eso fBanksabi
l
it
yt omeetsi
tsobl
ig
ati
onas
andwh e
nd ue
,inotherwords,li
qui
dit
yris
k.

2
.3.
3OP
ERATI
ONALR
ISK

Ope
rat
ionalr
is
kistheri
skass
oci
atedwiththeoper
ati
onsofanorgan
iza
ti
on.Itisdefi
ne
da s“ r
i
skofloss
r
esul
t
in
gf ro
minadeq
uateorf
ai
le
dint
ernalp
roces
s,peopl
eands
yst
emso rfr
ome xt
e r
nal
event
s.”
I
ti
ncl
udesle
galr
is
k.I
texcl
ude
sstr
ategi
candreput
ati
ona
lri
sk
s,asth
es a
mea renotquan
ti
fi
abl
e.
Ope
rat
ionalr
is
kincl
ud
estheri
skoflossari
si
ngfromfraud
,syst
emf ai
lu
res
,t r
adin
ge r
rorandmanyo t
her
i
nt
erna
lorgani
za
ti
onalr
i
sksaswell
asris
kd uetoexter
nale
ven
tssuchasf i
r
e,floodetc
.t h
elosse
sd u
eto
op
erat
i
onr i
skcanbedi
rec
taswell
asindi
rec
t.Dir
ectl
ossmean
sthefin
anci
all
ossesre
sul
ti
ngdi
rect
l
yf r
oma n
i
nci
de
nto ranevent
.E.g.for
ger
y,fraudetc.i
ndi
rec
tlos
smeansthel
o s
sincu
rr
e dduetotheimpac
tofa n
i
nci
de
nt.

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ect
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gra
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gra
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ectR
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eme
nti
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ngS
ect
or

2
.3.
4RE
GUL
ATOR
YRI
SK

Theo wnedfundsal
onearemanagedbya nent
it
y,iti
sn a
tur
alt
hatveryfewregu
la
tor
so per
ateandsuper
vis
e
th
e m.H owever
,a sbanksaccep
td ep
ositfr
omp ubl
icobvi
ou
sl
yb ett
ergover
nan
ceisex p
ectedfro
mt hem.
Thi
se ntai
l
smu l
tip
li
ci
tyofregul
ator
yc ontr
ol
s.Man yBanks
,h avi
ngalr
eadygoneforp u
bl
iciss
ue,h avea
gr
ea t
erresp
on s
ibi
l
i
tyanda c
count
abil
i
tyinthi
sregar
d.Asb ank
sd eal
withpub
li
cfund
sa ndmo ne
y,t h
eya r
e
subj
ecttovari
ousregul
at
ion
s.Thev ar
io
usr e
gul
ato
rsincl
ud
eR es
erveBankofI
ndi
a(RBI
),Securi
ti
esExchang
e
Boardo fInd
ia( SE
BI)
,De par
tmento fCo mpan
yAf f
ai
rs(DCA),e t
c.Mo r
eo ver
,b ankss h
oul
de nsur
e
compli
anceoftheappl
ic
abl
ep r
ovi
si
onsofTh eBanki
ngRegul
ati
onAct,TheCompani
esAc t
,e t
c.Thusa l
lth
e
banksrunth
er i
skofmu l
t
ipl
ereg
ul
atory
-ri
skswhic
hinhi
bi
tsfr
eeg r
owthofbusi
nes
sasfocusonc ompl
ia
nceof
tooma n
yr e
gula
tio
nslea
veli
tt
leener
gysco p
eandti
mef ordev
elop
in
gn ewbusi
ne
ss.Banksshoul
dl
earntheart
ofp l
ayi
ngth
eirbusi
ne
ssacti
vi
ti
eswithi
ntheregu
la
torycont
rol
s.

2
.3.
5EN
VIR
ONME
NTALR
ISK

Asthey ea
rsrol
lthetech
nol
ogi
caladv
ancementtakespl
ace,expe
ctat
i
ono fthecust
omerschan
geand
en
la
rges.Wi t
ht h
ee con
omicl
ibe
ral
iz
ati
ona ndg l
ob
al
iza
ti
on,mo r
en a
ti
onalandin
ter
nati
on
alpl
ayer
sa r
e
op
erat
i
n gthefi
nanc
ia
lmark
ets
,p a
rti
cul
ar
lyintheban
kin
gfiel
d.Thi
spr
ovi
desthepl
atf
ormforen
vir
onmen
tal
ch
angea n
de xpo
sur
eo fth
eb a
nkt othee n
vi
ronment
alri
sk
.Th u
s,unl
es
st h
eb an
ksimpr
ovethei
rdel
i
ver
y
ch
annel
s,reachcust
omers
,inn
ovatetheirpro
duct
st ha
ta r
es e
rvi
ceori
en
ted;theyareexpo
sedtothe
en
vi
ronmental
ri
sk.

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ect
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gra
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gra
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eme
nti
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nki
ngS
ect
or

2
.4B
ASE
L’SN
EW CAP
ITALACCOR
D
Banker
s’f orI
nternat
ionalSettl
eme n
t( BI
S)me eta tB aselsi
tuateda tSwitze
rl
andt oa ddres
st hec ommo n
i
ssuesc oncer
ni
n gbanke r
sa l
lo verthewo r
ld
.Th eB aselCo mmitte
eo nB anki
ngS uper
vis
io
n( BCB S)isa
committeeo fb an
kings uper
visor
ya uthori
ti
eso fG- 10c ountri
esa ndh asbeend ev el
opi
ngs ta
ndardsa nd
esta
bli
shmento faf ramewo r
kf orbanks uper
vis
iont owardss tr
engthen
ingfi
nanci
al st
a b
il
i
tythrougho utthe
wo r
l
d.Inc onsult
ati
onwi tht hes up
ervi
sorya ut
hori
tieso faf ewn on-G-1
0c ou
ntri
esi n
clu
dingIndi
a,c o
re
pr
inci
pl
esf ore ffe
cti
veb anki
ngs uper
vis
ionint hef ormo fmi ni
mumr equi
rementst os tr
engthenc urr
ent
super
vi
so r
yregime,we remo oted.The1 9
8 8CapitalAccor
de ssent
i
all
yprovi
dedo n
lyo neopti
onforme a su
ri
ng
theappropr
iat
ec api
tali
nre l
at
iontother i
skwe i
ghte
da s
setso fthefin
anci
alin
sti
tut
ion.Itfocus
e dont hetotal
amounto fbankc api
talsoa storeducet heri
sko fb anksol
v encyatt h
ep ote
ntia
lc ostofbank’sfa i
l
urefor
thedeposi
tors.Asa ni mprovemento nthea bove,t heNe wCa pi
t
alAccordwa sp ubl
is
hedin2 001b yB asel
Committeeo fB anki
ngS upervi
si
on.Itp rovi
dess pectrumo fa p
proach
esf ortheme asur
eme ntofc r
edi
t,
ma r
keta ndope r
ati
onalris
kst od eter
minet hec a
p i
talrequi
red.Th es pr
eada ndn atur
eo ft heo wne r
shi
p
st
ructu
reisimp or
tantasitimpingesont h
ep ropens
itytoin d
u ctaddi
ti
onalcapi
tal
.Wh i
l
eg ett
i
ngs upportfro
m
alarg
eb odyofs harehol
dersisad if
ficu
ltp r
oposi
ti
o nwh ent heb ank’
sp er
formancei sadverse,as mal
l
er
shar
ehol
d e
rb a
sec onstr
ainsthea b
il
i
tyo fthebankt og ar
nerfu nds
.TierIcapi
tali
sn otowe dtoa nyo
n ea n
dis
avai
l
abl
et oc overpossi
bleunexpectedlos
ses.Ith a
sn oma t
u r
ityorrepaymentrequi
reme n
t,an disexp ec
ted
toremainap ermanentc omponentoft hec or
ec api
taloft h
ec oun
terparty
.Wh i
l
eB aselstan
d ar
dsc urr
entl
y
r
eq u
ir
eb ankstoh a
veac api
taladequ
acyra t
ioof8 %wi thTierInotles
sthan4%,R BIhasma nd
a t
edth eb a
nks
toma i
ntai
nCARo f9 %.Th ema i
nte
nanceo fcap i
taladequacyr at
ioisl
ikeai
minga tamo vi
ngt a
rgeta sthe
composi
tionofr i
sk
-we i
ghteda sse
tsg et
sc hange
de v er
yn owa ndthenona cc
o u
nto ff l
uc
tuati
onsint heri
sk
pr
o f
il
eo fab ank.TierIcapi
talisknowna st h
ec orec api
t
a lprovi
di
ngp er
ma n
entan dreadi
lyavail
abl
es uppor
t
totheb ankt ome ett heunexpectedlosses.Inther ecentp ast,own er
so fP SUb anks,theg overnment
pr
o v
idedadequatecapital
towe akerbankstoe asetheb ur
d e
n .Indoi
ngso,t h
eg overnmentwa snotac ti
ngas
ap r
udentinve
storasr etur
no nsuchc api
talwasneve raco nsi
derati
on.Furt
her,capit
a li
nf
usi
ond i
dn otr e
sul
t
i
na nyc ashfl
owt ot her ecei
ver,asa l
lthec api
talwa srequ i
redtob erei
nveste
di ng over
nme ntsecuri
ti
es
yi
eld
in
gl owr e
turns.R ecei
ptofc api
talwa sjus
tab ooke ntrywiththeo nl
ya dvant
ag eofincomef romt he
secur
i
ti
e s.
2
.5CAP
ITALADE
QUACY

S
ubse
quentton at
io
nal
iz
ati
onofbanks,capi
ta
li
zat
i
o ni
nb a
nkswa snotgi
vend u
eimportan
cea sitwasfel
t
n
eces
saryfortherea
sontha
ttheo wner
shi
poftheb a
nksre
stedwithth
eg o
vernment
,c r
eati
ngthereq
ui
red
c
onfi
de
n c
eint h
emi n
do fth
ep u
b l
i
c.Combine
df o
rcesofglo
bal
iza
ti
ona n
dli
beral
i
zat
ioncompel
l
edt h
ep ub
li
c
s
ect
orb a
nks,hi
ther
toshi
el
dedfr
o mthevagar
ie
so fmarke
tforces
,c o
meb ythec o
ndi
tio
no fter
msma r
ket
r
eal
i
ti
es,wherecer
tai
nmini
mumca p
ita
ladeq
uacyhastobemaint
ain
edinthefa
ceo fst
iffnor
msinresp
ectof
i
nc
omer eco
gnit
i
o n
,a s
setcl
assi
f
icati
onandprovi
si
oni
ng.I
tisc l
eartha
tmu l
tipro
ngeda pp
roachwoul
db e
r
equ
ir
edtome etthechal
l
enge
so fmaint
ai
ni
ngcapi
talatade
quatel
evel
sinthefaceofmo unt
in
gr i
sk
sinthe
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ect
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gra
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gra
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roj
ectR
epo
rt:R
is
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eme
nti
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nki
ngS
ect
or

b
ank
in
gse
ctor
.Inban
ks,a
sse
tcr
eat
i
oni
sane
ven
tha
ppe
ni
ngs
ubs
equ
entt
oth
eca
pi
ta
lfo
rma
ti
ona
nd
d
epo
si
tmo
bil
i
zat
i
on.

2
.6R
ISKAGGR
EGATI
ON&CAP
ITALAL
LOCATI
ON
Capi
talAdequacyinrel
ati
ontoe c
onomicri
skisan e ces
sarycondi
ti
onforthelong-t
e r
ms oundnes
so fbanks.
Aggr
egateris
ke xposur
eisesti
ma t
edthrou
g hR i
skAd ju
stedRe t
ur
no nCap i
tal(
RAR OC)a n
dE arni
ngsatR i
sk
(
EaR)me thod
.F or
me ri
su s
edb ybankwit
hinternati
onalpre
senceandtheR AROCp rocessest
imatesthec o
st
ofEconomicCa pi
tal&e xpe
ctedloss
esthatma yp rev
aili
nthewo rs
t-cases cen
arioandt h
ene quat
est he
capi
t
alc ush
iont ob ep r
ovi
dedf orthep otent
i
a lloss
.R AROCi st hef i
rststept owardsexamini
ngt he
i
nsti
t
uti
o n’
se n
tir
eb al
ancesheetonama rkt oma rketbasi
s,ifonl
yt ound er
stan
dt heris
kre t
urntra
deo ff
th
athav ebeenma de.Asbankscarr
yo nth
eb usi
ne ssonawi deare
an e
two rkbasi
s,iti
sc r
it
ical
thattheyare
abl
etoc onti
nuous
l
ymo ni
t
orthee x
posure
sa cros
st hee nti
r
eo rg
ani
zati
ona ndaggregat
et heri
skssoth atan
i
nteg
ratedv i
ewc anb etaken.TheE con
omicCa p i
tali
st heamo u
nto fthec api
tal(bes
id
est heR e
gulat
ory
Capi
tal
)thatthefi
rmh astoputatri
sksoa stoc overthepotent
ial
lo
ssu n
de rth
ee xtr
emema rketcondi
ti
ons.
I
no t
herwo r
ds,itisthedif
feren
ceinma r
k-to-marketvalueofasset
so verli
abi
l
it
ie
st hatthebanks h
oul
da i
m
atortarget
.Asa gai
nstthi
s,theregu
lat
oryc ap
italisth
ea ctual
Capi
talFun d
sh e
ldb ythebanka gai
nstthe
Ri
skWe i
ght
edAs sets
.Af t
erme as
uri
ngthee conomicc api
tal
forthebanka sawh o l
e,b a
nk’sactualcapi
tal
hastob eall
ocate
dt oindi
vi
dualbus
ine
ssun i
tsont h ebasi
so fvar
iou
st ypeso fri
sks.Th i
sprocesscanb e
cont
i
nuedt i
l
lcapi
tali
sal
loca
tedattran
sacti
on/cus
to merle
v el
.
2
.7R
ISKB
ASE
DSUP
ERVI
SI
ON(
RBS
)

TheReser
veB an
ko fInd
iapresent
l
yh asitssup
ervi
sor
yme chani
smb ywa yofo n
-si
teinspect
ionando f
f-s
it
e
moni
tor
i
ngo nt heb asi
so fthea udi
tedb al
ancesheeto fab ank.Ino r
d e
rt oe nhancethes up
ervi
sor
y
mecha
nis
m,t heR BIhasd ec
idedtop utinp l
ace,as yste
mo fRis
kB asedS upe
rvi
sion.Underris
kb as
ed
su
pervi
si
on,super
vi
sorsa r
ee xpec
tedtoc oncent
rat
et hei
reffor
tsone nsu
ri
ngt ha
tf i
nanci
alin
sti
tut
i
onsuse
th
ep ro
cessn ec
essari
l
yt oidenti
fyme asureandc ontr
olri
ske xpo
sure.Th eR BSi se x
pectedtof oc
us
su
pervi
so
rya t
tent
io
ni naccor
d an
cewitht heri
skpro
fil
eoft h
eb ank
.Th eRB Ih
asa l
readystr
uctur
edt h
eri
sk
pr
ofi
l
etemp l
ate
stoe nabl
et h
eb anktoma k
eas el
f-as
sessmentofthei
rris
kp r
ofil
e.Itisdesi
gnedtoensur
e
con
ti
nuousmo n
it
ori
nga ndevalua
ti
ono fri
skp r
ofi
l
eo ftheinst
itu
ti
ont h
roughri
skma tri
x.Thisma yopti
mi
ze
th
eu t
i
li
zat
ionofthesupervi
soryres
ourcesoftheRBIsoa stomini
mizethei
mp actofac r
i
sessi
tuati
oni
nthe
fi
nan
ci
alsyste
m.Th et ran
sacti
onb a
seda udi
ta n
ds up
e r
vi
sio
nisg et
ti
ngs hi
ft
edt oriskfocusedaudi
t.Ri
sk
bas
eds upe
rvi
si
ona pproac
hi sa nattemptt oo v
ercomet hed e
fi
ci
e n
cie
si nthet radi
ti
onalpoi
nt-
in-
ti
me,
tr
ans
acti
on-val
ida
ti
o nandv a
luebaseds uper
vi
sor
ys ys
tem.Itisforwardlooki
ngenabli
ngthes up
ervi
sor
sto
di
ff
eren
ti
ateb e
tweenb ankstofocusattenti
ononthoseh av
inghi
gh-ri
skprof
il
e.Th eimple
me n
tati
onofri
sk
bas
edaudi
ti
ngwo ul
dimplythatgre
ateremp ha
si
sispl
acedo nthein
ter
nalaudi
tor
’srol
ef ormit
igat
in
gris
ks.By
fo
cusi
ngo neffect
i
v eris
kma na
gement,t heint
erna
la u
d i
to
rwo ul
dn oton l
yo f
ferr emedi
almeasure
sf o
r
cu
rre
nttroubl
e-
pron
ea reas
,b utal
soanti
cipat
eprobl
emstop l
ayana c
tiv
erolei
np ro
tecti
ngtheb an
kfromri
sk
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gra
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gra
mme r
.ne
t
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roj
ectR
epo
rt:R
is
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eme
nti
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nki
ngS
ect
or

h
aza
rds
.

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rea
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ect
.com
P
age1
4 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.8RI
SKMANAGEMENT:
K
EYSFOREF
F E
CTIVERI
SKMAN
AGE
MEN
T:

 Tod
ir
ectr
i
skb
eha
vi
ou
r&i
nf
lu
enc
eth
esh
apeo
faf
i
rm’
sri
skp
rof
i
le,ma
nag
eme
nts
hou
ldu
sea
ll
av
ai
la
bleo
ptio
ns.Usi
ngf
i
nan
ci
al
in
cen
ti
ve
san
dpe
nal
t
ie
stoi
nf
lu
enc
eri
skt
aki
ngb
eha
vi
ou
rise
ffe
cti
ve
mana
gementtoo
l.

 S
har
i
ngo
fin
for
mat
i
onb
yke
epi
ngc
onf
i
den
ti
al
i
tyi
nt
acti
sal
s
ohe
lp
ful
tof
i
ndo
utd
if
fer
entwa
ysf
or
c
ont
rol
l
i
ngtheri
ska
svalu
abl
einp
utsmayber
ecei
ve
dthr
oughth
issha
ri
ng
.E v
eninfo
rma
ti
ono
n
c
red
it
wort
hi
ne
ssofc
oun
ter
par
ti
esth
atar
ekn
owntota
kes
ubst
ant
i
alri
skc
anal
sohel
p.

 Di
ve
rsi
f
ica
ti
oni
sex
tre
mel
yimp
ort
ant
.Asi
tlo
wer
sth
eva
ri
an
cei
nin
ves
torp
ort
fol
i
os,i
mpr
ove
s
c
orp
ora
tea
bi
li
t
ytor
ai
sed
ebt
,re
duc
ese
mpl
oy
men
tri
sk
s,&h
ei
gh
ten
sop
era
ti
nge
ffi
ci
en
cy.

 Go
ver
nan
ces
hou
ldn
eve
rbei
gn
ore
d.Ca
ref
uls
tr
uct
ur
in
goft
hea
ll
i
anc
eina
dva
nceo
fth
ede
ala
nd
c
ont
i
nua
lad
jus
tme
ntt
her
eaf
terh
el
ptob
ui
ldac
ons
tr
uct
i
ver
el
at
i
ons
hi
p.

 On
esh
oul
dno
ttr
ustwh
il
ei
nbu
si
ne
ss.P
ers
ona
lch
emi
st
ryi
sgo
odb
uti
snos
ubs
ti
tu
tef
ormo
ni
to
ri
ng
me
cha
ni
sm,c
o-o
per
ati
oni
nc
ent
i
ves
,&o
rga
ni
za
ti
on
ala
li
gn
men
t.

 Wi
t
hou
tsu
ppo
rts
yst
emwi
t
hint
heo
rga
ni
za
ti
oni
t
sel
f
,ex
ter
nal
al
li
an
cesa
red
oome
dtof
ai
l.

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rea
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epr
oj
ect
.com
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age1
5 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.8.
1MAR
KETR
ISKMAN
AGE
MEN
T:

Wema yb el
i
evethatt
hereareli
mite
dtool
sa va
il
ab
letomit
i
gatethi
sri
sk,butthi
si
snotso.Fut
ure
,o pt
io
n,
der
i
vati
vest r
adi
nganditsma nysubtypesaresomeo fth
et ool
swhichhel
ptoinves
tor
stop r
otec
tthe
i
nves
tmento rmini
miz
et her
ee xposur
etowa r
dma r
k e
tri
sk.Incaseo fderi
vat
i
vesasinb r
oadersen
se
der
i
vati
vesa r
econs
ide
redtob eusedtohedgeagai
ns
tma r
ketri
sk
,buttheycanbeusedtomi
ti
gatevar
io
us
oth
ertypesofri
sk
s,li
kecre
ditri
sk,oper
ati
on
alri
sk
.
Theimpor
tanceofmanagi
ngma rke
tri
skhasnowb eenwel
lund
ers
toodbyfina
nci
ali
ns
ti
tut
io
nsandcorp
ora
te
acr
ossthewo r
l
d.Mark
etris
kh asmadethegl
obalf
ina
nci
alc
ondi
ti
onsunc
erta
inanduns
ett
l
edandsti
l
lre
cover
y
ofpr
o b
le
mi snotvi
si
bl
einth
en earti
me.

2
.8.
2CR
EDI
TRI
SKMAN
AGE
MEN
T

Too
lsofCre
di
tR i
skMana
gemen
t:Thein
str
ume
ntsandtoo
ls
,thr
oughwhi
chcre
di
tri
ski
smanag
edare:
Ex
posu
reCei
l
in
gs,Revi
ew/
Rene
wal,R
is
kR a
ti
ngMode
l,Ri
skbas
edsci
ent
i
fi
cpri
ci
ng
,Por
tfo
li
oMa
nageme
nt,
Lo
anRevi
ewMecha
ni
sm

2
.8.
3OP
ERATI
ONALR
ISKMAN
AGE
MEN
T:

Thi
sri
skcanbered
ucedt
og r
eate
xten
tbyef
fec
ti
vel
yco
ntr
ol
l
in
gorga
ni
za
ti
onasawho
leb
ytaki
ngc
ert
ai
n
st
eps,l
ik
ea s
sur
in
gt h
atdes
ig
nedpro
cess
esi
scar
ri
edou
tcare
ful
l
y&withth
ehel
pofexpe
rts
,an
da r
e
fo
ll
owedi
ndesi
r
edwa y
.

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rea
dymad
epr
oj
ect
.com
P
age1
6 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.9COMP
UTATI
ONOFCAP
ITALR
EQUI
REME
NT

2
.9.
1CR
EDI
TRI
SKAP
PROACH
ES
Cr
edi
tRi
sk

S
tan
dar
di
ze
dap
pro
ach Ad
van
cedAp
pro
ach

Foundat
ionI
RB Advan
cedIRB
St
andar
di
zeda pproac
h:t heB as
elc ommit
teea swella sR B
Ip r
ovi
desas impl
eme t
hodol
ogyf o
rris
k
as
ses
smentandca l
cul
at
in
gc api
ta
lrequi
r
e men
tsforcr
edi
tr i
skcal
le
dS t
andar
di
zeda p
proach
.Th i
sappro
achi
s
di
vi
de
dintot
hef o
ll
owingbr
oadtopi
c sfo
rs i
mpl
erandeas
ierund
e r
st
andi
ng
1
.Assi
gnmen
to fRiskWeigh
ts:al
ltheexposu
resar
efir
stclas
si
fie
dint
ov a
ri
ouscusto
me rty
pesdefi
nedby
Ba
selc
ommit
teeo rRBI
.Thereaf
ter,assi
gnmento
fs t
andardri
skwei
ghtsi
sdone
,e it
heronthebas
isof
cu
sto
mertypeoro nbasi
softheassetqual
i
tyasdete
rmi
ne dbyrat
in
go ft
heasset,forcal
cul
at
i
ngris
k
wei
ght
edass
ets.

2.Ex
ter
nalCre
di
tAs s
essment
s:th
eregu
la
tororRBIr
eco
gni
ze
scert
ai
nri
skra
ti
ngage
nci
esande
xte
rna
lcr
edi
t
as
ses
smentin
sti
tut
i
ons(ECAI
s)an
drat
in
ga s
si
gnedbythe
seECAI
s,toth
eborr
ower
smaybetak
enasabasi
s
fo
rassi
gn
ingri
skwe i
ght
st othebor
ro
we r
s.B e
tte
rrati
ngmea
nsb e
tte
rqual
i
tyofasse
tsandl
ess
erri
sk
wei
gh
tsandhencel
esse
rrequi
r
emento
fcapi
tal
a l
l
oca
ti
on.

3
.Cred
itRi
skMi
ti
gat
i
on:Bas
elr
eco
gni
ze
dCol
la
ter
al
sandBas
elr
eco
gni
ze
dGuar
ante
esaretwosec
uri
t
iest
hat
b
ank
sobta
info
rlo
ans/ad
vance
stoco
verc
red
itr
i
sk,whi
char
eter
medas“
Cred
itRi
skMit
i
gant
s”

Advan
cedAp pr
o a
ch:B ase
lIIfr
ameworkals
op r
ovi
desforadva
nceda pp
roac
hest ocal
cul
at
ec api
ta
l
r
equi
re
men tf
orcred
itr
isk
.Theseapp
roac
hesre
lyheavi
l
yonabanksi
nte
rnal
asse
ssmen
to fi
tsbor
ro
wersand
exp
osur
es.Theseadvan
cedappr
oach
edarebas
e donth
eint
ern
alr
ati
ng
so ft
hebankandarepop
ul
arl
yknown
asI
nter
nalRat
in
gB ased(I
RB)app
roa
ches.Und
e rAdva
ncedAppr
oach
es,thebankswil
lhav
e2o pti
onsas
un
der
a
)F o
undat
ionI
nter
nal
Rati
ngBas
ed(FI
RB)Appr
oach
es.
b
)Ad v
ancedIn
ter
nalRa
ti
ngBase
d(AI
RB)Approa
ches
.

Th
edi
f
fer
enc
esb
etwe
enf
oun
dat
i
onI
RBa
nda
dva
nce
dIR
Bha
veb
eenc
apt
ur
edi
nth
efo
ll
owi
ngt
abl
e:Ta
bl
e
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rea
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oj
ect
.com
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age1
7 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.9.
1.1
:Th
edi
f
fer
enc
esb
etwe
enf
oun
dat
i
onI
RBa
nda
dva
nce
dIR
B

Da
taI
np
ut F
oun
dat
i
onI
RB Ad
van
cedI
RB
P
rob
abi
l
i
tyo
fDe
fau
lt P
rovi
de
db yb
ankb
ase
dono
wn P
rovi
de
db yb
ankb
ase
dono
wn
e
sti
mate
s e
sti
mate
s
L
ossGi
ve
nDe
fau
lt Su
perv
is
oryv
al
ue
sse
tbyt
heP
rovi
de
db yb
ankb
ase
dono
wn
Commi
tte
e e
sti
mate
s
E
xpo
sur
eatDe
fau
lt Su
perv
is
oryv
al
ue
sse
tbyt
heP
rovi
de
db yb
ankb
ase
dono
wn
Commi
tte
e e
sti
mate
s
E
ffe
cti
veMa
tur
i
ty Su
perv
is
oryv
al
ue
sse
tbyt
heP
rovi
de
db ybankba
sedono wn
Commi
tte
e e
sti
mate
s Or At the na
ti
onal
d
is
cre
ti
on,pr
ovi
de
dbyban
kb as
ed
o
nowne s
ti
mat
es

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ect
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age1
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pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.9.
2MAR
KETR
ISKAP
PROACH
ES

Ma
rke
tRi
sk

St
anda
rdi
ze
d I
nt
ern
alMod
el
App
roa
ch B
asedapp
roac
h

Mat
uri
t
y Du
rat
i
on
Ba
sed Ba
sed

RB
Iha sis
sueddet
ai
l
edg u
ide
li
nesforcomput
ati
onofcapi
t
alcha
rgeonMar
ketR i
skinJun
e2 004.The
g
ui
del
inesseekt
oaddr
essth
eissue
sinvo
lv
edincompu
ti
ngca
pit
alc
har
gefo
rin
ter
estrat
erel
at
edin
str
ume
nts
i
nthetrad
ingbo
ok,equ
it
ie
sinthetr
adi
ngbookandfor
ei
gnex
chan
geri
sk(
i
ncl
udi
nggol
dandpre
ci
ousmet
al
s)
i
nbothtra
di
ngandban
ki
ngbook.Trad
in
gb o
okwil
li
nc
lu
de:
 S
ecu
ri
ti
esi
nc
lu
dedu
nde
rth
eHe
ldf
ort
rad
in
gca
teg
ory
 S
ecu
ri
ti
esi
nc
lu
dedu
nde
rth
eAv
ai
la
bl
efo
rSa
lec
ate
gor
y
 Op
eng
ol
dpo
si
ti
onl
i
mit
s
 Op
enf
ore
ig
nex
cha
ngep
osi
t
ionl
i
mit
s
 Tr
adi
ngp
osi
t
ioni
nde
ri
va
ti
ve
san
dde
ri
va
ti
ve
sen
ter
edi
nt
ofo
rhe
dgi
ngt
rad
in
gbo
oke
xpo
sur
es.

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rea
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epr
oj
ect
.com
P
age1
9 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.9.
3OP
ERATI
ONALR
ISKAP
PROACH
ES

Op
era
ti
ona
l
Ri
sk

Ba
si
cInd
ica
tor S
tan
dar
di
ze
d Ad
va n
ced
App
roa
ch Appr
oac
h Measu
remen
t
Appr
oac
h

B
asi
cInd
ic
atorAppr
oac
h:Unde
rtheba
si
cind
ic
atora
p p
roac
h,Banksa
rerequ
ir
edtohol
dcap
it
alf
o rope
rat
io
nal
r
i
skequalt
ot h
ea v
era
geoverthepr
evi
ou
sthreeyear
sofaf i
xedper
cent
age(1
5%-d eno
teda sal
pha
)o f
a
nnua
lgros
sinco
me.Gros
sincomei
sdefi
ne
da sneti
nter
esti
nc
omep l
usnetnon
-i
nte
res
tinc
ome ,excl
ud
in
g
r
eal
i
zedpr
ofi
t/l
os
sesfr
omthesal
eofse
cur
it
i
esinth
eb an
ki
ngbookan
dex t
rao
rdi
nar
yandi
rr
egul
arit
ems.

St
andar
di
zedApp
roac
h:Underthes
tand
ardi
zedappr
oach
,banksact
i
vit
i
esaredi
vi
dedi
nt
oeig
htbus
in
essl
in
es.
Wit
hi
neachbus
in
essl
in
e,grossi
nco
meisconsi
der
edasab r
oadin
di
cato
rforth
eli
kel
ysc
al
eofoper
ati
on
alr
is
k.
Capi
t
alcha
rgeforeachbus
ines
sli
neiscal
cul
ate
db ymu l
t
ip
lyi
nggr
ossinc
omeb yafact
or(d
enot
edb et
a)
as
si
gnedtotha
tb us
in
essl
ine.Tota
lcapi
talcha
rgeiscal
cul
at
edast h
et h
ree-
yea
raver
ageofthesi
mple
su
mma t
i
onsofth
eregul
at
orycapi
ta
lacr
osseachofth
eb u
si
nessl
i
neineac
hy e
ar.

Adv
ance
dMeasur
ementApp
roac
h:U n
derad
vanc
edmeasu
rementa
ppr
oach
,th
eregu
la
tor
ycapi
t
alwil
lbe
eq
ualt
otheri
skmeasur
esge
ner
atedbyth
eb a
nk’
sin
ter
nalr
is
kmeasu
reme
nts
yst
emusi
ngth
ep r
esc
ri
bed
qu
ant
it
ati
vea
ndqual
i
ta
tiv
ecr
it
eri
a.

2
.10B
ENE
FITSOFB
ASE
LII
1
.Bett
eral
l
ocat
io
no fc
api
talandred
ucedimpa
ctofmo r
alh
azardthr
oughredu
cti
onint
hesco
pefor
r
egu
la
tor
yarb
it
rag
e:Byas
sess
in
gtheamountofc
api
t
alr
equi
r
edforeac
hexposu
reorpoo
lofe
xpo
sur
es,t
he
a
dvan
cedap
pro
achdo
esawaywit
hthesi
mpl
i
s t
i
cri
skb
uck
etsofc
urre
ntcapi
t
alru
le
s.

2
.Impr
ovedsi
gn
alqu
al
ityofca
pit
ala
sa ni
ndi
cat
orofsol
ve
ncy
:thepr
opo
sedru
lei
sdes
ig
nedtomore
a
ccu
rat
el
yal
ig
nreg
ul
at
oryca
pi
ta
lwit
hri
sk
,whi
chwil
li
mpr
ovet
hequ
al
it
yofc
api
ta
lasa
nin
di
ca
torofs
ol
ven
cy.

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ect
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age2
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gra
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pro
gra
mme r
.ne
t
 P
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ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

3
.E nc
oura
gesbanki
ngor
gani
zati
onst
oimp
rovecre
ditri
skmanag
ement
:Oneofth
epri
nci
pa
lob
jec
ti
ve
sof
t
heprop
osedru
lei
stomo r
ec l
osel
yal
i
gnca
pita
lcha
rgesandri
sk
.F o
ranyt
ypeofcr
edi
t
,ris
kin
cre
ase
sas
e
it
hert
heprob
abi
li
t
yo fd
efau
ltorth
elo
ssgi
vendef
aul
tin
crea
ses
.

4.Moreeff
ic
ien
tu s
eo freq
ui
re
db ankcapi
t
al:I
ncr
eas
edri
sksens
it
i
vit
yan
dimp
rov
eme
ntsi
nri
sk
mea
sur
eme
ntwil
lal
l
owpru
den
ti
al
obj
ect
i
vestob
eachi
ev
edmoree
ffi
ci
en
tl
y.

5.In
cor
porat
esandenc
oura
gesadv
ancesinri
skmea
sur
ementandri
skman
age
men
t:Thepr
opo
sedr
ul
e
se
ekstoimpr
oveuponexi
st
i
ngcapi
t
alregu
la
ti
onsbyi
nco
rpo
rat
in
ga d
vanc
esi
nri
skmea
sur
eme
ntandr
i
sk
mana
gementmad
eo v
ert
hepast1
5year
s.

6
.R e
cogn
ize
snewd eve
lop
mentsandacc
ommo d
ate
sconti
nui
ngi
nno
vati
oni
nfi
nan
ci
alpr
odu
ctsbyfo
cus
ing
o
nris
k:Thep r
opose
drul
ea l
s
oh asth
eb e
nefi
toffaci
l
i
tat
i
ngr e
cog
ni
ti
onofnewdeve
lo
pmentsi
nfi
nan
ci
al
p
rod
uctsb
yfocusi
ngonth
efundamen
tal
sbeh
in
dri
skrat
hert
hanonst
ati
cpro
duc
tcat
ego
ri
es.

7.Bet
teral
i
gnmentofcapi
ta
lando p
erat
io
nalri
skandencou
rag
esb an
ki
ngor
gan
iz
ati
onst
omiti
gat
e
o
per
ati
onalr
i
sk:In
tro
duc
in
ga nexpl
i
ci
tc a
pi
talcal
cu
la
ti
onforoper
ati
on
alri
ske
li
mi
na
testhei
mpl
i
ci
tand
i
mpr
eci
se“bu
ffe
r”tha
tcove
rsop
era
ti
onal
ri
skund
ercur
ren
tca
pit
alr
ul
es.

8
.E n
hance
ds u
per
vis
oryfee
dbac
k:al
lt
hr
eepil
l
ar
soft
hep
rop
ose
drul
eai
mtoenha
ncesup
ervi
so
ryf
eedba
ck
f
romfed
eral
banki
ngagen
ci
estoman
ager
sofbank
san
dth
ri
ft
s.En
han
cedfe
edb
ackcou
ldfur
th
erst
ren
gth
en
t
hesaf
etyandsou
ndne
ssoftheb
ank
in
gsyst
em.

9
.Enha
nceddi
sc
lo
sur
epro
motesmar
ketdi
sc
ipl
i
ne:Thepr
opos
edr
ul
ese
ekstoai
dmark
etdi
sc
ip
li
neth
rou
gh
t
her
egu
la
tor
yfr
amewor
kbyre
qui
ri
ngs
peci
f
icdi
scl
osu
resr
el
at
in
gtor
i
skmeas
ure
menta
ndri
skman
agement
.

1
0.P r
eser
vestheben
efi
tsofi
nte
rnat
io
nalco
nsi
st
encyandcoor
di
nat
io
na ch
ie
vedwit
hthe1988Bas
el
Acc
ord:Animp
ort
antob
jec
ti
veoft
he1988Acco
rdwascompe
ti
ti
veco
nsi
ste
ncyofca
pi
tal
req
ui
re
ment
sfor
ba
nki
ngorg
ani
za
ti
onsco
mpeti
ngi
ngl
oba
lmark
ets
.Bas
elI
Ico
nti
nu
estopu
rsu
ethi
sobj
ect
i
ve.

2
.11
LIMI
TATI
ONSOFB
ASE
LII
:

1
.Lac
kofsu
ffi
ci
en
tpub
li
cknowl
edge
:knowl
ed
geabo
utbank
s’p
ort
fol
i
osandt
hei
rfu
tur
eri
sk
-we
ig
ht,s
in
ce
t
hi
swi
ll
al
sod
epe
ndonwhet
herba
nkswil
l
uset
hest
and
ard
iz
edorI
RBapp
roa
ches
.

2
.Lacko
fpr
eci
sekn
owle
dge
:a st
ohowope
rat
i
ona
lri
skc
ost
swi
llb
ech
arg
ed.Th
ebank
saree
xpe
ctedt
o
b
ene
fi
tfr
omshar
pen
in
gu psomeasp
ect
softhei
rri
skman
age
mentpr
act
ic
espr
epa
rat
i
onandforth
e
www.
rea
dymad
epr
oj
ect
.com
P
age2
1 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

i
nt
rod
uct
i
ono
fth
eop
era
ti
on
alr
i
skc
har
ge.

3
.L ac
ko fcons
is
tenc
y:atl
eastatthi
sst
age,astohowinsu
ranc
ea c
ti
vit
i
eswil
lbeacc
ount
edfor.One
t
rea
tmentout
l
in
edinth
eCapi
t
alAccor
dist
hatbank
sdedu
ctequi
t
ya n
dotherr
egul
at
oryc
api
tal
in
vest
ment
sin
i
ns
ura
nces u
bsi
di
ar
iesandsi
gn
if
ica
ntminor
i
tyinves
tment
sininsu
ran
cee nt
it
i
es. Ana l
te
rnat
i
vet oth
is
t
rea
tmenti
stoappl
yari
skwei
gh
tagetoin
sur
ancei
nves
tment
s.

www.
rea
dymad
epr
oj
ect
.com
P
age2
2 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.12CH
ALL
ENGE
SFORI
NDI
ANB
ANK
INGS
YSTE
MUN
DERB
ASE
LII
 Cos
tl
yDa
tab
aseCr
eat
i
ona
ndMa
in
ten
anc
ePr
oce
ss:
 Th
emo
sto
bvi
ou
simp
acto
fBAS
ELI
Ii
sth
ene
ed
f
ori
mpr
ove
dri
skmanag
ementa
ndme
asu
reme
nt.I
tai
mst
ogi
vei
mpe
tust
oth
eus
eofi
nt
ern
alr
ati
ng
s
yst
embyt
hei
nte
rna
ti
ona
lba
nks
.

 Ad
dit
i
ona
lCa
pit
alR
equ
ir
eme
nt:H
erei
sawo
rr
yi
nga
spe
ctt
hats
omeo
fth
eba
nkswi
l
lno
tbea
bl
etop
ut
u
pthead
di
ti
ona
lca
pi
ta
ltoc
omp
lywi
t
hth
ene
wre
gul
at
i
ona
ndt
heyma
ybei
so
la
tedf
romt
heg
lo
bal
b
ank
in
gsy
ste
m.

 L
arg
ePr
opo
rti
ono
fNP
A's
:Al
ar
gen
umb
ero
fIn
di
anb
ank
sha
ves
ig
ni
fi
ca
ntp
rop
ort
i
ono
fNP
A'si
nth
ei
r
a
sset
s.Al
ongwit
hthatal
ar
gepro
por
ti
onofl
oan
sofb a
nksar
eofpoo
rqua
li
t
y.Ther
eisadan
gert
hata
l
ar
genumbe
rofbank
swil
ln
otbeabl
etor
est
ru
ctu
reandsur
vi
vei
nth
enewenvi
ro
nment
.Thi
smayle
adto
f
orc
edmerger
sofmanyde
func
tbank
swit
htheexi
st
i
ngo n
esan
dalos
sofcapi
t
alt
otheba
nki
ngsys
tem
a
sawh ol
e.

 I
nc
rea
sedP
ro-
Cyc
li
cal
i
ty:Th
ein
cre
ase
dimp
ort
anc
etoc
red
itr
ati
ng
sun
derB
ase
lII
cou
lda
ctu
al
lyi
mpl
y
t
hatt
hemi
ni
mumr
equ
ir
eme
ntscou
ldb
eco
mep
ro-
cyc
li
ca
lasb
ank
sar
ere
qui
r
edt
ora
is
eca
pi
ta
ll
ev
el
sfo
r
l
oa
nsi
nti
meso
fec
ono
micc
ri
ses
.

 L
owDe
gre
eofCo
rpo
rat
eRa
ti
ngP
ene
tra
ti
on:I
nd
iah
asa
sfe
wast
hr
eee
sta
bl
is
hedr
ati
nga
gen
ci
esa
nd
t
hele
vel
ofrati
ngpen
etr
ati
onisnotver
ysi
gni
f
ica
ntas,s
ofar
,rat
in
gsar
erest
ri
ct
edtois
suesandnot
i
ss
uer
s.Whil
eBase
lII
giv
essomes co
petoext
endth
erat
in
gofis
sue
stois
sue
rs,t
hi
swo ul
donl
ybean
a
ppro
xi
mati
onanditwoul
db enecess
aryf
orthesys
temtomovetora
ti
ngsofis
sue
rs.Enco
urag
in
g
r
ati
ng
sofi
ssue
rswoul
dbeac h
a l
l
eng
e. 
 Cr
ossB
ord
erI
ss
uesf
orF
ore
ignB
ank
s:I
nI
nd
ia
,fo
rei
gnb
ank
sar
est
atu
tor
i
lyr
equ
ir
edt
oma
in
tai
nlo
cal
ca
pi
ta
landthef
ol
lo
wingi
ssu
esarer
equi
r
edtob
eres
ol
ve
d;
1
. Val
i
dat
i
o noft
heint
ern
almodel
sapp
rove
dbyth
ei
rhe
adof
fi
ce
san
dho
mec
oun
tr
ysu
per
vi
so
rad
opt
ed
byt
heIndi
anb
ranc
hesoffor
ei
gnba
nks.
2
.Datehi
st
orymai
ntai
nedandus
edbyth
ebanksh
oul
dbedis
ti
nctfo
rth
eIn
di
anbr
anch
escomp
are
dtot
he
g
lo
bal
datause
db ythehea
doffi
ce
3
.capi
ta
lfo
ro p
erat
i
o n
alri
sks
hou
ldbemai
nt
ai
neds
epar
ate
lyfort
heI
ndi
anb
ran
che
sinI
ndi
a
2
.14I
MPACTOFB
ASE
LII
IMP
LEME
NTATI
ONONTH
EIN
DIANB
ANK
INGI
NDUS
TRY
1
.Change
sinCa p
it
alRi
skWe igh
tedAssetsRat
io(CRAR)
:Mo stofthebank
sa r
ealr
eadyadher
i
ngtothe
B
asel
II
gui
deli
ne
s.However
,theGo ve
rnmentha
sindi
cat
edthatac u
shi
onshou
ldbema i
nt
ai
nedbythepu
bl
ic
s
ect
orbanksandth
eref
orethe
irCRARs h
oul
dbea bo
ve12%.B a
selIfo
cuse
dlarg
el
yo ncre
di
tris
k,wher
eas
B
asel
II
has3ris
kstobeconsi
de
red,vi
z.,cre
di
tri
sk,oper
ati
on
alri
skandmar
ketri
sks
.AsB ase
lI
Icon
si
de
rsal
l
t
hes
e3r i
sk
s,ther
earechan
cesofad e
cli
nei
ntheCapi
tal
Adequa
c yRat
io
.
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rea
dymad
epr
oj
ect
.com
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age2
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gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.H i
ghcost
sforup-
gra
dati
onoftechn
ol
ogy:Ful
li
mple
mentat
io
noftheBasel
IIf
ramewo r
kwoul
dreq
ui
reup-
g
rad
ati
onofthebank
-wid
einfo
rmati
onsys
temsthro
ughbett
erbr
anch
-conn
ecti
vi
ty,wh i
chwoul
dent
ail
huge
c
ost
sa ndma yra
is
eIT-sec
uri
tyis
sues
.Th eimpl
ementa
ti
ono fBas
elIIcana l
s
or ai
seissu
esrel
at
in
gt o
d
evel
opmentofHRs ki
l
l
sa n
dd at
abasemanagement
.S mal
landmedi
ums i
zedb anksma yhavetoin
cur
e
nor
mo uscos
tstoacqu
ir
erequi
re
dtechno
lo
gy,a swel
lastotrai
nsta
ffintermso ftheri
skmana
gement
a
cti
vi
ti
es.The
rewil
l
bean ee
dfortec
hnol
ogi
cal
upgrada
ti
onandacc
esstoin
formati
onli
kehi
st
ori
ca
ldat
aetc.

3.Rati
ngr i
sk
s:P robl
emse mbe
ddedinBasel
II
n or
msi
n c
lu
derati
ngofr
is
ksb yra
ti
ngagen
cie
s.Wh et
herth
e
coun
tryhasa dequa
ten umberofrat
ingagen
ciestodi
schar
gethefun
cti
onsinaB a
selI
Icompl
i
antbank
in
g
sy
stem,isaq uest
ionforcons
id
erat
i
on.Furt
her,towhatext
entther
ati
ngagen
ci
escanberel
i
eduponi
sals
o
amatterofdebate.
Ent
rynormsfo rrecog
nit
ionofrat
i
nga ge
nci
ess h
oul
dbes t
ri
ct
er.Onl
yfi
rmswithin
ter
nat
ion
alexpe
ri
en
ceo r
ba
c k
groundi
nr ati
ngsbusi
nessshou
ldbea l
l
owedt oent
er.Thi
sisnece
ssari
l
yg i
venthattheI
ndi
anrat
in
g
i
ndus
tryisi
nitsg r
owthphase,es
peci
al
lywit
htheimpl
ement
ati
onofnewB a
selI
Ic
api
tal
nor
mst ha
tenco
urag
e
compani
estoge tr
ated.

4.Impr
ove
dRi
skManag
eme
nt&Capi
t
a l
Adequ
acy:Onea
spec
tthath
oldba
ckt
hec
ri
ti
csofBa
sel
IIi
sthe
fa
ctthati
twi
l
lti
gh
tent
her
is
kman
agementp
roce
ss,i
mpr
ovecap
it
ala
dequ
acya
nds
tr
engt
hent
hebanki
ng
sy
stem.

5
.Curta
il
mentofCre
ditt
oInf
ras
tru
ctu
rePro
jec
ts:Th
en or
msr
equ
ir
eah i
gh
e rwei
gh
tag
ef orpr
oj
ect
f
i
nan
ce,cur
tai
l
i
ngcr
edi
ttot
hi
si
sverycr
uci
al
sec
tor
.Thel
ong
-te
rmi
mpa
ctsf
ort
hiscou
ldb
edi
sa
str
ous
.

6
.P r
efer
encef
orMor
tga
geCre
d i
ttoCons
umerCr
edi
tLo
werRi
skWei
ght
stoMor
tga
gecre
dit
:P r
efe
ren
ce
f
orMort
gageCr
edi
ttoCons
umerCred
itL
owerRi
skWei
ght
stoMor
tga
gecr
edi
twoul
dac
cent
uatebank
ers
’
p
ref
ere
ncetowa
rdsi
tvi
s-
à-v
isc
onsumerc
red
it
.

7
.B a
selI
I
:Ad vanta
geB i
gBanks
:Itwoul
dbefareas
ierfo
rt h
elarge
rbankstoi
mpl
ementth
enorms
,rai
si
ng
t
hei
rqual
i
tyo fri
skma n
agementandcapi
t
aladeq
uacy.Thisc o
mb i
ne
dwi t
ht h
ehig
hercosto
fc a
pi
talfor
s
mal
le
rplayer
swo ul
dqueerth
ep i
tc
hinfavou
roft h
ef or
me r
.Th ela
rgerban
kswoul
da l
s
oh a
vead i
sti
nc
t
a
dvan
tageinr
a i
si
ngcapi
t
ali
nequi
tymark
ets
.Eme r
gi
ngMarketBankscantur
nthi
sch
al
le
ngei
ntoanad
vanta
ge
b
yacti
veimpl
ementat
io
na n
dexpand
in
gthei
rhor
i
zonsouts
id
et hecoun
try.

8
.ITs pe
n di
ng
:Ad vant
agetoI
ndi
anITcompa
n i
es
:Ont hefl
ip
si
de,I
ndi
anITcomp
ani
es,wh
ic
hh av
e
c
onsi
de
rab
leexper
ti
sei
ntheBF
SIs
egmen
t,s
tandtogai
n.Maj
orI
nd
ia
nITco
mpani
essu
chasI
-f
l
exan
dInf
osy
s
a
lr
ead
yh a
v etheprod
ucts
,whi
chcoul
dhe
lpthe
md e
vel
opanedgeove
rthei
rri
va
lsf
romthed
evel
ope
d

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epr
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ect
.com
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gra
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pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
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eme
nti
nBa
nki
ngS
ect
or

c
oun
tr
ie
s.

CH
AP TE
RII
I
P
ROJECTTASK

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epr
oj
ect
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age2
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gra
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gra
mme r
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ectR
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eme
nti
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nki
ngS
ect
or

3
.1I
NTR
ODUCTI
ON

Therea
sonforco
nduc
ti
ngthi
ssur
veywastoest
abl
i
shhowthes
enewregul
at
i
onswereper
cei
vedi
nter
mso f
pr
ior
i
ty,ur
gencyan
dint
ere
stwit
hi
ntheban
ks.I
naddi
ti
on,ai
mistopr
ovi
deavie
wo nstr
ate
gi
ciss
uesandto
re
portonke
yt r
end
srel
ate
dtoma n
ya s
pec
tsofcompl
i
ancewit
hi
ntheBas
elI
Ire
gul
at
oryfr
amework
.F i
nal
l
y,
toma k
erecommenda
ti
onsontheoppor
tu
nit
i
eso f
fer
edbythen e
wr e
gul
ati
onsf
ortheris
kma na
gement
pr
ocess
.

3
.2S
TUDYP
ROB
LEM

B
ase
lI
Inor
mscamea
sanatt
emp
ttore
duc
ethegapi
npoi
nto
fvie
wsbe
twee
nconf
l
ictp
rac
ti
ces
.The
refo
re,
t
hedi
ff
ere
nceo
fban
kimp
le
ment
ati
ono
ftho
sere
sol
ut
i
onsemer
ges
.St
udyp
robl
emca
nbestat
edasf
ol
lo
ws:

Towh
ate
xte
ntb
ank
sha
vei
mpl
eme
nte
dBa
sel
I
Ino
rmsr
el
at
edt
oen
han
ci
ngi
nt
ern
alc
ont
rol
int
heb
ank
s?

3
.3OB
JECTI
VES

Cov
eri
ngdi
ffer
entaspe
ctsofri
skas
sess
me n
t
I
den
ti
fyi
ngkeysforef
fect
iv
eri
skma n
agement
Tound
erst
andthechal
l
enge
sandimpac
tofImpl
emen
ti
ngB
ase
lI
I
Toana
lyz
ethecurre
ntpro
gres
so fB
asel
IIi
nHub
li
.

3
.3.
1DATACOL
LECTI
ON

P
ri
mar
yin
for
mati
on
:P e
rso
nal
int
erv
iew/Que
sti
on
nai
r
e
S
econ
dar
yin
for
mati
on
:Throu
ghint
erne
t,Man
ual
s,J
our
nal
s
,Au
di
t/
Ann
ual
rep
ort
s

3
.4S
TUDYCOVE
RAGEAN
DSAMP
LE

S
tud
yc o
vera
gecon
si
stsofal
lban
ke mp
lo
yee
swith
ini
nt
ern
alco
ntr
ol
,ri
skman
age
men
t,op
era
ti
ons
d
epa
rtmen
t,andcre
d i
tdep
art
ment.10que
sti
on
nai
re
swe r
ed i
st
ri
bu
tedov
er10ba
nksi
nH ub
li
,
s
el
ect
edonran
domsampl
i
ngtec
hni
que
.

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ect
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age2
6 www.
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ectR
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ect
or

Thesu
rve
ya s
ses
sest
here
adi
ne
ssofth
eb a
nki
ngi
nd
ust
ryfo
rimpl
eme
nti
ngt
heB
ase
lII
reg
ul
at
oryfr
ame
work
an
dprovi
de
sav i
ewofth
estr
ate
gi
cis
sue
sa n
dkeytr
end
srel
at
edtoth
emanya
spe
ctsofco
mpli
an
cewi
th
in
th
isf
rame
work.

3
.5S
COP
EOFTH
ESU
RVE
Y

Th
eBa
nki
ngI
nd
ust
ryh
asb
eena
sse
sse
dth
ere
adi
ne
ssi
nse
vena
rea
s:

Aware
nessofre
gul
ati
on
s
Or
gani
zat
iona
lst
ruc
tur
e
Rep
ort
in
ga bi
l
i
ty
Compl
i
ancewit
hBasel
II
Capi
t
alal
l
ocati
on
Bas
elI
Iac
tio
npla
n
Tech
nol
ogy

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oj
ect
.com
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age2
7 www.
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gra
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mme r
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t
 P
roj
ectR
epo
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is
kMa
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eme
nti
nBa
nki
ngS
ect
or

CH
AP TE
RIV
AN
ALYS
IS&IN
TERPRETATI
ON

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oj
ect
.com
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8 www.
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ectR
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eme
nti
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ect
or

4.
1AWAR
ENE
SSOFR
EGUL
ATI
ONS
S
our
ce:Al
lth
ebel
owanal
ys
isan
din
ter
pre
tat
ioni
sdonef
romt
hes
urv
eycondu
cte
dinBan
ks.
1
. Whatisyouras
ses
smentofyourrea
di
nessfort
henewBaselp
rop
osal
swit
hresp
ectt
oca
pi
ta
l
re
qui
re
ments
?
Tabl
e4.1
.1
:Rea
di
nes
sforth
enewBasel
prop
osa
l
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
F
ULL
YPR
EPAR
ED 8 9 9
P
ARTI
ALL
YPR
EPAR
ED 2 1 1
N
OTYE
TPR
EPAR
ED      

F
igu
re4.
1.1
Rea
di
ne
ssf
ort
hen
ewB
ase
lpr
opo
sal

2
.H a
veyo
udoneaga
panal
ysi
sbe
twe
enc
urr
entr
i
skma
nag
eme
ntp
rac
ti
cea
ndn
ewc
api
t
alr
equ
ir
eme
nts
?
Ta
bl
e4.1
.2:Ga
panal
ys
is
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S 9 5 9
N
O 1 5 1

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oj
ect
.com
P
age2
9 www.
pro
gra
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pro
gra
mme r
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 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

Fi
gur
e4.1
.2Gapan
al
ys
is
3
.Wh atd
egr
eeofpr
io
ri
tyd
oyo
ua d
dre
sstothenewBas
elr
egu
la
tor
yfr
amewo
rk?
Ta
bl
e4.1.
3:P
rio
ri
tyton
ewBas
elr
egul
at
oryfr
amewor
k
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
VE
RYI
MPOR
TAN
T 9 9 1
0
I
MPOR
TAN
T 1 1  
N
OTI
MPOR
TAN
T      

Fig
ure4.1
.3P
ri
or
i
tyton
ewBa
selr
egu
la
tor
yfr
ame
wor
k
4.Howdoy o
uvie
wB as
elI
Ir
egu
la
ti
on:asanop
por
tu
ni
tyt
oen
hanc
etheri
skma
nag
eme
ntp
roc
ess
,ora
sa
re
gul
ato
rycon
str
ai
nt
?
Tabl
e4.1
.4:ViewofBa
selI
I
regu
la
tio
n

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eme
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  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
OP
POR
TUN
ITY 1
0 8 1
0
CON
STR
AIN
T   2  

F
igu
re4.
1.4:Vi
ewo
fBa
sel
I
Ire
gul
at
i
on
OB
SER
VATI
ONS

 Th
ema
jor
i
tyo
fba
nksc
ons
id
ert
hems
el
ve
stob
efu
ll
ypr
epa
red
.
 Ama
jor
i
tyo
fba
nksh
avep
erf
orme
dag
apa
nal
ys
isb
etwe
ent
hei
rcu
rr
entr
i
skma
nag
eme
ntp
rac
ti
ce
a
ndt
hen
ewc
api
t
alr
equ
ir
eme
nts
.
 On
lyo
neb
ankd
oesn
otv
ie
wBa
sel
I
Ii
mpl
eme
nta
ti
ona
sah
ig
hpr
i
ori
t
ypr
oj
ect
.
 Th
eba
nksl
ar
gel
ybe
li
ev
eth
atB
ase
lI
Iwi
l
lpr
ovi
det
hema
nop
por
tu
ni
tyt
oen
han
cer
i
skma
nag
eme
nt.

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ect
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pro
gra
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pro
gra
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or

I
NTE
RPR
ETATI
ON
 Al
t
hou
ght
heB
ase
lI
Ir
egu
la
ti
on
sar
eco
nsi
de
redi
mpo
rta
ntt
ove
ryi
mpo
rta
ntb
yas
tr
ongma
jor
i
tyo
f
b
ank
s,s
omea
reo
nl
ypa
rt
lyp
rep
are
dfo
rimp
le
men
tat
i
on.
 Th
eba
nksa
imt
olo
okb
eyo
ndt
her
egu
la
tor
yas
pec
tsa
nda
imt
obe
nef
i
tfr
omt
hen
ewr
egu
la
ti
on
sasa
me
anst
oen
han
cedr
i
skma
nag
eme
nt.

4.
2OR
GAN
ISTI
ONALS
TRUCTUR
E

1
. Doyouh
aveana
ssi
gn
edCr
edi
tri
sk
,Mark
etr
i
ska
ndOp
era
ti
on
alr
i
skma
nag
eri
nyo
urb
ank
?
Tab
le4.
2.1
:Assi
gn
mento
fri
skmana
ger
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S 1
0 9 9
N
O   1 1

F
igu
re4.
2.1
:As
si
gn
men
tofr
i
skma
nag
er

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ect
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pro
gra
mme r
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t
 P
roj
ectR
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rt:R
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eme
nti
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nki
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ect
or

2
.Towhomdoe
sth
eRis
kmana
gerr
epo
rt?
Ta
bl
e4.
2.2
:Wh omdoe
sri
skma
nagerr
epo
rt
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
CH
IEFE
XECU
TIVEOF
FI
CER 4 6 6
CH
IEFF
INAN
CIALOF
FI
CER      
AS
SETSAN
DLI
ABL
ITYMAN
AGE
R 2 1 1
CR
EDI
TRI
SKOF
FI
CER 4 2 2
OTH
ERS
PECI
FY      

F
igu
re4.
2.2
:Wh
omd
oesr
i
skma
nag
err
epo
rt?

3
.Wh ati
sth
eass
ig
nedman
ager
’st
i
med
edi
ca
tedt
oth
isa
cti
vi
ty
?
Ta
bl
e4.2.3:Ti
meded
ic
ati
on
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
0-
20% 2 4 2
2
0-5
0% 2 1 2
>
50% 6 5 6

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oj
ect
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pro
gra
mme r
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t
 P
roj
ectR
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rt:R
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kMa
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eme
nti
nBa
nki
ngS
ect
or

Fi
gu
re4.
2.3
:Ti
med
edi
ca
ti
on
4.Ho
wmanypeo
pl
eworki
nthe
sede
part
ment
s?
Ta
bl
e4.
2.4:Numb
erofpe
opl
ework
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

1
-3 2 4 1
3-5 6 4 5
5
-10 1 1 1
>1
0 1 1 3

F
igu
re4.
2.4:N
umb
ero
fpe
opl
ewo
rk
5
.Doy o
uhav
eaRi
skCo
mmi
tte
e?
Ta
bl
e4.2
.5:R
is
kCommi
t
tee

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oj
ect
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4 www.
pro
gra
mmer2
pro
gra
mme r
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t
 P
roj
ectR
epo
rt:R
is
kMa
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eme
nti
nBa
nki
ngS
ect
or

  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 6 5 6
N
O 4 5 4

F
igu
re4.
2.5
:Ri
skCo
mmi
t
tee
OB
SER
VATI
ONS
 Al
mos
tal
l
oft
hep
art
i
ci
pa
ti
ngb
ank
sha
vear
i
skma
nag
eme
ntd
epa
rte
mnt
.
 Mo
sto
fth
ein
dus
tr
y’sr
i
skma
nag
ers
’re
por
ttot
heCh
ie
fEx
ecu
ti
veOf
fi
ce
r,As
seta
ndl
i
abi
l
i
ty
ma
nag
era
ndCh
ie
fRi
skOf
fi
ce
rac
cou
nti
ngf
ort
heb
al
an
cei
neq
ual
pro
por
ti
on
s.
 S
li
gh
tl
ymo
rea
tte
nti
oni
spa
idt
ocr
edi
tan
dop
era
ti
on
alr
i
skt
hant
oMa
rke
tri
sk
,as40%o
fth
eba
nks
o
per
ati
ngd
ono
tha
ver
i
skc
ommi
t
tee
.

I
NTE
RPR
ETATI
ON

 De
spi
t
eth
ere
la
ti
ve
lys
mal
lsi
zeo
fba
nks
,th
eya
reg
ene
ral
l
ywe
lla
war
eoft
her
i
skma
nag
eme
nt
f
unc
ti
on
,an
dfo
rth
isp
urp
ose
,ri
s
kma
nag
erss
pen
dov
erh
al
fth
ei
rt
imep
erf
ormi
ngt
hes
efu
nct
i
ons
.
4.
3RE
POR
TIN
GAB
ILI
TY

1
. Ar
eyoup
rodu
ci
ngre
por
ti
ngfor
Ta
bl
e4.3.
1:Rep
ort
spr
oduc
edfor
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
R
EGU
LATOR
YPU
RPOS
E 3 4 4

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ect
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pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

MON
ITOR
ING 7 8 8
DE
CIS
IONMAK
INGP
URP
OSE 7 4 4

Fi
gur
e4.3.1
:Repo
rtsp
rod
uce
dfo
r
2
.Doesex
ter
nal
rep
ort
i
ngdr
iv
ey ou
rin
tern
alr
epor
ti
ng
?
Ta
bl
e4.3.
2:Ext
ern
alr
epo
rti
ngdr
ivei
nte
rna
lre
por
ti
ng
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
VE
RYS
IGN
IFI
CAN
TLY 4 5 4
S
IGN
IFI
CAN
TLY 5 4 5
N
OTATAL
LSI
GNI
FI
CAN
TLY 1 1 1

F
igu
re4.3.
2:Ext
ern
alr
epor
ti
ngd
ri
vei
nt
ern
alr
epo
rti
ng
3
.Do
ese
xte
rna
lre
por
ti
ngaf
fecty
ourde
ci
si
onmaki
ngpr
oce
ss?
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ect
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gra
mmer2
pro
gra
mme r
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t
 P
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ectR
epo
rt:R
is
kMa
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eme
nti
nBa
nki
ngS
ect
or

Ta
bl
e4.
3.3
:Ex
ter
nal
rep
ort
i
nga
ffe
ctd
eci
si
onma
ki
ngp
roc
ess
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
VE
RYS
IGN
IFI
CAN
TLY 3 3 3
S
IGN
IFI
CAN
TLY 6 5 6
N
OTATAL
LSI
GNI
FI
CAN
TLY 1 2 1

F
igu
re4.
3.3
:Ex
ter
nal
rep
ort
i
nga
ffe
ctd
eci
si
onma
ki
ngp
roc
ess

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ect
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mme r
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 P
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ectR
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is
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eme
nti
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nki
ngS
ect
or

4.Ho
wfre
quen
tisyou
rin
ter
nal
rep
ort
in
g?
Ta
bl
e4.3.
4:F r
equ
enc
yofint
ern
alr
epo
rti
ng
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

Da
il
y 1   1
We
ekl
y   1 1
Mo
nth
ly 8 8 7
An
nua
ll
y 1 1 1

F
igu
re4.
3.4:F
req
uen
cyo
fin
ter
nal
rep
ort
i
ng

5
.Will
youp
rod
ucespe
ci
fi
cin
ter
nal
repo
rti
ngf
orCre
di
t,Ma
rke
tan
dOp
era
ti
on
alR
is
k?
Ta
bl
e4.3.
5:Pro
duct
io
nofspec
if
ici
nte
rna
lre
por
ti
ng
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 1
0 1
0 1
0
N
O      

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gra
mme r
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 P
roj
ectR
epo
rt:R
is
kMa
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eme
nti
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nki
ngS
ect
or

F
igu
re4.
3.5
:Pr
odu
cti
ono
fsp
eci
f
ici
nt
ern
alr
epo
rti
ng
OB
SER
VATI
ONS

 Al
lr
is
kre
por
ti
ngi
sco
mpi
l
edl
ar
gel
yfo
rmo
ni
to
ri
nga
ndDe
ci
si
onma
ki
ngp
urp
ose
sth
anR
egu
la
tor
y
p
urp
ose
.
 Al
l
theB
ank
spr
odu
cei
nt
er
nal
rep
ort
.
 Mo
sto
fth
eBa
nksp
rod
uceI
nt
er
nal
Rep
ortmo
nth
ly
.
 Mo
sto
fth
eba
nkss
ai
dEx
ter
nal
rep
ort
i
nga
ffe
ctt
hei
rde
ci
si
onma
ki
ngp
roc
ess
.

I
NTE
RPR
ETATI
ON

 R
epo
rti
ngf
ora
ll
ri
sks
ti
l
lne
edst
obed
eve
lo
ped
.

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oj
ect
.com
P
age3
9 www.
pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

4.
4COMP
LIACEWI
THB
ASE
LII

1
. Whi
cha
ppr
oachwi
ll
bes
tsui
tyo
u ro
rga
ni
zat
ion
?
Ta
bl
e4.4.
1:Appr
oac
htha
tbestsu
itor
gan
iz
ati
on
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
S
TAN
DAR
D 8 9 7
F
OUN
DATI
ON      
ADVAN
CED 2 1 3
DON
’TK
NOW      

F
igu
re4.
4.1
:Ap
pro
acht
hatb
ests
ui
tor
gan
iz
ati
on

2
.H a
veyo
uperf
ormedaCost
/Be
nefi
tan
al
ys
isf
ore
acha
ppr
oac
hpr
opo
sedb
yBa
sel
I
I?
Ta
bl
e4.4.
2:Co s
t/B
ene
fi
tanal
ys
is
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 1
0 8 9
N
O   2 1

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ect
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gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

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oj
ect
.com
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pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

F
igu
re4.4.
2:Cost
/Ben
efi
tan
al
ysi
s
3
.Inyou
rsi
tu
ati
on
,c o
ul
dreg
ul
ato
rycapi
ta
lcon
sump
ti
onbemoti
va
ti
onfor
:
Ta
bl
e4.4.3:Re
gul
ato
ryca
pi
tal
consu
mpti
onbemot
iv
ati
on
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
S
TOP
PIN
GACTI
VI
TI
ES 2 1 2
DE
VEOP
LIN
GACTI
VI
TI
ES 5 7 6
ACQU
IRI
NGACTI
VI
TI
ES 1    
N
ONE 1 1 1

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ect
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pro
gra
mmer2
pro
gra
mme r
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t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

F
igu
re4.
4.3
:Re
gul
at
oryc
api
t
alc
ons
ump
ti
onb
emo
ti
va
ti
on
OB
SER
VATI
ONS

 Mo
sto
fth
eba
nksb
el
ie
vet
hatt
hes
tan
dar
dap
pro
achi
smo
sta
ppr
opr
i
atef
ort
hei
rpu
rpo
ses
.
 Ont
hewh
ol
e,ac
ost
/be
nef
i
tan
al
ys
ish
asb
eend
onef
ore
acha
ppr
oac
h.I
tap
pea
rst
hatt
heb
ank
s
h
avec
omp
le
tedt
hei
rco
st/
ben
efi
tan
al
ys
iso
nl
yfo
rth
ei
rel
ec
teda
ppr
oac
h.
 R
egu
la
tor
yca
pi
ta
lco
nsu
mpt
i
oni
smo
ti
va
tedf
ord
eve
lo
pin
gac
ti
vi
ti
es
.

I
NTE
RPR
ETATI
ON

 Mo
sto
fth
eba
nkswo
ul
dpr
efe
rtoa
dop
tth
est
and
arda
ppr
oac
h,b
uto
nl
yfe
woft
hos
ewh
owo
ul
dl
ik
e
t
oimp
le
men
tth
ead
van
ceda
ppr
oac
han
dth
eywi
l
li
mpl
eme
nt.
 Th
eba
nkst
hatwo
ul
dpr
efe
rtoa
dop
tth
est
and
arda
ppr
oac
hsh
oul
dtr
ytoa
dop
tad
van
ceda
ppr
oac
h.

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ect
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roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

4.
5CAP
ITALAL
LOCATI
ON

1
.H a
veyo
uesti
mat
edt
her
egu
la
tor
ycapi
t
a l
con
sumpt
io
nforea
cho
fyo
uri
nd
iv
id
ual
bus
in
ess
es?
Ta
bl
e4.5.
1:Es
ti
mat
i
ono
fthere
gul
at
orycap
it
alc
onsu
mpti
on
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 1
0 9 1
0
N
O   1  

F
igu
re4.
5.1
:Es
ti
mat
i
ono
fth
ere
gul
at
oryc
api
t
alc
ons
ump
ti
on

2
.Will
youo
uts
our
ceact
i
vit
i
eswit
hhi
ghc
api
ta
lco
nsump
ti
on?
Ta
bl
e4.5.
2:Outs
our
ceact
i
vit
i
esf
orhi
ghc
api
tal
con
sump
ti
on
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 4 3 5
N
O 6 7 7

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ect
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gra
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pro
gra
mme r
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t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

F
igu
re4.5.
2:Ou
tso
urc
eac
ti
vi
ti
esf
orh
ig
hca
pi
ta
lco
nsu
mpt
i
on
3
.Will
youi
ns
ures
el
ect
edR i
sk
?
Ta
bl
e4.5.
3:In
sur
eRis
k
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 7 5 6
N
O 3 5 4

Fi
gu
re4.5.3:I
ns
ureRi
sk
4.Doyoui
nt
endal
l
oca
ti
ngec
ono
micca
pit
albyBus
in
essl
i
nes?
Tab
le4.
5.4:Al
l
ocat
io
nofec
onomi
ccapi
tal

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gra
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 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 8 7 8
N
O 1 2 1

F
igu
re4.
5.4:Al
l
oca
ti
ono
fec
ono
micc
api
t
al

5
.Wi l
lyoumakeus
eo fBa
selI
Ir
equ
ir
ement
stoi
mpl
eme
nta
nec
ono
micc
api
t
ala
ll
oc
ati
ont
hr
oug
hou
tyo
ur
bu
si
nessl
i
nes?
Tab
le4.5.
5:UseofBa
selI
I
req
ui
remen
ts
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 9 8 8
N
O   1 1

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ect
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pro
gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

F
igu
re4.
5.5
:Us
eofB
ase
lI
Ir
equ
ir
eme
nts
OB
SER
VATI
ONS

 Mo
sto
fth
eba
nksd
ono
tou
tso
urc
eac
ti
vi
ti
eswi
t
hhi
ghc
api
t
alc
ons
ump
ti
on
.
 H
alfo
fth
eba
nksi
ns
ures
el
ec
tedR
is
k.
 B
ank
swi
t
hle
sss
oph
is
ti
ca
teda
ppr
oac
hesa
rel
i
kel
ytou
ser
egu
la
tor
yca
pi
ta
last
heb
asi
sfo
rin
ter
nal
c
api
t
ala
ll
oc
ati
on
.

I
NTE
RPR
ETATI
ON

 Ve
ryf
ewb
ank
spl
ant
oou
tso
urc
eac
ti
vi
ti
eswi
t
hhi
ghc
api
t
alc
ons
ump
ti
on
,bu
tth
ema
jor
i
tywi
l
li
ns
ure
t
hei
rcr
edi
tr
is
ks,wh
il
ene
arl
yha
lfwi
l
lpl
ant
oin
sur
eth
ei
rma
rke
tan
dop
era
ti
on
alr
i
sks
.
 As
tr
ongma
jor
i
tyo
flo
calb
ank
swi
l
lal
l
oca
tee
con
omi
cca
pi
ta
lac
cor
di
ngt
obu
si
ne
ssl
i
nes
,wh
il
ea
s
tr
ong
erma
jor
i
tywi
l
lus
eth
eBa
sel
I
Ire
qui
r
eme
ntst
oimp
le
men
tth
atc
api
t
ala
ll
oc
ati
onp
roc
ess
.

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ect
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gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

4.
6BAS
ELI
IACTI
ONP
LAN

1
.H a
veyo
uesta
bl
is
hedanact
i
onpl
antoa
chi
ev
eth
eBa
sel
I
Ire
qui
r
eme
nts
?
Ta
bl
e4.6.
1:Es
tabl
i
shme
ntofa
cti
onpl
an
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 1
0 1
0 1
0
N
O      

F
igu
re4.
6.1
:Es
tab
li
sh
men
tofa
cti
onp
la
n

2
.H o
wwil
l
youex
ecu
tethi
sac
ti
onpl
an
?
Ta
bl
e4.
6.2:E
xec
uti
onofact
i
onpl
an
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

I
NTE
RNALR
ESOU
RCE
S 7 5 8

E
XTE
RNALR
ESOU
RCE
S 1 4 1

B
OTH 4 3 3

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ectR
epo
rt:R
is
kMa
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eme
nti
nBa
nki
ngS
ect
or

F
igu
re4.6
.2:E
xec
uti
ono
fac
ti
onp
la
n
3
.Wh atwi
l
lt
hela
rge
stsp
end
in
ga r
eabe?
Ta
bl
e4.6.3
:Larg
ests
pen
din
garea
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

TE
CHN
OLOGY 8 7 8
COMMU
NICATI
ON 1 4 1
OTH
ER(
SPE
CIF
Y)      
DON
’TK
NOW      

F
igu
re4.
6.3:L
arg
estspe
ndi
nga
rea
4.Ho
wfara
reyo
uinth
eimpl
emen
tat
io
nofyou
ract
io
npla
n?
Ta
bl
e4.6
.4:Cur
re
ntpro
gre
ss

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ectR
epo
rt:R
is
kMa
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eme
nti
nBa
nki
ngS
ect
or

  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

N
OTR
EAL
LI
SED      

P
ARTI
ALL
YRE
ALL
ISE
D 5 7 5

F
ULL
YRE
ALL
ISE
D 5 3 5

F
igu
re4.
6.4:Cu
rr
entp
rog
res
s
OB
SER
VATI
ONS

 Al
l
theb
ank
ses
tab
li
sh
edb
yana
cti
onp
la
ntoa
chi
ev
eth
eBa
sel
I
Ire
qui
r
eme
nts
.
 Mo
sto
fth
eba
nkse
xec
utet
hea
cti
onp
la
nwi
t
hin
ter
nal
res
our
cest
hane
xte
rna
lre
sou
rce
s.
 L
arg
ests
pen
di
nga
reai
ste
chn
ol
og
y.
 H
alfo
fth
eba
nk’
simp
le
men
tat
i
ono
fac
ti
onp
la
nisp
art
i
al
lyr
eal
i
zeda
ndh
al
ffu
ll
yre
al
iz
ed.

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gra
mmer2
pro
gra
mme r
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t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

I
NTE
RPR
ETATI
ON

 Th
eba
nksh
aveg
ene
ral
l
yde
ter
min
eda
nac
ti
onp
la
ntoh
el
pth
emt
ome
etB
ase
lI
Ir
equ
ir
eme
nts
.Th
ey
h
avep
art
i
al
lyc
omp
le
tedt
hea
cti
on
sre
qui
r
ed,a
ndwi
l
lco
nti
nu
ewi
t
hth
esea
cti
onp
la
ns.
 Th
oseb
ank
sth
ath
aven
oty
etb
egu
nimp
le
men
tat
i
ont
endt
obet
hes
mal
l
erb
ank
s,wi
t
hsi
mpl
er
b
usi
ne
ssmo
del
s
,wh
ic
hre
qui
r
ele
sst
i
mea
ndr
eso
urc
est
ome
ett
heB
ase
lI
Ir
equ
ir
eme
nts
.

4.
7TE
CHN
OLOGY

1
. Do
esyo
urcur
re
ntI
Tinfr
ast
ruc
tur
eal
l
owy
out
ome
ett
heB
ase
lI
Ir
equ
ir
eme
nts
?
Ta
bl
e4.7.
1:I
Tinf
ras
tr
uctu
re
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

YE
S 1
0 8 9
N
O   2 1

F
igu
re4.
7.1
:I
Tin
fra
str
uct
ur
e

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gra
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gra
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t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.Will
youd
evel
opa
nITsol
ut
i
onforR
is
kmana
geme
nt?
Ta
bl
e4.7.
2:I
Tsol
uti
onf
orRi
skmana
geme
nt
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S 7 7 7
N
O 3 3 3

F
igu
re4.
7.2
:ITs
ol
ut
i
onf
orR
is
kma
nag
eme
nt

3
.H a
veyo
ucomp
le
tedar
evi
ewofpo
ten
ti
alI
Tso
lu
ti
onsa
vai
l
abl
e?
Ta
bl
e4.7.
3:R
evi
ewofpot
ent
i
alI
Tsol
ut
i
onsa
vai
la
bl
e
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK

TE
CHN
OLOGY 5 3 4
CON
SUL
TIN
G 4 6 5

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gra
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ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

F
igu
re4.
7.3
:Re
vi
ewo
fpo
ten
ti
al
ITs
ol
ut
i
onsa
vai
l
abl
e

4.Whatd
if
fi
cul
ti
esd
oy o
ufo
rese
e?
Ta
bl
e4.7.4:Di
ff
ic
ul
ti
est
hatyouf
ore
see
  CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
I
NTE
GRATI
ONCAP
ABI
LI
TI
ES 3 1 1
DATAB
ASEDE
SIGN 1 1  
MODE
LS 1   1
B
UDGE
T     1
DATAGATH
ERI
NG 4 6 4
H
UMANR
ESOU
RCE 3 3 3
OTH
ER(
SPE
CIF
Y)      

F
igu
re4.
7.4:Di
f
fi
cu
lt
i
est
haty
ouf
ore
see
OB
SER
VATI
ONS

 Mo
ret
hanh
al
foft
heB
ank
in
gin
dus
tr
ywi
l
lus
eth
ei
rI
Tin
fra
str
uct
ur
eini
t
scu
rr
entf
orma
t.
 Di
f
fi
cu
lt
i
est
hatb
ank
sfo
res
eea
remo
reo
nDa
taGa
the
ri
nga
ndH
uma
nRe
sou
rce
.

I
NTE
RPR
ETATI
ON

 Th
eba
nkss
hou
ldt
rai
nth
ei
remp
lo
yee
s,i
nor
dert
oov
erc
omet
hed
if
fi
cu
lt
i
esi
ni
mpl
eme
nti
ngt
heB
ase
l
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3 www.
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or

I
I
nor
ms.
 Th
eba
nkss
hou
ldd
eve
lo
psu
ffi
ci
en
tin
fra
str
uct
ur
etog
ath
ert
her
equ
ir
edd
ata
.

CH
APTERV
F
INDI
NGSANDSUGGE
STI
ONS

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P
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4 www.
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5
.1F
INDI
NGS

 Cr
edi
tri
ski
sge
ner
al
l
ywe
ll
con
tai
ne
d,b
utt
her
ear
est
i
llp
rob
le
msa
sso
ci
at
edwi
t
hlo
anc
la
ssi
f
ica
ti
on
,
l
oa
nlo
ssp
rov
is
io
ni
ng
,an
dth
eab
sen
ceo
fco
nso
li
da
teda
cco
unt
s.

 Ma
rke
tri
ska
ndOp
era
ti
on
alr
i
ska
rec
le
arc
hal
l
eng
e,a
sth
eya
rer
el
at
i
vel
yne
wtot
hea
rea
sth
atwe
re
n
otwe
ll
dev
el
op
edu
nde
rth
eor
i
gi
na
lBa
sel
Cap
it
alAc
cor
d.

 Th
ene
wre
gul
at
i
onswi
l
lal
l
owb
ank
stoi
nt
rod
uces
ubs
tan
ti
ali
mpr
ove
men
tsi
nth
ei
rov
era
llr
i
sk
mana
gemen
tcapa
bi
li
ti
es
,impro
vin
gri
skb
ase
dpe
rfo
rma
nceme
asu
reme
nt,c
api
t
ala
ll
oc
ati
ona
s
po
rtf
ol
ioma
nag
ementt
echn
iq
ues
.

 F
utu
rec
omp
le
xi
tyi
sex
pec
tedb
eca
useb
ank
sdi
ve
rsi
f
yth
ei
rop
era
ti
on
s.I
ti
sex
pec
tedt
hatb
ank
swi
l
l
d
iv
ers
if
ythei
rope
rat
i
onstogen
era
teaddi
t
ion
ali
nc
omes
our
ces
,pa
rti
cu
la
rl
yfe
e-b
ase
din
comei
.e
.
n
onin
ter
esti
nc
ome,toi
mpr
overe
tur
ns.

 B
ase
lI
Il
ea
dst
oin
cre
asei
nDa
tac
ol
le
cti
ona
ndma
in
ten
anc
eofp
ri
va
cya
nds
ecu
ri
tyi
nva
ri
ou
sis
sue
s.

 Th
eba
nkst
hatwo
ul
dpr
efe
rtoa
dop
tth
eSt
and
ardAp
pro
achs
hou
ldt
ryt
oad
optAd
van
cedAp
pro
ach
.

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ect
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5 www.
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5
.2S
UGGE
STI
ONS

 Th
eBa
nkss
hou
ldr
evi
ewB
ase
lI
Ic
omp
one
ntsa
ndd
eve
lo
pav
is
io
n,s
tr
ate
gya
nda
cti
onp
la
nfo
rwh
at
i
sex
pec
tedt
obeas
ui
ta
bl
efr
ame
wor
kba
sedo
nho
wth
eba
nki
ngs
yst
eme
vol
ve
sov
ert
i
me.

 Th
eBa
nksn
eedr
egu
la
ren
gag
eme
ntf
ors
ust
ai
ne
dsu
ppo
rt.Aq
ual
i
fi
edl
on
g-t
erma
dvi
so
rwo
ul
dbe
p
ref
era
bl
e.

 Awo
rks
hops
hou
ldb
epl
an
nedt
opr
odu
cear
oadma
ptoB
ase
lI
ICo
mpl
i
anc
e.

 Tr
ai
ni
nga
nda
ddi
t
ion
ala
ssi
st
anc
etoma
kei
tea
si
erf
ort
heb
ank
in
gsy
ste
mtoc
omp
lywi
t
hne
w
g
ui
de
li
ne
sonma
rke
tan
dop
era
ti
on
alr
i
sk.

 Da
taP
ri
va
cya
nds
ecu
ri
tyn
eed
smo
rea
tte
nti
on

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CHAPTERVI
CONCLUSI
ON

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6
.1CON
CLUS
ION

I
mpl
emen
tat
ionofBas
elI
Ihasbe
endescr
i
bedasalon
gjour
neyrat
hertha
nad est
in
ati
onbyit
s e
lf
.Undou
bted
ly
,
i
twoul
drequ
ir
ec o
mmitmentofsubs
tan
ti
alcap
it
alan
dh umanres
ourc
eso nthepartofbothbank
sandthe
s
uper
vi
sor
s.RBIha
sd ec
ide
dtofoll
owaconsul
t
ati
vepro
cesswhil
eimpl
ementi
ngBasel
II
nor
msa ndmoveina
g
rad
ual
,sequen
ti
alandco-or
di
nat
ema nn
er.Forthi
spur
p o
se,dia
log
ueh asal
read
yb ee
ni n
it
ia
tedwit
hthe
s
tak
ehol
de
rs.Ase nv
is
agedbyt h
eB as
elCommit
tee,th
ea ccou
nti
ngp r
ofes
sio
nt oo
,willmakeap o
si
ti
ve
c
ont
ri
but
io
ninthi
sres
pecttomakeI
ndi
anbank
in
gsyst
ems ti
l
lst
ron
ger.

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8 www.
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CHAPTERVI
I
APP
E N
DIX

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7
.1QUE
STI
ONN
AIR
E

IamBABASABP ATI
L stu
dyi
ng4thsemes
terMBAinBECDOMS.I a
mwo r
ki
ngo naproj
ectti
tl
ed“RI
SK
MANAGEMENTINBANKI
NGSECTOR”.Inthi
sreg
ardIr
eque
styout
ospen
dy o
urval
uab
leti
mei nf
il
l
in
gthis
qu
esti
on
nai
re(Ti
ckth
eappr
opr
ia
teb o
x).Thi
sin
for
mati
onwil
lb
euse
donl
yforaca
demi
cp u
rposean
dwi l
lb
e
ke
ptconf
id
ent
ial
.

I
NSTI
TUTI
ONALI
NFOR
MATI
ON
1
.Na
meo
fyo
urb
ank
:

2
.Plea
sein
di
cat
ethenameofth
eco
ntac
tName:
p
ers
onforthi
sques
ti
on
nai
r
eandh
is
/he
r
p
osi
ti
oni
nth
eBank
. P
osi
t
ion
:
3
.Towh i
chofth
efoll
owi
ngt
ype
sofb
ank
s oPubli
cse
ctor
d
oesy
ourb
ankbel
on
g?
oPri
vatese
ctor

oForei
gnBan
k

4.Wh
erei
syo
urp
are
nt/
hea
dof
fi
cel
oc
ate
d?
Ti
cktheapp
rop
ri
atebox
AWAREN
ES SOFREGULATI
ONS

1
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ati
syo
ura
sse
ssme
nto
fyo
urr
ead
in
essf
ort
hen
ewB
ase
lpr
opo
sal
swi
t
hre
spe
ctt
oca
pi
ta
lre
qui
r
eme
nts
?
CR
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F
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2
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i
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eme
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rac
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t
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eme
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?
CR
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YE
S
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O

3
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i
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rame
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I
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4.Howd oyo
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sano
ppo
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i
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ai
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OR
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TRUCTUR
E

1
.Doy
ouh
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nas
si
gn
edCr
edi
tr
is
k,Ma
rke
tri
ska
ndOp
era
ti
on
alr
i
skma
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eri
nyo
urb
ank
?
CR
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YE
S
N
O

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age6
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2
.Towh
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is
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err
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CH
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ASS
E TSANDL
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3
.Wh
ati
sth
eas
si
gn
edma
nag
er’
sti
med
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ca
tedt
oth
isa
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ty
?
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0-
20%
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4.H
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?
CR
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1
–3
3–5
5
-10
>1
0

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5
.Doy
ouh
aveaR
is
kCo
mmi
t
tee
?
CR
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ISK
YE
S
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O

R
EPOR
TIN
GAB
ILI
TY

1
.Ar
eyo
upr
odu
ci
ngr
epo
rti
ngf
or
CR
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R
EGUL
ATORY
P
URP
OS E
MON
ITOR
ING
DE
CIS
ION MAK
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PU
RPOSE

2
.Do
ese
xte
rna
lre
por
ti
ngd
ri
vey
ouri
nt
ern
alr
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rti
ng
?
CR
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RYS
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CAN
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OT AT AL
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IGN
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3
.Do
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por
ti
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S
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OT AT AL
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S
IGN
IFI
CAN
TLY

4.H
owf
req
uen
tisy
ouri
nt
ern
alr
epo
rti
ng
?
CR
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ISK OP
ERATI
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ISK
Da
il
y
We
ekl
y
Mo
nth
ly
An
nua
ll
y

5
.Wi
l
lyo
upr
odu
ces
pec
if
ici
nt
ern
alr
epo
rti
ngf
orCr
edi
t
,Ma
rke
tan
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ti
on
alR
is
k?
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ISK
YE
S
N
O

COMPL
IACEWI
THB
ASE
LII
1
.Wh
ic
hap
pro
achwi
l
lbe
sts
ui
tyo
uro
rga
ni
za
ti
on
?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
S
TAN
DAR
D
F
OUN
DATI
ON
ADVAN
CED
DON
’TK
NOW

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2
.Ha
vey
oup
erf
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daCo
st/
Ben
efi
tan
al
ys
isf
ore
acha
ppr
oac
hpr
opo
sedb
yBa
sel
I
I?
CR
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ERATI
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ISK
YE
S
N
O

3
.Iny
ours
it
uat
i
on,c
oul
dre
gul
at
oryc
api
t
alc
ons
ump
ti
onb
emo
ti
va
ti
onf
or:
CR
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ISK OP
ERATI
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ISK
S
TOP
PIN
GACTI
VI
TI
ES
DE
VEOP
LIN
GACTI
VI
TI
ES
ACQU
IRI
NGACTI
VI
TI
ES
N
ONE

CAP
ITALAL
LOCATI
ON

1
.Ha
vey
oue
sti
mat
edt
her
egu
la
tor
yca
pi
ta
lco
nsu
mpt
i
onf
ore
acho
fyo
uri
nd
iv
id
ual
bus
in
ess
es?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

2
.Wi
l
lyo
uou
tso
urc
eac
ti
vi
ti
eswi
t
hhi
ghc
api
t
alc
ons
ump
ti
on
?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

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3
.Wi
l
lyo
uin
sur
ese
le
cte
dRi
sk
?
CR
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ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

4.Doy
oui
nt
enda
ll
oc
ati
nge
con
omi
cca
pi
ta
lbyB
usi
ne
ssl
i
nes
?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

5
.Wi l
lyo
umakeu
seo
fBa
sel
IIr
equ
ir
eme
ntst
oimp
le
men
tane
con
omi
cca
pi
ta
lal
l
oca
ti
ont
hr
oug
hou
tyo
ur
b
usi
ne
ssli
ne
s?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

B
ASE
LII
ACTI
ONP
LAN

1
.Ha
vey
oue
sta
bl
is
heda
nac
ti
onp
la
ntoa
chi
ev
eth
eBa
sel
I
Ire
qui
r
eme
nts
?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

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oj
ect
.com
P
age6
6 www.
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gra
mmer2
pro
gra
mme r
.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

2
.Ho
wwi
l
lyo
uex
ecu
tet
hi
sac
ti
onp
la
n?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
I
NTE
RNALR
ESOU
RCE
S
E
XTE
RNALR
ESOU
RCE
S
B
OTH

3
.Wh
atwi
l
lt
hel
ar
ges
tsp
end
in
gar
eab
e?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
TE
CHN
OLOGY
COMMU
NICATI
ON
OTH
ER(
SPE
CIF
Y)
DON
’TK
NOW

Oth
er (
spe
ci
fy
)
______________________________________________________________
4.Howfa
rar
eyoui
nth
eimpl
eme
nta
ti
ono
fyoura
cti
onp
la
n?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
N
OTR
EAL
LI
SED
P
ARTI
ALL
YRE
ALL
ISE
D
F
ULL
YRE
ALL
ISE
D

TECH
NOLOGY
1
.Do
esy
ourc
urr
entI
Tin
fra
str
uct
ur
eal
l
owy
outomee
tth
eBas
elI
I
req
ui
re
men
ts?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

2
.Wi
l
lyo
ude
vel
opa
nITs
ol
ut
i
onf
orR
is
kma
nag
eme
nt?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
YE
S
N
O

3
.Ha
vey
ouc
omp
le
tedar
evi
ewo
fpo
ten
ti
al
ITs
ol
ut
i
onsa
vai
l
abl
e?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
TE
CHN
OLOGY
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oj
ect
.com
P
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gra
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pro
gra
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.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

CON
SUL
TIN
G

4.Wh
atd
if
fi
cu
lt
i
esd
oyo
ufo
res
ee?
CR
EDTR
ISK MAR
KETR
ISK OP
ERATI
ONALR
ISK
I
NTE
GRATI
ON
CAP
ABI
LI
TI
ES
DATAB
ASEDE
SIGN
MODE
LS
B
UDGE
T
DATAGATH
ERI
NG
H
UMANR
ESOU
RCE
OTH
ER(
SPE
CIF
Y)

P
LACE
: __________________

DATE
: S
ign
atu
re.

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ect
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gra
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pro
gra
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.ne
t
 P
roj
ectR
epo
rt:R
is
kMa
nag
eme
nti
nBa
nki
ngS
ect
or

R
EFF
ERE
NCE
WE
BSI
TES

 www.
bi
s.
org
 www.
rbi
.o
rg
 www.
kpmg
.co
m
 www.
cog
ni
za
nt.
com
 www.
goo
gl
e.
com
 www.
yah
oo.
com

B
OOK
S

 H
andB
ooko
nRi
skma
nag
eme
nt&B
ase
lI
In
orms

AR
TICAL
S

 R
is
kMa
nag
eme
nti
nBa
nks
.--RSR
agh
ava
nCh
art
ere
dAc
cou
nta
nt.
 B
ase
lNo
rmsc
hal
l
eng
esi
nI
nd
ia–
Swa
panB
aks
hi
 Wh
it
ePa
perTh
eRi
pp
leE
ffe
ct:H
owB
ase
lI
Iwi
l
li
mpa
cti
ns
ti
tu
ti
on
sofa
ll
si
ze
s
 R
is
kMa
nag
eme
ntGu
id
el
in
esf
orCo
mme
rci
al
Ban
ks&DF
Is
.
 B
ASE
LII–Ar
eIn
di
anB
ank
sGo
in
gtoGa
in
?--S
ant
oshN
.Ga
mbh
ir
eJa
man
al
al
,Ba
jajI
ns
ti
tu
teo
f
Ma
nag
eme
ntS
tud
ie
sMu
mba
i
 B
ase
lI
Ia
ndI
nd
ia
'sb
ank
in
gst
ru
ctu
reC.P
.Ch
and
ras
ekh
ara
ndJ
aya
tiGh
osh

R
EPOR
TS

 R
epo
rto
nImp
le
men
ti
ngB
ase
lI
I:I
mpa
cto
nEme
rgi
ngE
con
omi
es-
-Ja
yde
epK
.Th
ake
rNMI
MS
 P
ape
ronR
is
kAs
ses
sme
nta
ndR
is
kMa
nag
eme
nt-
-Sa
nto
shDe
ora
mWa
tpa
de&S
idd
hiS
hri
ka
ntVy
as
ME
T’sI
ns
ti
tu
teo
fMa
nag
eme
ntN
ash
ik
.

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