ICICI Bank 2008 Annual Report Download - page 182

F108
8. MARKET RISK IN TRADING BOOK
a. Market risk management policy
Risk management policies
Market risk is the possibility of loss arising from changes in the value of a financial instrument as a result
of changes in market variables such as interest rates, exchange rates, credit spreads and other asset
prices. The market risk for the Bank and each of its banking subsidiaries is managed in accordance
with the investment policies, which are approved by the respective Boards. These policies ensure that
operations in securities, foreign exchange and derivatives are conducted in accordance with sound and
acceptable business practices and are as per the extant regulatory guidelines, laws governing transactions
in financial securities and the financial environment. The policies are reviewed periodically to incorporate
therein, changed business requirements, economic environment and revised policy guidelines.
Risk management objectives
The Bank manages its market risk with the broad objectives of:
1. Optimizing interest rate & liquidity risk in the banking book to achieve desired duration of equity.
2. Management of interest rate risk and currency risk of the investment portfolio.
3. Proper classification, valuation and accounting of investment portfolio.
4. Adequate and proper reporting of investments and derivative products.
5. Compliance with regulatory requirements.
6. Effective control over the operation and execution of market related transactions.
Strategies and processes
Internal control system
Treasury operations warrant elaborate control procedures. Keeping this in view, the following guidelines
are followed for effective control of the treasury operations:
1. Delegation
Suitable delegation of administrative powers has been put in place for treasury operations. All
investment decisions are vested in the sub-committees of the Board. However, keeping in view
the size of the investment portfolio and the variety of securities that the Bank has been dealing in,
authority for investment decisions has been delegated to various dealers depending on exigencies
of business.
Treasury Middle Office Group (TMOG) is responsible for an independent check of the transactions
entered into by the front office. It also monitors the various limits, which have been laid down in
the Investment Policy.
2. System controls
The systems facilitate straight through processing of deals and have adequate data integrity controls.
The deal slips generated from the system contain names of the dealers along with other relevant
deal details. These are used for audit and control purpose.
3. Exception handling processes
The Investment Policy sets out deal-size limits for various products. Various coherence checks
have been inserted in the system for ensuring that the appropriate deal size limits are enforced to
minimize exceptions.
Structure and organisation of the market risk management function
The Board approved committees review and approve the policies for the management of market risk.
These committees lay down the policies for the market risk and the interest rate risk / liquidity risk on
the balance sheet within the broad guidelines approved by the Board.
The market risk management group, which is an independent function, reports to head of GRMG.
The market risk management group within GRMG exercises independent control over the process of
BASEL II – Pillar 3 Disclosures (Consolidated)
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