ICICI Bank 2008 Annual Report Download - page 183

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F109
market risk management and recommends changes in processes and methodologies for measuring
market risk.
To comply with the home and host country regulatory guidelines and to have independent control groups
there are clear functional separation of:
l Trading i.e. Front Office
l Monitoring & control i.e. Middle Office and
l Settlements.
The scope and nature of risk reporting and/or measurement systems
Reporting
The Bank periodically reports on the various investments and their related risk measures to the senior
management and the committees of the Board. Also, the Bank periodically makes reporting to its various
regulators in compliance with regulatory requirements.
Measurement
The Bank along with its subsidiaries has devised various risk metrics for different products and investments
in line with global best practices. These risk metrics are measured and reported to the senior management
independently by TMOG. Some of the risk metrics adopted by the Bank for monitoring its risks are Value-
at-Risk, Duration of Equity (DoE), Modified Duration / PV01, Stop Loss, amongst others. Based on the
risk appetite of the Bank, limits are placed on the risk metrics which is monitored on a periodic basis.
Hedging & mitigation
Limits on positions that can be maintained are laid out in the relevant policies. All business groups are
required to operate within these limits.
Hedge transactions for banking book transactions are periodically assessed for hedge effectiveness as
per home and host country financial guidelines.
b. Capital requirements for market risk (March 31, 2008)
Rupees in billion
Risk category Capital charge1
Capital required 49.94
– for interest rate risk 37.92
– for foreign exchange (including gold) risk 2.97
– for equity position risk 9.05
1. Includes all entities considered for Basel II capital adequacy computation.
9. OPERATIONAL RISK
a. Operational risk management policy
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems,
or from external events. Operational risk includes legal risk but excludes strategic and reputational risk.
Legal risk includes, but is not limited to, exposure to fines, penalties, or punitive damages resulting from
supervisory actions, as well as private settlements. Operational risk is inherent in ICICI Bank’s business
activities in both domestic as well as overseas operations and, like other risk types, is managed through
an overall framework with checks and balances that include:
l Recognized ownership and accountability of risks by the businesses
l Oversight by independent risk management and
l Independent review by Risk and Audit Committees.
ICICI Bank’s approach to operational risk is defined in the Operational Risk Management Policy. The key
objectives of the policy are to establish a clear accountability and responsibility for management and
BASEL II – Pillar 3 Disclosures (Consolidated)
1P-less_(Pillar).indd 1091P-less_(Pillar).indd 109 6/20/08 4:53:17 PM6/20/08 4:53:17 PM