ICICI Bank 2008 Annual Report Download - page 42

RISK MANAGEMENT
Risk is an integral part of the banking business and we aim at delivering superior shareholder value by achieving
an appropriate trade-off between risk and returns. The key risks are credit risk, market risk and operational risk.
Our risk management strategy is based on a clear understanding of various risks, disciplined risk assessment and
measurement procedures and continuous monitoring. The policies and procedures established for this purpose
are continuously benchmarked with international best practices.
We have four dedicated groups, the Global Risk Management Group (GRMG), the Compliance Group, Internal
Audit Group and the Financial Crime Prevention and Reputation Risk Management Group (FCPRRMG) which
are responsible for assessment, management and mitigation of risk in ICICI Bank. During fiscal 2008, we formed
the FCPRRMG to design and implement appropriate internal controls in respect of anti-money laundering, fraud
prevention and reputation risk management. In addition, the Credit and Treasury Middle Office Groups and the
Global Operations Group monitor operational adherence to regulations, policies and internal approvals. These
groups are completely independent of all business operations. GRMG is further organised into the Global Credit
Risk Management Group, the Global Market Risk Management Group and the Operational Risk Management
Group. The internal audit and compliance function are responsible to the Audit Committee of the Board.
Credit Risk
Credit risk is the risk that a borrower is unable to meet its financial obligations to the lender. We measure, monitor
and manage credit risk for each borrower and also at the portfolio level. We have standardised credit approval
processes, which include a well-established procedure of comprehensive credit appraisal and rating. We have
developed internal credit rating methodologies for rating obligors. The rating factors in quantitative and qualitative
issues and credit enhancement features specific to the transaction. The rating serves as a key input in the approval
as well as post-approval credit processes. Credit rating, as a concept, has been well internalised within the Bank.
The rating for every borrower is reviewed at least annually. Industry knowledge is constantly updated through
field visits and interactions with clients, regulatory bodies and industry experts.
In our retail credit operations, all products, policies and authorisations are approved by the Board or a Board
Committee or pursuant to authority delegated by the Board. Credit approval authority lies only with our credit
officers who are distinct from the sales teams. Our credit officers evaluate credit proposals on the basis of the
approved product policy and risk assessment criteria. Credit scoring models are used in the case of certain products
like credit cards. External agencies such as field investigation agencies are used to facilitate a comprehensive
due diligence process. Before disbursements are made, the credit officer conducts a centralised check on the
delinquencies database and review of the borrower’s profile. We continuously refine our retail credit parameters
based on portfolio analytics. We also draw upon reports from the Credit Information Bureau (India) Limited
(CIBIL).
Market Risk
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. Our
exposure to market risk is a function of our trading and asset-liability management activities and our role as a
financial intermediary in customer-related transactions. The objective of market risk management is to minimise
the impact of losses on earnings and equity capital due to market risk.
Market risk policies include the Investment Policy and the Asset-Liability Management (ALM) Policy. The policies
are approved by the Board of Directors. The Asset-Liability Management Committee (ALCO) stipulates liquidity
and interest rate risk limits, monitors adherence to limits, articulates the organisation’s interest rate view and
determines the strategy in light of the current and expected environment. These policies and processes are
articulated in the ALM Policy. The Investment Policy addresses issues related to investments in various trading
products. The Global Market Risk Management Group exercises independent control over the process of market
risk management and recommends changes in processes and methodologies for measuring market risk.
Business Overview
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