ICICI Bank 2008 Annual Report Download - page 43

Towards a better life
Interest rate risk is measured through the use of re-pricing gap analysis and duration analysis. Liquidity risk is
measured through gap analysis. We ensure adequate liquidity at all times through systematic funds planning and
maintenance of liquid investments as well as by focusing on more stable funding sources such as retail deposits.
We limit our exposure to exchange rate risk by stipulating position limits.
The Treasury Middle Office Group monitors the asset-liability position under the supervision of the ALCO. It also
monitors the treasury activities and adherence to regulatory / internal policy guidelines. The Treasury Middle Office
Group is also responsible for processing treasury transactions, tracking the daily funds position and complying
with all treasury-related management and regulatory reporting requirements.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems
or from external events. Operational risks in the Bank are managed through a comprehensive internal control
framework. The control framework is designed based on categorisation of all functions into front-office, comprising
business groups; mid-office, comprising credit and treasury mid-offices; back-office, comprising operations; and
corporate and support functions.
RBI has mandated all banks to develop an operational risk management framework. In accordance with these
guidelines, our board of directors has approved an Operational Risk Management Policy. The policy is applicable
across the Bank including overseas offices and aims to ensure clear accountability, responsibility and mitigation
of operational risk. We have constituted an Operational Risk Management Committee (ORMC) to oversee the
implementation of the Operational Risk Management framework. The framework comprises identification of
risks, assessment of controls to mitigate these risks, risks measurement, risks monitoring and mitigation. We have
formed an independent Operational Risk Management Group to facilitate its implementation.
TREASURY
The treasury operations comprise the balance sheet management function, the client-related corporate markets
business and the proprietary trading activity.
Fiscal 2008 saw the continuation of volatility in interest rates, varying liquidity conditions, global credit tightening and
inflationary concerns resulting in significant movement in the yield curve at various points in time. The government
bond markets witnessed significant volatility in yields. The balance sheet management function continued to
actively manage the government securities portfolio held for compliance with SLR norms to optimise the yield on
this portfolio, while maintaining an appropriate portfolio duration given the volatile interest rate environment. The
focus of our proprietary trading operations was to maximise profits from positions across key markets including
corporate bonds, government securities, interest rate swap, equity and foreign exchange markets. While the
adverse market conditions in the last quarter of fiscal 2008 had an adverse impact on equity proprietary trading
operations, the Bank capitalised on the opportunities in the fixed income markets realizing gains on its portfolio.
The Bank’s overseas branches and subsidiaries also invest in credit derivatives with a majority of exposures in
this portfolio being to Indian corporates.
We provide foreign exchange and derivative products and services to our customers through our Global Markets
Group. These products and services include foreign exchange products for hedging currency risk, foreign exchange
and interest rate derivatives like options and swaps and bullion transactions. We also hedge our own exchange
rate and commodity risks related to these products with banking counterparties.
In line with the international expansion of the bank, treasury functions have been set up in United States, Hong
Kong, Sri Lanka, Bahrain, Singapore and the Offshore Banking Unit in Mumbai to support the operations of these
branches.
HUMAN RESOURCES
We believe that it is imperative for industry in general, and the financial services industry in particular, to invest
in preparing industry-ready human talent to sustain its growth trajectory.
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