ICICI Bank 2010 Annual Report Download - page 188

F108
2. Proper classification, valuation and accounting of investments and derivatives portfolio.
3. Adequate and proper reporting of investments and derivative products.
4. Compliance with regulatory requirements.
5. Effective control over the operation and execution of market related transactions.
Structure and organisation of the market risk management function
The Market Risk Management Group (MRMG), which is an independent function, reports to the Head - GRMG.
MRMG exercises independent control over the process of market risk management and recommends changes
in policies and methodologies for measuring market risk.
To comply with the home and host country regulatory guidelines and to have independent control groups
there is clear functional separation of:
z Trading i.e. front office;
z Monitoring & control i.e. middle office; and
z Settlements.
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
Appropriate 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 have adequate data integrity controls. The deal slips generated from the systems 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 minimise
exceptions.
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. The Bank also periodically reports to its various regulators as
per the reporting requirements of the respective regulators.
Measurement
The Bank 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 (VaR), duration of equity
(DoE), price value of basis point (PV01), stop loss, amongst others. Based on the risk appetite of the Bank,
limits are placed on the risk metrics which are monitored on a periodic basis.
Hedging and 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.
Frameworks in overseas banking subsidiaries
Frameworks that are broadly similar to the above framework have been established at each of the overseas
banking subsidiaries of the Bank to manage market risk. The frameworks are established considering host
country regulatory requirements as applicable.
BASEL II – PILLAR 3 DISCLOSURES (CONSOLIDATED)
at March 31, 2010