ICICI Bank 2011 Annual Report Download - page 194

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The key elements in the operational risk management framework include:
• Identification and assessment of operational risks and controls;
• New products and processes approval framework;
• Measurement through incident and exposure reporting;
• Monitoring through key risk indicators;
• Mitigation through process and controls enhancement and insurance; and
• Reporting of operational risk profiles to the business groups.
Identification and assessment
Operational risks and controls across the Bank are documented and updated regularly. Each business and operations
group in the Bank has business operational risk managers within the group. ORMG along with these managers
facilitates the business and operation groups for carrying out risk and control self-assessments on a periodic
basis as per the plan approved by the ORMC. Risk mitigation plans are monitored to ensure timely mitigation of
risks. Internal controls are tested by Internal Audit Group in the Bank. The testing results are incorporated in the
operational risk assessment. The Bank has a comprehensive Product and Process Approval framework along with
the detailed operating guidelines for effective new product and process risk management. As per the framework,
Bank has a Product and Process Approval Committee (PAC) in place. The role of PAC is to assess the proposed
product offering/process improvement from the business and operational perspective, examine the feasibility of
system requirements for supporting the product/process and ascertain that adequate risk mitigation and legal and
compliance measures are considered.
Measurement, monitoring, mitigation and reporting
Operational risk incidents are reported regularly and transactions results in losses are routed through operational
risk account. Root cause analysis is carried out for the significant operational risk incidents reported and corrective
actions are incorporated back into respective processes.
The Bank has initiated steps to adopt advanced approaches for operational risk capital computation. The Bank is
taking steps to compute capital charge across eight business lines as per the requirements of the standardised
approach for computation of operational risk capital charge. The Bank has been estimating operational VaR for the
purpose of ICAAP. The operational VaR is estimated based on the principles of advanced measurement approach
by using internal loss data, scenario analysis and external loss data. The operational VaR is stress tested on a
periodic basis to ensure adequacy of the capital provided for operational risk and is compared with trends of actual
losses.
Operational risk profiles are presented to the business and operations on a periodic basis. Operational risk exposures
(risk and control self assessment results, operational risk incidents analysis, key risk indicators and open risks) are
monitored by the ORMC on a quarterly basis and are also being reported to the business heads in the form of
dashboards on a quarterly basis. Operational risk management status along with significant incidents analysis is
updated to the Risk Committee and to the Board on a half-yearly basis. The level and direction of operational risk on
the basis of a set of key risk indicators covering six areas namely process, technology, people, event, outsourcing
and reputation, is presented to the Risk Committee and the Board on a quarterly basis.
For facilitating effective operational risk management, the Bank has implemented a comprehensive operational risk
management system in the financial year 2010. The software comprises five modules namely incident management,
risk and control self-assessment, key indicators, scenario analysis and issues and action. The Bank is in the process
of implementing economic capital system for operational risk during the financial year 2012.
Operational risk management in international locations
ORMG is responsible for design, development and continuous enhancement of the operational risk management
framework across the Bank including overseas banking subsidiaries and overseas branches. While the common
framework is adopted, suitable modifications in the processes are carried out depending upon the requirements
of the local regulatory guidelines. ORMG exercises oversight through the process of periodic review of operational
risk management in the international locations.
BASEL II – PILLAR 3 DISCLOSURES (CONSOLIDATED)
at March 31, 2011