ICICI Bank 2011 Annual Report Download - page 41

Our credit officers evaluate retail credit proposals on the basis of the product policy approved by the Committee of
Executive Directors and the risk assessment criteria defined by the Credit Risk Management Group. These criteria
vary across product segments but typically include factors like the borrower’s income, the loan-to-value ratio and
demographic parameters. The technical valuations in case of residential mortgages are carried out by empanelled
valuers or technical teams. External agencies such as field investigation agencies and credit processing agencies are
used to facilitate a comprehensive due diligence process including visits to offices and homes in the case of loans
to individual borrowers. Before disbursements are made, the credit officer checks a centralised delinquent database
and reviews the borrower’s profile. In making our credit decisions, we also draw upon reports from credit information
bureaus. We also use the services of certain fraud control agencies operating in India to check applications before
disbursement.
In addition, the Credit and Treasury Middle Office Groups and the Operations Group monitor operational adherence to
regulations, policies and internal approvals. We have centralised operations to manage operational risk in most back
office processes of the Bank’s retail loan business. The Fraud Prevention Group manages fraud related risks through
forensic audits and recovery of fraud losses. The segregation of responsibilities and oversight by groups external to
the business groups ensure adequate checks and balances.
Our credit approval authorisation framework is laid down by our Board of Directors. We have established several
levels of credit approval authorities for our corporate banking activities like the Credit Committee of the Board of
Directors, the Committee of Executive Directors, the Committee of Senior Management, the Committee of Executives
(Credit) and the Regional Committee (Credit). Retail Credit Forums, Small Enterprise Group Forums and Corporate
Agriculture Group Forums have been created for approval of retail loans and credit facilities to small enterprises and
agri based enterprises respectively. Individual executives have been delegated with powers in case of policy based
retail products to approve financial assistance within the exposure limits set by our Board of Directors.
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 and other asset prices. The prime source of market risk for
the Bank is the interest rate risk we are exposed to as a financial intermediary. In addition to interest rate risk, we are
exposed to other elements of market risk such as liquidity or funding risk, price risk on trading portfolios, exchange
rate risk on foreign currency positions and credit spread risk. These risks are controlled through limits such as duration
of equity, earnings at risk, value-at-risk, stop loss and liquidity gap limits. The limits are stipulated in our Investment
Policy, ALM Policy and Derivatives Policy which are reviewed and approved by our Board of Directors.
The Asset Liability Management Committee, which comprises wholetime Directors and senior executives meets on
a regular basis and reviews the trading positions, monitors interest rate and liquidity gap positions, formulates views
on interest rates, sets benchmark lending and base rates and determines the asset liability management strategy in
light of the current and expected business environment. The Market Risk Management Group recommends changes
in risk policies and controls and the processes and methodologies for quantifying and assessing market risks. Risk
limits including position limits and stop loss limits for the trading book are monitored on a daily basis by the Treasury
Middle Office Group and reviewed periodically.
Foreign exchange risk is monitored through the net overnight open foreign exchange limit. Interest rate risk of the overall
balance sheet is measured through the use of re-pricing gap analysis and duration analysis. Interest rate gap sensitivity
gap limits have been set up in addition to limits on the duration of equity and earnings at risk. Risks on trading positions
are monitored and managed by setting VaR limits and stipulating daily and cumulative stop-loss limits.
The Bank uses various tools for measurement of liquidity risk including the statement of structural liquidity, dynamic
liquidity gap statements, liquidity ratios and stress testing. We maintain diverse sources of liquidity to facilitate
flexibility in meeting funding requirements. Incremental operations in the domestic market are principally funded by
accepting deposits from retail and corporate depositors. The deposits are augmented by borrowings in the short-term
inter-bank market and through the issuance of bonds. Loan maturities and sale of investments also provide liquidity.
Our international branches are primarily funded by debt capital market issuances, syndicated loans, bilateral loans and
bank lines, while our international subsidiaries raise deposits in their local markets.
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