ICICI Bank 2012 Annual Report Download - page 45

Annual Report 2011-2012 43
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.
Operational Risk: Operational risk is the risk of loss resulting from inadequate or failed internal processes,
people or systems, or from external events. Operational risk includes legal risk but excludes strategic and
reputational risks. Operational risk is inherent in the Bank’s business activities in both domestic as well as
overseas operations and covers a wide spectrum of issues. Operational risk can result from a variety of
factors, including failure to obtain proper internal authorisations, improperly documented transactions,
failure of operational and information security procedures, computer systems, software or equipment,
fraud, inadequate training and employee errors. Operational risk in the Bank is managed through a
comprehensive system of internal controls, systems and procedures to monitor transactions, key back-
up procedures and undertaking regular contingency planning. The control framework is designed based
on categorisation of functions into front-office comprising business groups, middle office comprising
credit and treasury middle offices, back-office comprising operations, corporate and support functions.
The Bank’s operational risk management governance and framework is defined in the Operational Risk
Management (ORM) Policy approved by the Board of Directors. The Policy is applicable across the
Bank including overseas branches, ensuring a clear accountability and responsibility for management