ICICI Bank 2013 Annual Report Download - page 196

F118
9. MARKET RISK IN TRADING BOOK
a. Market risk management policy
Risk management policies
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, credit spreads and other asset prices.
The market risk for the Bank is managed in accordance with the Investment Policy and Derivatives Policy
which are approved by the Board. The policies ensure that operations in securities, foreign exchange and
derivatives are conducted in accordance with sound and acceptable business practices and are as per the
extant regulatory guidelines, laws governing transactions in financial securities and the financial environment.
The policies contain the limit structure that governs transactions in financial instruments. The policies are
reviewed periodically to incorporate changed business requirements, economic environment and changes
in regulations.
Risk management objectives
The Bank manages its market risk with the broad objectives of:
1. Management of market risk such as interest rate risk, currency risk, equity risk and credit spread risk
arising from the investments and derivatives portfolio.
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 - RMG.
MRMG exercises independent control over the process of market risk management and recommends
changes in policies and methodologies for measuring market risk. There is clear functional separation of:
• Trading i.e. front office; and
• Monitoring, control, settlements and accounting i.e. Treasury Middle Office Group (TMOG).
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. Monitoring
TMOG is responsible for an independent check of the transactions entered into by the front office. It also
monitors all limits laid down in the Investment Policy.
2. System controls
The system used for recording, processing, monitoring and accounting of treasury transactions have
adequate data integrity controls. The process for enabling/disabling role-based access is also documented.
3. Delegation and Exception handling processes
Keeping in view the size of the investment portfolio and the variety of securities that the Bank deals
in, authority for investment decisions has been delegated to various dealers depending on business
requirements.
BASEL II – PILLAR 3 DISCLOSURES (CONSOLIDATED)
at March 31, 2013