DENA BANK INVITES EXPRESSION OF INTEREST FOR PROVIDING CONSULTANCY ON RISK MANAGEMENT The Expression of Interest document is presented

in following pages for interested parties to download. Responses to Invitation for Expression of Interest should be submitted in duplicate in sealed envelopes addressed to General Manager (IT & IRM) at Dena Bank Head Office, Dena Corporate Centre, C-10, G Block, Bandra Kurla Complex, Bandra East, Mumbai 400 051 before 4.00 PM on 3 rd January 2006. Offers received after the specified date and time will not be entertained. The Bank will issue Request for Proposal at a later date only to parties shortlisted after evaluation of Expression of Interest. The Bank reserves its right to reject any or all of the responses to Invitation for Expression of Interest received without assigning any reasons.

General Manager Information Technology & Risk Management 23rd December 2006

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Dena Bank Consultancy Services for an Integrated Risk Management Framework Request for Expression of Interest [EoI] 0.000 0.001 Information on the Bank: Dena Bank, founded in May 1938 is now a leading listed bank and is a Government of India enterprise. The Bank had 1122 branches as at 31st March 2006 (1122 as at 30th June 2006) including 98 satellite offices spread over 21 states and 3 Union Territories. Of these, 518 branches were located in Gujarat, 249 in Maharashtra and 74 in Chhattisgarh. The Bank had presence in almost all major cities / towns elsewhere. Of the 1122 branches, 491 (including 98 satellite offices) were located in rural areas, 191 in semi-urban, 236 in urban and 204 in Metro areas. The Bank does not have any branch outside the country. The Bank has 37 authorized dealer branches to undertake forex related business. The Bank has also set up 5 Asset Recovery Branches to focus on recovery efforts in large NPA accounts. The Bank has set up over 50 FINMARTS for marketing of its retail products and services. The Bank has a large bouquet of products and services to offer its customers. Apart from traditional asset & liability products and ancillary services like Safe Deposit Vaults, the Bank also has a number of Retail Banking schemes for housing loans, consumer durables, educational loans, mortgage loans etc. The Bank also offers its services in the form of Credit cards, ATM cum Debit cards, Kisan Credit Cards, Dena Laghu Udyami Credit Card, Dena General Credit Card etc. The Bank also had a special deposit scheme Dena Alpa Bachat Katha aimed at financial inclusion. The Bank has been active in corporate credit, agricultural credit, SME & SSI loans, retail credit and export credit. The loan book of the bank is well diversified covering a wide of sectors / industries of the economy. The Bank also offers non fund business like Letters of Credit, Guarantees etc. The Bank also distributes third party products like insurance (both life and non-life) and mutual funds. The Bank had entered into a number of tie-ups for this purpose. The balance sheet size of the Bank as at 31st March 2006 was Rs 26545.33 crores (Rs 24028.59 as at 31 st March 2005). The assets of the Bank included a loan book of Rs 14231.24 crores (Rs 11308.59 crores in previous year) and investments books of Rs 8570.67 crores (Rs 9696.95 crores in previous year) (figures are on net basis). The fixed assets of the Bank stood at Rs 460.53 crores as against Rs 293.27 crores in previous year. The Bank has posted operating profits in all years since its inception. 2

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Organisationally, the Bank has a three tier structure with Corporate Office at Mumbai, 18 Regional Offices and 1122 branches. The Regional Offices play the role of first level of control structure. In view of the large number of branches in Gujarat, the Bank has opened a general Managers Office in Gujarat to control and coordinate branches in the state. All branches of the Bank are computerized (partial / fully computerized, on stand alone basis) covering 98.3% of its business. The Bank has so far net worked 955 of its branches through its intranet facility, dial-up modem lines etc. In keeping with the universal trend of introducing ATMs as the most popular and convenient mode of delivery channels, a total of 240 ATMs have been installed all over the country as at 31st March 2006 and more ATMs are being added regularly. As of 31st March, 2006 the installation base of 240 ATMs covered 110 centres including 42 at offsite locations. Since then 15 more ATMs are in the process of installation in April 2006. The Bank is a member of VISA, thus facilitating the Banks cardholders to access their accounts from more than 1,00,000 Merchant Establishments (MEs) and VISA ATMs, all over India and more than 13 million MEs and 890,000 ATMs, internationally. In all 312 branches covering more than 100 centres have been technologically enabled to issue ATM / Debit cards. Apart from any VISA enabled & POS terminals, these cards can be used at any of the Corporation Bank ATMs, SBI ATMs as well as ATMs belonging to CASHTREE / CASHNET group of Banks. The Bank has recently joined National Financial Switch initiated ATM sharing arrangement. The Bank has a number of value added services over the ATMs like, Mobile Pre-paid Top-up. Any Branch Banking & Multi-City Cheque Facility has been introduced at 138 branches across 50 centres. In order to meet the emerging challenges in the banking arena, implementation of Basel II accord and risk management as well as customer focus in mind, the Bank has embarked upon a very important and strategic endeavor of conceptualizing and implementing a state of the art Core Banking Solution (CBS). Apart from the basic core Banking solution the Bank is also proposing to implement a boutique of third party applications which will change the way we Bank, keeping in mind the customer need. A host of third party applications are also slated for implementation as part of core banking that includes Risk Management (from M/S SAS), ALM (from M/S Oracle Corporation), Integrated Treasury Management (Credence Solution) etc. The Bank is adopting a complete end to end Outsourcing model with a 10 year contract period and has planned to rollout 850 branches under CBS environment in the next two years. Introduction: 3

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Dena Bank [hereinafter called The Bank or Bank] intends to have consultancy services for developing and implementing an enterprise wide integrated Risk Management Framework covering Credit, Market & Operational Risks to comply with Basel II norms & RBI guidelines and for benchmarking the proposed framework, systems & procedures etc against international best practices in Banking and implementing across Bank-wide units. The Bank invites reputed consultants satisfying the prescribed eligibility criteria to indicate their interest in providing their services. Consultants having required capabilities and ability to deliver the Banks requirements alone need to apply. Scope of Work: Diagnostic Study & Gap Analysis: To conduct a Diagnostic Study and Gap Analysis followed by formulating and implementing Credit, Market & Operational Risk Management Frameworks and also a Framework for enterprise wide integrated risk management to comply with Basel II norms & RBI Guidelines and benchmarked against the international best practices and achieving the following objectives: Review of Policies, Processes and Organization Structure pertaining to credit, market & operational risk management; Adopting Simplified Standardized Approach for Credit, Duration cum Maturity Approach for Market Risk & Basic Indicator Approach for Operational Risk Capital computation by March 2008 and suggesting ways of optimizing capital requirements; Recommending a MIS Framework, which will enable the Senior management to take decisions based on the risk taken in terms of Credit, Market & Operational risks involved; Introduction of Comprehensive RAROC approach and transfer pricing mechanisms; Framework for preparing the bank for Risk based Supervision by Reserve Bank of India including comprehensive risk profiling of the Bank, tools for aggregation of risk assessment on enterprise basis and strengthening the risk based internal audit process; Introduction of Internal Capital Adequacy Assessment Process for Credit, Market and Operational Risks separately; and Road map & Framework for Economic Capital computation from the Regulatory Capital computation.

2.200 Credit Risk Management: Review of Policies, processes and pertaining to Credit Risk Management;

Organization

Structure

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 Adopting Simplified Standardized Approach for Credit Risk Capital computation by March 2008 and suggesting ways of optimizing capital requirements; Road map for credit risk to migrate from standardized to Advanced Internal Ratings based Approach through Foundation Internal Ratings based Approach in a time-bound manner; Rating Migration Analysis including the data base needs, model building etc and calculation of segment wise Probability of Default, Exposure at Default and Loss Given Default parameters; Extension of the present Credit Rating Model of the bank to cover all exposures of Rs 2 lakh and above; Formulation of industry wise credit rating models at least for industries with major exposures and separate scoring models for the major segments like Retail & SME ; Identification of core areas of risk origination from credit risk perspective covering on and off balance sheet exposures; Framework for Risk based Pricing, Risk based delegation of credit approval authority, Risk based credit review process etc; 2.300 Market Risk Management: Framework for Cost to Close Analysis for efficient Funds / Liquidity Management; Framework for introduction of VaR analysis, Back-testing etc to cover State Government Securities, non-SLR portfolio including Equities & Forex Exposures and integration VaR as part of decision making process in Treasury; Framework for Stress Testing and Sensitivity Investments Portfolio including Forex Operations; Analysis in

Framework for introducing Hedging for market risk by way of derivatives handling; Revisiting the Banks existing Credit Rating Model for non-SLR investments; Framework for establishing a separate Market Risk Management unit and strengthening of Mid-Office/s; and Framework for migrating to VaR based Approach of capital allocation for market risk. 2.400 Operational Risk Management: Framework for Improvements in Identification of core areas of operational risk origination, Assessing, Controlling, Monitoring and Mitigation of Operational Risk; Identification of core areas of risk origination from an operational risk perspective; Road map for operational risk to migrate from Basic Indicator Approach to Advanced Measurement Approach through Standardized Approach in a time-bound manner; and ________________________________________________________________________ 5

 Framework for the data base needs, model building etc for capture, collation and analysis of data on Potential and Actual Loss Events to facilitate migration to Advanced Measurement Approach. 3.000 Eligibility Criteria: 3.001 The eligibility criteria for the consultants to participate in the bid process are as follows: The Consultant should have experience in developing & implementing credit, market, operational risk management frameworks and Integrated Risk Management system in at least one Bank in India [Private/Public] of comparable size (i.e. with a branch net work of around 1000 branches and a business-mix of at least Rs 40,000 crore) or at least in 2-3 international financial institutions / Banks, preferably abroad. The Consultant should involve international experts in the consultancy process and modeling. The Consultant should have a sizeable team [at least 100 experts with domain knowledge in various aspects of risk management / financial services The Consultant should have knowledge of the latest developments in the industry in managing credit, market & operational risk including Basel II norms, Regulatory guidelines applicable to banks operating in India and international best practices. The Consultant should be of international repute, and should have sufficient expertise in related areas like process re-engineering, internal audit including risk based internal audit, and quantitative modeling in Banks. The Consultant should have ready-to-deploy tools/framework for benchmarking against international best practices and exhaustive coverage of Basel II requirements . The Bank is procuring the requisite software (as detailed elsewhere) through a separate selection process and out of scope of this EoI. Software vendors who would like to provide consultancy services may be eligible consultancy subject to their fulfilling the eligibility criteria as stated in this document and as per the CVC guidelines. The Consultant should have complete understanding of Basel II and RBI Guidelines. The Consultant should have the capacity to execute the project through out the implementation cycle. The Consultant should be a profit-making firm for the last two years, and shouldve an annual turnover of minimum Rs 25 crores in each of the last two years (i.e. financial years 2004-05 and 2005-06 or calendar years 2004 and 2006 as per the published accounts of the consultant). ________________________________________________________________________ 6

 The Consultant should enclose documentary proof of all the above criteria along with their technical proposal. Proposals of Consultants, which do not comply with the above, will be rejected without assigning any reasons for the same. Bank reserves the right to amend the criteria without information to the consultants and at any stage of selection. 4.000 Deliverables: The Deliverables from the Scope of consultancy as defined hereinabove will cover the following, among others: A detailed report on the findings from Diagnostic Study and a Gap Analysis Report from a credit & operational risk perspective that should cover the existing governance structure, policies, procedures, and systems. The Gap Analysis report for migration to increasingly more risk sensitive approaches for credit, market and operational risk for capital allocation should be separate and should address the issues separately, in detail. Hand-on assistance to the Bank in addressing the gaps by designing new processes & policies, wherever needed. Assistance to the Bank in re-organizing the Risk Management Department at Corporate level and requisite structure at the level of Controlling Offices; creation of a separate cadre of Risk Managers; and provide necessary training to Risk related personnel and trainers of the Bank. Assist the Bank in achieving Basel II norms compliance under Pillar I, II and III in accordance with the date lines that are / may be set by Reserve Bank of India including migration to increasingly more risk sensitive approaches for Credit, Market and Operational Risk factors for capital allocation. Delivery of standard templates for data collection and mapping, and training the team from Bank on the usage and applicability of such templates to aid migration to increasingly more risk sensitive approaches for Credit, Market and Operational Risk factors for capital allocation. Consultant should help the Bank in designing data collection templates for estimation of Probability of Default [PD], Loss given Default [LGD] and Exposure at Default [EAD], Operational Risk VaR etc Assistance to the Bank in designing scoring models [PD] for Basel II specified asset classes. Assistance to the Bank in conducting a Risk & Control Self Assessment [RCSA], which should include identifying risk categories, risk owners, controls, control ownerships, and prioritizing risks based on judgment.

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Assistance to the Bank to develop a frame work of Key Risk Indicators [KRI] that includes identification, documentation and application of KRIs. Assistance to the Bank in designing report templates and devise a methodology for comparing the KRIs with Loss-event data and recalibrating the thresholds kept, wherever necessary. Design for a Loss-event Database framework to capture loss events, possible loss events and near-miss events with field level description. All MIS related templates to address Pillar II & III requirements for reporting to Senior Management / Board / Reserve Bank of India. Separate road maps for the transition from standardized approach to advanced approaches in credit risk and standardized approach to advanced measurement approach in operational risk. Consultant should also prepare a road map for the transition from regulatory capital to economic capital. Consultant should develop functional and technical specification document for a CRM solution for Capital computation, based on the framework and strategy implemented. Assist the Bank in designing a comprehensive MIS framework to help the management in taking pro-active steps to minimize risks by individual business lines. Consultant should develop functional and technical specification document for an ORM solution for Capital computation, based on the framework and strategy implemented. Consultant should develop the functional and technical specification documents for Credit, Market & Operational Risk Management solutions for Capital computation, based on the framework and strategy implemented. The above deliverables are only indicative and not exhaustive. For completeness, the above list of deliverables should be taken together with the Scope of the Consultancy as defined at Para 2.000 hereinabove along with sub paras thereunder. The information furnished herein is only indicative and must be considered only as advance information to assist the prospective bidders to decide whether or not to apply for pre-qualification. The time frame for providing the solutions shall be mutually decided between the Bank and successful bidder. Criteria for Shortlisting: Detailed Request For Proposal (RFP) will be issued as the next step, only to the short-listed parties. The Bank intends to shortlist 8

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the interested parties based the responses to this Expression of Interest and on the following items: a) Meeting the eligibility criteria, b) Experience in consulting on risk management, c) Previous engagements of similar nature, d) Understanding of Basel and RBI Guidelines. The Bank reserves its right to accept or reject any or all of the responses to this Expression of Interest without assigning any reason at its discretion.

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