Synopsis

for
Comprehensive Project Work
(MBA CP-402)
on

Submitted in Partial Fulfillment of the Requirement for the Award of

the Degree of
Master of Business Administration
By
Khalid Khursheed Qurashi
09-MBA-27
09-6194

Under the Supervision of

Prof. Saif Siddiqui
CMS - JMI

CENTRE FOR MANAGEMENT STUDIES

Jamia MIllia Islamia, New Delhi – 110025
Title

Risk Management in Banks.

Abstract

Risk management is the identification, assessment, and prioritization of risks (whether positive or
negative) followed by coordinated and economical application of resources to minimize, monitor, and
control the probability and/or impact of unfortunate events or to maximize the realization of
opportunities. Risks can come from uncertainty in financial markets, project failures, legal liabilities,
credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary.
The financial crisis exposed inherent weaknesses in the risk management system: soloed
infrastructures, disparate systems and processes, fragmented decision-making, inadequate forecasting
and a dearth of cohesive reporting, among others. The impact of these flaws on many institutions
shocked the industry. As a result, there has been a seismic shift in attitude toward risk.
Wherever there is investment, there exists Risk, and we have to analyse always the Risk quotient
before investing/lending. Risk exists because of the inability of the decision-maker to make perfect
forecasts. Forecasts cannot be made with perfection or certainty since the future events on which they
depend are uncertain. Risk arises in investment/lending evaluation.

The project is an attempt to understand the Risk Management in banking sector in detail. It provides a
thorough knowledge of various risk faced by the banks. The focus is basically with Indian context.
The report is divided in three different parts.
First part covers the study of risk in banking business, types of risk involved and their study in detail.
This part also covers RBI guidelines to bank risk management BASEL I and BASEL II accord.
The later part includes future risk management and what kind of practice of risk management will help
the bank to be a idealized bank in the future and in the end summing up with conclusion.
Risk Management in Banks is a systematic and comprehensive overview of modern risk management
practices in banks. Risk Management in banks have assumed an increasingly greater importance with
the globalization of Indian financial markets. Today, banks are exposed to a multiplicity of risks.
Sound risk management often involves a combination of both mathematical and practical aspects.
However I have tried my best to bring out the theory aspect of the risk management in bank.

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Introduction

Good risk management doesn’t slow an organization down – it helps it go faster. Effective risk
management not only protects existing value, but also results in better and faster decision making,
reduced costs, and improved performance. Many organizations, however, are not getting full value
from their investments in risk management because their risk processes are disconnected and critical
data and information are not shared.

Moreover, as global risks continue to shift at a dramatic pace, organizations must continuously
evaluate their risk management processes to ensure that they are focused on the risks that matter.
Organizations need to understand and manage the risks that threaten their strategic objectives and be
poised to capitalize on opportunities that will bring growth and efficiency.

In financial economics, a financial institution is an institution that provides financial services for its
clients or members. Probably the most important financial service provided by financial institutions is
acting as financial intermediaries. Most financial institutions are highly regulated by government.
Broadly speaking, there are three major types of financial institutions:
1. Deposit-taking institutions that accept and manage deposits and make loans, including banks,
building societies, credit unions, trust companies, and mortgage loan companies
2. Insurance companies and pension funds; and
3. Brokers, underwriters and investment funds.

As the markets stabilize, executives are bracing for steep cost increases as they boost the time and
systems dedicated to dealing with the aftermath of the crisis and the new regulatory frontier.
Multiple layers of complex regulations have increased documentation and reporting requirements. To
support these more frequent and complex inquiries, companies are deploying additional teams and
increasing investments in information management systems and technology aimed at streamlining data
gathering and management across the organization.

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The international banking system has experienced many significant structural changes over the last 25
years. Major Banks have merged, many institutions have become global, and banks seem increasingly
likely to pursue mergers and other alliances with insurance companies. Although institutions have
grown in size, competition has substantially increased. This is because, over the same period,
regulators have relaxed their rules and have allowed banks to offer new products and to enter new
markets and new business activities.
The Financial Services Act of 1999 lead to further far-reaching change. The proposed reform is
intended to allow bank holding companies to expand their range of financial services and to take
advantage of new financial technologies such as web-based e-commerce. The new legislation will also
put brokerage firms and insurers on a par with banks by allowing them to enter into the full range of
financial activities and compete globally. The expansion of the activities of bank holding companies
will incur new market, credit and operational risks.
Banks have found themselves competing more and more fiercely, reducing their profit margins, and
lending in larger sizes, longer maturities, and to customers of lower credit quality. Customers, on their
part, are demanding more sophisticated and complicated ways to finance their activities, to hedge their
financial risks, and to invest their liquid assets.

Objective

The objective of research is to study the Risk Management in Banks. The area of study in Risk
Management Would include: -
 To understand Risk Management in Banking sector.
 Study different types of Risk involved in Banking sector.
 Detailed study of Major Risks in Bank (Market, Operational, and Credit Risk)
 To understand the RBI norms and BASEL II Accord.

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Methodology

Research always start with a question or a problem. Its purpose is to question through the application
of the scientific method. It is a systematic and intensive study directed towards a more complete
knowledge of the subject studies. Marketing research is the function which links the consumer,
customer and public to the market through information– information used to identify and define
marketing opportunities and problem generate, refine, and evaluates marketing action, monitor
marketing actions, monitor marketing performance and improve understanding of market as a process.

Both primary and secondary data is used in the research .To conduct the research the data is collected
by two sources. But mostly Secondary data was collected and analyzed.
Primary Data:
The primary sources of data refer to the first hand information. Primary data is collected from the
company’s internal policies regarding Risk Management.
Secondary Data :
Secondary data is one, which already exists and is collected from the published sources.
The sources from which secondary data was collected are:
Publications of various Financial Institutions.
Sources like Economic Times and other Business Magazines.
Internet.

Research Limitations
 Data has been collected on the basis of convenience.
 As project was under taken during the college, so time is one of the constraint.
 Banks were not comfortable giving their details on what kind of risk does the bank faces.
 Area is also one of the limitation as the research was done in the mumbai region.

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  Risk Management in Banks

Risks manifest themselves in many ways and the risks in banking are a result of many diverse
activities, executed from many locations and by numerous people. As a financial intermediary, banks
borrow funds and lend them as a part of their primary activity. This intermediation activity, of banks
exposes them to a host of risks. The volatility in the operating environment of banks will aggravate the
effect of the various risks. The case discusses the various risks that arise due to financial
intermediation and by highlighting the need for asset-liability management; it discusses the Gap Model
for risk management.

REFERENCES AND BIBLIOGRAPHY

• Brochures provided by the Financial Institutions.

• Office visits of various companies
• Websites of Financial Institutions.
• Reserve Bank of India Website.
• Economic Times.

• www.jkbank.net/
• www.investopedia.com
• www.bankofbaroda.com
• www.moneycontrol.com
• http://en.wikipedia.org/wiki/  
• Financial institutions  
• www.google.com/scholar/  
• www.ey.com  
• www.amazon.ca/Risk-Management-Financial-Institutions  

Tentative Plan
Studying and understanding the area of concern Early January
Collection of Information Mid January to Mid February
Analysis Mid February to Early March
Finalizing Outcomes of Study By Mid March
Submission of Report By Ending March

Khalid Khursheed Qurashi

MBA (Finance) 2009-2011
Centre for Management Studies
Jamia Millia Islamia, New Delhi
Place: New Delhi
Date: 07-01-2011
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