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Thursday, Sep 04, 2003

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Foreign banks score better in risk management: Survey

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Mr Ravi Mohan, Managing Director, Crisil, and Mr V. Leeladhar, Deputy Chairman, IBA, and CMD of Union Bank of India, at a seminar in Mumbai on Wednesday. -- Paul Noronha

Mumbai , Sept. 3

MOST Indian banks have internal rating models for large corporates but not for all types of borrowing entities, according to an IBA-Crisil survey on integrated risk management (IRM) in Indian banks.

Speaking at a seminar on `Risk management in banks in the changing environment', the Crisil Director, Mr D. Ravishankar said that the survey indicated varying degrees of preparedness in the area of risk management among different banks.

Foreign banks led in the area of IRM as almost all of those surveyed had such policies, compared to a minority of public sector banks and just over half of private banks, he added.

"Operational risk is a developing area and a majority of banks have a long way to go. When it comes to measuring and managing market risk, adoption is very limited. Integrated risk management frameworks are far more common in foreign banks than Indian ones.''

Speaking on the occasion of the release of the survey, which also charters a roadmap for the implementation of integrated risk management strategies, Mr V. Leeladhar, Chairman and Managing Director, Union Bank of India, and Deputy Chairman, IBA, said, "There is an increasing trend among banks for raising public money, which leads to the overall corporate goal of maximising the shareholder value."

He added: "In recent years, the stock market has accorded a price-earnings premium to financial institutions which have outperformed their competitors or are perceived to have operations in line with international practices, thus increasing their chances of survival in the long run.''

According to him, this has led to an increase in pressure on bank managements to move towards implementing policies, procedures and systems in line with international best practices.

"This has also focused banks' attention on optimising their resources, thus contributing to a move towards precise estimation of risk capital on an integrated basis.''

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