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Basel II Integrated Risk Management Solution

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Problem:

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Proposed Solution:

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Key Benefits:

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Leveraging the Benefits ofProposed solution:

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2. Introduction:'FXJQ..NXYMJWJ[NXJIHFUNYFQFHHTWITK'FXJQ.'FXJQ..FHHTWIIJKNSJXYMJ

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Three pillars of Basel II:

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2.1 Types of Risks:

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2.2 Minimum Capital Allocation for credit risk

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2.2.1 Standardized Approach:

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2.2.2 Internal Rating (IR) Approach

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2.3 Minimum Capital Allocation for Market Risk

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2.4 Minimum Capital Allocation for Operational Risk

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2.4.1 Basic Indicator approach:

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2.4.2 Standardized indicator approach:

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2.4.3 Advanced Measurement Approach (AMA):1TXXINXYWNGZYNTSFUUWTFHMNXTSJTKYMJFI[FSHJI[JWXNTSXNSYMNXFUUWTFHMNS

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3. Why Banks Prefer Risk Management Solution:

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4. Proposed Solution:9TRJFXZWJHWJINYWNXPRFWPJYWNXPTUJWFYNTSWNXPGFSPXSJJIYT

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Banks MIS

Dedicated

CRM

Application

External

Data*]7FYNSL

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Data repository

(Internal &

External data)

OPERATIONAL

RISK

CREDIT MARKET

RISK RISK

Derivative

SuiteCapital Allocation

Module

Banking

Dashboard

Risk Identification Risk Measurement Risk

Mitigation

4.1 Anatomy of the Risk Management Solution:

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4.2 Risk Identification Module:

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Name of the Data

Source

Data to be extracted Purpose of extracting the

data.

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4.3 Risk Measurement Module:

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4.4 Risk Analysis Engine:

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4.4.1 Measurement of Credit Risk:

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Expected Loss = Probability of Default (PD)* Loss Given at Default (LGD) *

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4.4.2 Measurement of Market Risk:

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duration of banks liabilities

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4.4.3 Foreign Exchange risk and Commodity risk measurement:

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4.4.4 Measurement of Operational Risk:

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Operational Loss= Probability of loss event (PE)* Loss given that event (LGE)

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5*1,*

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4.5 Risk Mitigation Module:

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8/8/2019 dee2

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6. Value Addition (benefits) to clients:-JQUGFSPXYTXFYNXK^YMJYMWJJUNQQFWXTK'FXJQ..

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6.1 ROI to the Clients:

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&XUJW4WFHQJXXZW[J^TK:8GFSPXFWJFHMNJ[NSLMNLMWJYZWSTS

NS[JXYRJSY74.G^NRUQJRJSYNSLWNXPRFSFLJRJSYXTQZYNTS

6.2 Value Addition to existing clients of IT companies-Cross

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Selling:

8NSHJ'FXJQ..HTRUQNFSHJNXFUUQNHFGQJYTRTXYTKYMJLQTGFQGFSPXFSIYMJ^

SJJIFS*SYJWUWNXJWNXPRFSFLJRJSYXTQZYNTS.9HTRUFSNJXHTZQITKKJWYMJ

XTQZYNTSYTNYXJ]NXYNSLGFSPNSLFSIKNSFSHNFQXJW[NHJHQNJSYX

7. Way Forward:9MJXZLLJXYJIWNXPRFSFLJRJSYXTQZYNTSHTZQIGJHZXYTRN_JIFSITKKJWJIYT

2NHWTKNSFSHJNSXYNYZYNTSX2+.3TSGFSPNSLKNSFSHNFQNSXYNYZYNTSXFSI

.SXZWFSHJHTRUFSNJXGJHFZXJWNXPRFSFLJRJSYNXXYNQQFHMFQQJSLJKTWFQQ

YMJXJKNSFSHNFQXJW[NHJX

8. Limitations: .SJFHMRTIZQJYMJRTXYUWJKJWWJIRJYMTITQTL^YTRJFXZWJYMJWNXP

XZLLJXYJIG^.'8.SYJWSFYNTSFQ'FSPTK8JYYQJRJSYXNXJ]JHZYJI*]HWJINY

7NXPNXRJFXZWJIG^&I[FSHJ.SYJWSFQ7FYNSLFUUWTFHM2FWPJYWNXPNX

RJFXZWJIG^IZWFYNTS.KGFSPX\FSYYTZXJXTRJTYMJWRJYMTITQTL^YT

RJFXZWJYMJWNXPNYNXSTYUTXXNGQJNSYMNXXTQZYNTS

'FSPXXMTZQIMF[JFQWJFI^FS.9XJYZUQNPJNRUQJRJSYFYNTSTK(72

FUUQNHFYNTS4YMJW\NXJNY\NQQYFPJMZLJNS[JXYRJSYTKYNRJFSIRTSJ^YT

NRUQJRJSYXZHMFSJSYJWUWNXJWNXPRFSFLJRJSYXTQZYNTSYTGFSPX

&[FNQFGNQNY^TKIFYF(QNJSYXIFYF.SYJWSFQQTXXJ[JSYXIFYFYTRJFXZWJYMJ

WNXP .SYMNXFWYNHQJ.9HTRUFSNJXWJKJWXYTRNIXN_JI.9HTRUFSNJXXNSHJRTXYTK

YMJRNIXN_JI.9HTRUFSNJXMF[JSTYYFUUJIYMJUTYJSYNFQTK'FXJQ..

9. Alternative Solution:9TIJ[JQTUYMJXZLLJXYJIWNXPRFSFLJRJSYXTQZYNTSNYWJVZNWJXFXYWTSL

ITRFNSJ]UJWYNXJFSIJKKNHNJSYYJHMSNHFQUQFYKTWR

.SXYJFITKIJ[JQTUNSLYMJXTQZYNTSHTRUQJYJQ^G^.9HTRUFSNJXYMJ^HTZQI

MF[JXYWFYJLNHUFWYSJWXMNU\NYMWNXPRFSFLJRJSYXTQZYNTSUWT[NIJWXQNPJ8&8YTTKKJWYMJXTQZYNTS

10. Market Potential for Risk Management solution:&HHTWINSLYT,FWYSJW8JUYJRGJWWJUTWYRFWPJYXN_JNSYJWRXWJ[JSZJ

UTYJSYNFQKTW'FXJQ..XTQZYNTSNXLWJFYJWYMFSRNQQNTSNS:8KTW

&XUJW&HHJSYZWJXWJHJSYXZW[J^TK*ZWTUJFSGFSPXXFNIYMJ^J]UJHYJI

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16/17

YTNS[JXYFUUWT]NRFYJQ^*ZWTRNQQNTSNS\MNHMNXRTWJYMFS

UWJ[NTZX^JFWNS[JXYRJSYX

&XUJWWJHJSY)FYF6ZJXYXZW[J^.SINFSGFSPX\NYMXN_FGQJSZRGJWTK

GWFSHMJX\NQQNS[JXYRNS.9FSIWNXPRFSFLJRJSYXTQZYNTSXYT

NRUQJRJSY'FXJQ..

&X5JW(7.8.3+&(JXYNRFYJXYMJLWT\YMWFYJNS'+8.XJHYTW\NQQGJ

NSSJ]Y^JFWXFSIPJ^IWN[JWXTKYMNXLWT\YMWFYJ\NQQGJNSST[FYN[J

GFSPNSLXTKY\FWJ(727NXPRFSFLJRJSYXTQZYNTSX\MNHMFWJYMJPJ^

IWN[JWXTKNRUQJRJSYNSL'FXJQ..

11. Conclusion:(ZWWJSYQ^TSQ^[JW^KJ\RNIXN_JI.9HTRUFSNJXTKKJWNSYJLWFYJIWNXP

RFSFLJRJSYUFHPFLJ.SKZYZWJSTYTSQ^GFSPXGZYRTXYTKYMJKNSFSHNFQXJW[NHJXHTRUFSNJX\NQQGJNSFSJJIFSNSYJLWFYJIWNXPRFSFLJRJSYFSI

RNYNLFYNTSUFHPFLJX

'FSPXSJJIWNXPRFSFLJRJSYUFHPFLJXSTYTSQ^YTFIMJWJ'FXJQ..FQXTKTW

JKKJHYN[JWNXPRFSFLJRJSYFSIRNYNLFYNTSJKKJHYN[JHFUNYFQFQQTHFYNTSLFNS

HTRUJYNYN[JFI[FSYFLJIJ[JQTUYMJWTGZXYX^XYJRFSIUWTHJXXNRUWT[J

WJUTWYNSLX^XYJRXFSIYWFSXUFWJSH^FSIHTXYWJIZHYNTSYMWTZLMIJYFNQJIIFYF

FSFQ^XNX

.9HTRUFSNJXHTZQIFQXTTKKJWYJHMSNHFQHTSXZQYNSLYTGFSPXFSIKNSFSHNFQXJW[NHJXNSIZXYW^WJLFWINSLNRUQJRJSYFYNTSFSIRFNSYJSFSHJTKWNXP

RFSFLJRJSYKWFRJ\TWP\MNHM\NQQWJFUXNLSNKNHFSYRTSJYFW^GJSJKNYXYT.9

HTRUFSNJX

12. References:

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Risk Management By: Indian Institute of Management and Finance (2005edition)Journals1. International Convergence of Capital Measurement and Capital Standards-

A Revised Framework Comprehensive Version Jun 2006 by Bank for

International Settlements2. Choosing Bankruptcy predictors using Discriminant Analysis, Logit

Analysis, and Genetic Algorithms. By: Barbo Back :- Turuku School ofEconomics & Business Administrtion ,Finland Teija Laitinen:- University of Vaasa, Finland Kaisa Sere:-University of Kuopio, Finland3. Quantifying CreditRisk I Default protection By: Stephen Kealhofer - KMVCorporation, California.4. Risk management in Financial services industry By:Arjun C.Marphatia andNishant Tiwari5. Panel Discussion on Basel II Emerging market perspectives By: Jaime

caruana:- Governor of Bank of Spain and Chairman of Basel committee onbanking supervision.6. Oracles Basel II solution By: Pal Ribarics:- Oracle Corporation7. From risk analysis to risk control By: Robert Gutlederer:- Head of FinancialEngineering, AIM software.