Page 38 - DMGT303_BANKING_AND_INSURANCE

Unit 2: Reserve Bank of India

Central banks need to interpret the concept of risk in a very broad sense. Risk includes not only Notes
the identification and control of financial market risks and payment systems risks, but also
reputation risks, political risks, regulatory risks, technological risks and moral hazards. Thus:
1. The key tasks of all central banks – monetary and exchange rate policy, oversight of
payment systems, supervision, and crisis management – all require central banks to manage
risk.
2. Central bankers need to identify and manage political and reputation risks.
3. Organize a risk management department so that it can work effectively with the internal
audit department, the external auditors and the financial control department.
4. Larger central banks are leading the way in developing risk management procedures and
translating this into corporate governance in the central bank.
5. For smaller banks with limited resources, setting up a separate risk management
department is often not feasible. In these circumstances, risk has to be assessed and
controlled by departmental heads.
6. Rising “risk awareness” is widely recognized as an important step to reducing operational
risk for the organization as a whole.
In nutshell, a risk identification and management culture has to be developed in a central bank.

Self Assessment

Fill in the blanks:
11. The Reserve Bank of India has the responsibility to maintain the official .............................

12. .................................... need to interpret the concept of risk in a very broad sense.
13. The .............................................. has been operating selective controls since 1956 in respect
of certain commodities, which have been sensitive or in short supply.

14. The survey of central bank risk managers confirms that a high ............................... of central
banks is currently restructuring their risk management operations.
15. The Banking Regulation Act confers wide powers on the Reserve Bank of India to control
the level and pattern of banks’ ............................... in general or on a selective basis.

Case Study Case: YES Bank

A little about YES Bank
YES Bank Ltd. is the newest entrant in the Indian Banking Sector. It started operations in
November 2004 and has already created a presence in the Industry by virtue of its innovative
Business Model. YES Bank aims to be a state-of-the-art technology driven, high quality,
private Indian Bank catering to Emerging India?
The company's growing pains
With no legacy systems to inherit, YES Bank was looking at associating with a complete IT
partner who would:

Contd....

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