Indian banks must harness risk management instruments to better tackle market risks
Banks in India lack robust risk management technology infrastructure and are thus underprepared to tackle the myriad of risks faced in the international marketplace of today. May 29, 2013 | Baron LaudermilkThe lack of investment in proactive risk management infrastructure and software has generally been an Achilles’ heel for Indian banks. As Basel III requirements begin placing stress on Indian banks, with non-performing loans continuing to rise in light of high inflation and slowing economic growth, domestic financial institutions must begin investing stress testing instruments to better predict and mitigate emerging risks before they become a problem. According to Premjit Chatterjee, founder and director at PRM Fincon, a niche risk technology firm, the domestic banking sector’s chief concern lies in its continued battle with rising NPLs in addition to the India’s weakened economy. At the end of the first half of the 2012/13 fiscal year, gross NPLs in India’s 10 largest government banks rose about 60% from a year earlier. The banks also account for the bulk of the NPL stock and restructured assets and are likely to see further pressure from the impact of the country’s economic slowdown in the next few quarters. According to ratings agency Moody’s, the outlook for India’s banking sector is likely to be negative for the next 18 months at the very least. India’s largest banks are faced with high NPL ratios due to a lack of proper risk management Figure 1. Indian banks’ NPL ratio (2013) Chatterjee cited credit and market risks as another major concern for Indian banks, as the economy is hampered by not only stagnating growth, high inflation, and a weak currency, but also by its dependency on the agricultural sector, which has experienced large swings depending on commodity prices and the all important monsoon season (since large agricultural tracts in India do not have access to artificial irrigation). While Indian banks are aware of the risks they have to contend with, according to Chatterj... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: India, Operational Risk, Risk and RegulationIndia,Oprisk,Risk and Regulation, India,Operational Risk,Risk and Regulation, Keywords:PRM Fincon, Premjit Chatterjee, Market Risk, Credit Risk, Predictive Analytics PRM Fincon, Premjit Chatterjee, Market Risk, Credit Risk, Predictive Analytics
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