Effective Risk Management in United Bank Of India

The concept of risk and risk management are core of financial enterprise. The importance of appropriate and effective risk management are always stressed by regulators. Bank of International Settlements (BIS) through Basel Accords has also stipulated risk management practices required for banks. Union Bank of India (UBI) has taken various initiatives for strengthening risk management practices. Bank has an integrated approach for management of risk and in tune with this, formulated policy documents taking into account the business requirements / best international practices or as per the guidelines of the national supervisor.

UBI has made policies to address risks in three different areas. These are

1. Credit Risk (including Loan Policy, Credit Monitoring Policy,  Real Estate Policy,  Credit Risk Management Policy, Collateral Risk Management Policy, Recovery Policy and Treasury Policy.)
2. Market Risk (articulated in ALM Policy and Treasury Policy)
3. Operational Risk: It will take into account Operational Risk Management Policy, Business Continuity Policy, Outsourcing Policy and  Disclosure Policy.

In case of Credit Risk UBI did teh following things:

• They spelled out the target markets, risk acceptance / avoidance levels, risk tolerance limits, preferred levels of diversification and concentration, credit risk measurement, monitoring and controlling mechanisms in a precise manner.
• Standardized Credit Approval Process.
• Prepared a comprehensive credit rating / scoring models being applied in the spheres of retail and non-retail portfolios of the bank.
• The Credit rating system was divided into eight borrower grades for standard accounts and three grades for defaulted borrowers.
• Followed Proactive credit risk management practices in the form of studies of rating-wise distribution, rating migration, probability of defaults of borrowers, etc.
• Quantifying risk in a consistent, reliable and valid fashion, which will ensure advanced level of sophistication in the Credit Risk Measurement and Management.

Efforts put in Market Risk;

• Procedures, processes and structure of the Asset Liability Management Policy and the Treasury Policy were defined clearly.
• The ALCO was entrusted with the task of market risk management. The Committee decides on product pricing, mix of assets and liabilities, stipulates liquidity and interest rate risk limits, monitors them, articulates Bank’s interest rate view and determines the business strategy of the Bank.
• Bank has put in place a structured ALM system with 100% coverage of data on both assets and liabilities.
• To measure liquidity and interest rate risk, Bank prepares various reports such as Structural Liquidity, Interest Rate Sensitivity, Fortnightly Dynamic Statement etc.
• A Mid Office group was formed and positioned in treasury with independent reporting structure on risk aspects.

Things done to improve the Operational Risk aspect;

• Bank has adopted a Comprehensive Operational Risk Management Policy. This would entail the bank to move towards enhanced level of sophistication in the years to come and will capture qualitative and quantitative measures of Operational Risk.
• Development of a comprehensive system of internal controls, systems and procedures to monitor and mitigate risk.
• Bank has institutionalized new product approval process to identify the risk inherent in the new product and activities.
• The Internal audit function of the Bank and the Risk Based Internal Audit, compliments the banks ability to control and mitigate risk.

These are the few things which UBI did in order the go in for Effective Risk Management.

Tell me ways to achieve Effective Risk Management not only in Banking sector but also in other areas.