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Thursday, 4 September 2014 00:00 - - {{hitsCtrl.values.hits}}
Speaking on the genesis of increased regulation when shifting from the BASEL II to BASEL III framework, Deloitte India Director Lakshmi Narasimhan asserted greater emphasis is required from the top management to ensure improvement on critical elements in this space.
With governance being about the involvement of the board itself, he stated that in terms of understanding the risk profile of banks, the top level should be informed enough to observe what is happening on the ground.
“The senior management is responsible to promote the risk culture and handle its sensitivity. There will be conflicts when interacting with the businesses but it is essential to stand firm and point out if the risk is to be avoided,” said Narasimhan at a seminar titled ‘Surging Capital Requirements at The Time for Growth’ hosted by SJMS Associates. He added that unlike other businesses, in banks, credit risks are unavoidable, eventually resulting in opportunity costs.
“Often this has to start with the senior management and they have to see things in an unbiased manner. They not only have to see the top line growth but also the risk that it brings in,” he explained.
Apart from governance and strengthening the risk processes, Narasimhan stressed the need for stronger policies where it should not be about the design alone but should be implementable and implemented. According to him the risk management framework is not just about the design of policies that address the risk the banks have but should go beyond that.
While it is imperative that it is closely monitored, it should be possible to demonstrate the functioning of the banks as per the policies.
“With risk management being in the spotlight there should be a need for the banks to strengthen it. That is in giving the power to challenge a questionable decision and providing the evidence for it. It is vital to have an advanced risk management approach, which is to have an in-house team to develop a new rating model and evolve it over a period of time.
Earlier on during his presentation he pointed out that while over the last 20 years there have been a lot of learning about embracing the BASEL framework, billions of dollars have been spent by banks on adopting the framework and shifting to the upgraded requirements as it evolves.
According to Narasimhan while it is not always about regulations it is also about where the regulation is heading. “If you see the typical mindset of banks in the US, there is fatigue since they have gone through the BASEL I, II and now III. One cannot argue that the risk and risk management of the regulation in some way become a deterrent to the business,” he said.
Pix by Lasantha Kumara
