Title of the Project : A Study of Risk Management in the Banking Sector(HDFC BANK )

Subtitle: Analyzing Key Risks and Management Techniques

Name: Pornima Kashetti

Institution Name : institute of Technical Education research & Management

By-pornima kashetti
Roll no-2024127
 INTRODUCTION
The study emphasizes on the importance of risk management and a detailed explanation of
risk management practices in banking industry. The study will discuss the challenging
aspects of implementation of risk management in banking and . Risk taking is an integral
part of both banking industry . The complex business environment has emerged the
importance of risk management. Risk can occur from various causes like legal liabilities,
project failure or uncertain events. Exposure to risks can create hurdles in achieving
objectives which will make the situation critical. But managing the risks can help in
overcoming the hurdles. Various institutions like Project Management Institute, National
Institute of Standards and Technology, actuarial societies and ISO standards have
developed risk management standards. Methods, definitions and goals vary widely
according to whether the risk management method is in the context of project management,
financial portfolios, actuarial assessments, or public health and safety. Risk management is
the process of identification of risks prevailing in the industry, developing plans to manage
identified risks and bringing the developed plans into action. Risk management does not
eliminate the prevailing risks but can take measures to mitigate them.
Statement of the Problem

1.The banking sector is inherently exposed to a wide range of risks, including

2.credit risk, market risk, operational risk, liquidity risk, and systemic risk. These risks
have the potential to significantly impact a bank’s financial health, stability, and reputation,
as well as the broader financial system.
Purpose of the Project

1) To Identify Key Risks Faced by Banks

2) To Evaluate the Effectiveness of Existing Risk Management Frameworks

3) To Examine the Role of Technology in Risk Management

4) To Investigate the Challenges in Managing Emerging Risks
5) To Assess the Relationship Between Risk Management and Bank Performance
OBJECTIVES OF THE STUDY

1. To study the Capital and Interest rate Risk Management of HDFC bank
2. To analyses the impact of Capital Risk and Interest Rate Risk of Banks performance
3. To make a comparative study on credit recovery management of HDFC
4. To provide suggestions for the improvement of Credit Risk Management Policy of the
Bank
Executing the Project:

• Risk Identification: ...

• Risk Assessment: ...
• Risk Measurement: ...
• Risk Mitigation: ...
• Monitoring and Reporting: ...
• Governance and Compliance:
Detailed Processes:

1. Risk Identification:

This involves pinpointing potential risks that could impact the bank's operations, such as credit risk, market risk,
operational risk, and compliance risk. According to Testbook, this is the initial step in the risk management process.

2. Risk Measurement:

Once risks are identified, they need to be measured or quantified. This involves assessing the likelihood and potential
impact of each risk. SATHEE notes that risk measurement helps banks understand the severity of potential losses.

3. Risk Mitigation:

This step involves implementing strategies to reduce the likelihood or impact of identified risks. SATHEE also mentions
that risk mitigation can include diversifying loan portfolios, implementing strict internal controls, or using risk
management software.

4. Risk Control and Monitoring:

These involve setting up and maintaining controls to prevent or minimize the impact of risks. Continuous monitoring of
these controls ensures their effectiveness and allows for adjustments as needed. As Testbook points out, monitoring
helps identify emerging risks and ensures ongoing management.

5. Risk Pricing:

This involves incorporating the cost of risk management into the pricing of products and services offered by the bank.
According to Testbook, this ensures that the bank can cover the costs of managing risks and remain profitable.

.
Key Considerations:
• Regulatory Compliance:
• Banks must comply with all relevant regulations and guidelines related to risk management.
• Internal Controls:
• Strong internal controls are crucial for identifying, assessing, and mitigating risks, as noted
by Intone Networks.
• Technology and Analytics:
• Utilizing technology and analytics can help banks automate risk management processes,
improve accuracy, and gain real-time insights into risks.
• Employee Training and Awareness:

• Educating employees on risk management policies and best practices is essential for building
a risk-conscious culture
 Abstract

The study aimed to know about a study on market risk management in banking sector with reference to
SBI and HDFC bank. The study have considered secondary data for the period 2009-10 to 2019-20. The
study have noticed that there is more risk in the HDFC bank through the statistics applied and there is
Ordinary least squares applied and trend analysis to know the capital risk and interest rate risk. The
study implies that E-views software has been applied to take the outcome of the statistics. Study have
concluded that it has identified the risk more in the HDFC in the year 2019-2020 with 120.02. This
study have the scope for the further research.
Keyword: Capital Risk, Interest Rate Risk, HDFC, Risk Management
diversification, on the other hand, expose banks to risks and challenges.
As a result, commercial banks are in the risk business. Furthermore,
banks are extremely interconnected, so a single point of failure can
cause widespread disruption in the economy. As a result, in order to
maintain a country's economic system's momentum of growth, the
banking sector must be managed efficiently in order to respond to
changing times. A very healthy and prudent banking sector can
withstand financial system risk and shock and ensure overall financial
stability (RBI, 2011). Since the last two decades, the terminology of Risk
and Governance has gained traction in the financial world. The upheaval
caused by the global financial crisis has sparked more interest in risk
management than ever before
REVIEW OF LITERATURE

 Blum (1999) has conducted a study where the effect of capital adequacy rules on bank
risk taking behavior of a single bank is analyzed under the regulated and unregulated
environment. Employing a dynamic model, the study finds that capital regulation is not
adequate if the objective of the bank is to reduce insolvency risk. The immediate effect
of tight capital regulation would result in less profitability which would ultimately
affect bank’s stability negatively. In other words, capital adequacy requirement
increases the risk of banks. Cebenoyan and Strahan (2004) has conducted a study to
examine the effect of credit risk management on bank‟s capital structure, lending
behavior and profitability of all domestic commercial banks in the United States during
1987 to 1993. The findings reveal that there exists a strong correlation between capital,
liquidity and credit risk management. The findings indicate that those banks which are
active dealer in buying and selling loans tends to be more profitable than theothers and
can manage with less liquidity and less capital. Furthermore, these banks are found to
be more flexible as well as aggressive players in the market.
RESEARCH METHODOLOGY

1.The study is purely based on secondary data,

2.The secondary data is collected from magazines, annual reports, internet, textbooks.
HYPOTHESES OF THE STUDY

H01: There is no difference between the Capital risk HDFC banks

H02: There is no difference between the Capital risk of HDFC banks
H03: Capital Risk Management and Interest Rate Risk has no impact on Banks
performance.
 RESEARCH METHODOLOGY

The present study will focus on SBI Bank (Public Sector Bank) and HDFC Bank (Private Sector Bank) by taking
into consideration past 10 years data i.e., from 2009-10 to 2018-19. The study would consider Bankometer Model
(Capital Risk Management) and GAP analysis (Interest Rate Risk Management) with respect to Risk management
of banks. The study used the IMF has developed and suggested to consider the Bankometer to measure the financial
condition of the banks.
S = 1.5 times X1 + 1.2 times X2 + 3.5 times X3 + 0.6 times X4 + 0.3 times X5 + 0.4 times X6
Whereas:
X1 = CA or Capital Asset Ratio
X2 = EA or Equity to Asset
X3 = CAR or Capital Adequacy Ratio
 GAP Analysis

It is an interest rate risk management tool based on the balance sheet which focuses on the potential
variability of net-interest income over specific time intervals. Interest sensitive gap (DGAP) reflects the
differences between the volume of rate sensitive asset and the volume of rate sensitive liability and
given by, GAP = RSAs – RSLs The information on GAP gives the management an idea about the
effects on net-income due to changes in the interest rate. Positive GAP indicates that an increase in
future interest rate would increase the net interest income as the change in interest income is greater
than
the change in interest expenses and vice versa. (Cumming and Beverly, 2001)
In order to find out the appropriate regression model, the study has undertaken most widely used
tests: Ordinary Least Method by using Eview software, Paired t-test is used to identify the difference
between the two banks.
Results and Discussion

Objective 1: To study the Capital and Interest rate Risk Management of HDFC bank
TABLE 1 REPRESENT THE CAPITAL RISK OF HDFC
The above table and graph represent the capital risk with respect to HDFC
bank. The study considered the capital risk for the period of 2010-2011 to
2019-2020. Initially, the capital risk of HDFC is 119.0, which decreases to 8
points in the year 2011-2012 and increases to 114.05 in the year 2012-2013.
It was also discovered that from 2013-2014 to 2014-2015, the capital risk of
SBI was 115 in both years. It was also discovered that from 2015-2016 is quite
low than previous year that is 2014-2015, in 2016-2017 increases it points
which is also decreased in 2017-2018, in 2018-2019 the capital risk was
111.89 and in 2019-2020 the capital risk is 120.89
Role of Technology in Risk Management

 Overview: How banks use technology to enhance risk management.

 Risk management software (e.g., for real-time risk assessment)
 Big data analytics for predictive risk modeling
 Artificial Intelligence (AI) for detecting fraud and operational risks
 Blockchain for improving transaction transparency and reducing operational risk
Thank you