Significance of the Study

Proper risk management is good banking. And good banking is essential to the
profitable survival of the institution. It brings stability to wages and increases
efficiency.

The present study suggests: -

⮚ Increase the number of shareholders by Value creation

⮚ Improve capital allocation.

⮚ Improving the identification of portfolios and applications.

⮚ Company reputation.

Scope of the Study

Risk is an important factor in a banking business as the major risks facing banks
are credit risk, interest rate risk, mortality risk and operating risk.
Regardless of the risk, the best way for banks to protect themselves is to identify
risks, accurately measure and price and maintain the appropriate levels of reserves
and funds. If Indian banks are to compete globally then they have to establish
sound disaster risk management measures, which will improve the efficiency of
banks.

o The scope of this study includes analyzing and measuring risks Both public
and private sector banks through camels approach.

o To know the opinion of senior officers on risk.

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 Data Collection

The present study is based on both primary and secondary sources.

Primary Research

‘Questionnaire’ has been prepared and sent to selected six banks to ascertain their
degree of readiness for risk management on various parameters and information
is collected through the questionnaires of senior officers and employees of six
banks.

Secondary Sources

Information has also been obtained through desk research such as

 Annual reports of the banks

 Indian Bank Association Bulletin

 RBI Bulletin

 Report on trends and progress of banking in India

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 Sample Size

The sample comprises of six banks both in public as well as private sector. The
banks are selected on the basis of their net profit during the year 2016-2020.
Following banks are included in the sample sizes which are shown in sequence
from high profit banks to low profit banks.

⮚ State Bank of India

⮚ ICICI Bank

⮚ Central Bank of India

⮚ HDFC Bank

⮚ Kotak Mahindra Bank

⮚ IDBI Bank

The study is divided into following chapters.

1. Introduction

2. Research Methodology

3. Bank Profiles

4. Data collection and Analysis

5. Analysis of Survey Responses

6. Observations and Suggestions

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 Research Design

The design of a study is the planning of data collection and analysis conditions in
a way that aims to integrate the continuity of research objective with the
economy. In fact, research design is a conceptual framework in which research is
conducted. Creates a framework for data collection, measurement and analysis. It
provides a solid, solid basis for gaining knowledge and conclusions. Research
design in research research experiments. Various methods are used to obtain and
interpret information in a logical and purposeful way.

Techniques of Analysis

CAMELS approach has been applied for analysis of banks performance and to
analyze the risks: -

Capital Adequacy Ratio

This ratio strengthens the capital base of bank. The paid up capital reserves of
bank form an adequate percentage of assets of banks, their investments, loans and
advances. All these items are assigned weights according to prescribed risks
and the ratio so computed is known as capital adequacy ratio.

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 Assets quality ratio

Asset quality ratio. Also, known as the loan loss rate, this ratio measures the
loan impairment charge for the year as a percentage of loans and advances to
customers.

Management quality ratio

Management quality is basically the capability of the board of directors and

management, to identify, measure, and control the risks of an institution‘s
activities and to ensure the safe, sound, and efficient operation in compliance with
applicable laws and regulations (Uniform Financial Institutions Rating System
1997,

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 Earnings ratio

This rating reflects not only the quantity and trend in earning, but also the factors
that may affect the sustainability of earnings. Inadequate management may result
in loan losses and in return require higher loan allowance or pose high level of
market risks. The future performance in earning should be given equal or greater
value than past and present performance.

Liquidity ratio-

There should be adequacy of liquidity sources compared to present and future

needs, and availability of assets readily convertible to cask without undue loss.
The fund management practices should ensure an institution is able to maintain a
level of liquidity sufficient to meet its financial obligations in a timely manner;
and capable of quickly liquidating assets with minimal loss.

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● Return on Average Assets (ROA) = this ratio is relationship between the net profit
(after tax and interest) and the total assets of the bank. It is calculated as -Net
profit after tax + Interest /Total assets

● Return on Equity (ROE) = Shareholders are the real owner of the organization, so
they are more interested in profitability and performance of an organization. This
is calculated as follows:

Net profit after interest, tax and Preference dividend /Equity Shareholders Funds.

● Profit Margin = This is calculated as follows:

Net Income/Total Revenue

Limitations of the Study

However, I have made every possible effort at my great extent level to show how
selected sample of banks analyze the major risks i.e. credit, market and
operational risks. But the study at the disposal of a researcher on this level is
limited. In addition to other factor such as time that plays a very important role
in every field of today’s life has also an important bearing on research work. The
main limitations of the present study are as follows:
▪ All data and information collected is true to some specific period of time.

▪ The study hasn’t got the wider scope as only six banks are being considered
for evaluating risk management.

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CHAPTER – IV BANKS PROFILE

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 The origin of the State Bank of India goes back to
the first decade of the nineteenth century with the
establishment of the Bank of Calcutta in Calcutta on
2nd June, 1806.Three years later the bank received
its
charter and was redesigned as the Bank of Bengal (2nd January 1809). A unique
institution it was the first joint stock bank of British India sponsored by the
government of Bengal/The Bank of Bombay (15th April, 1840 and the Bank of
Madras (1 July, 1843) followed the Bank of Bengal. These three banks remained
at the apex of modern banking in India till their amalgamation as the Imperial
Bank of India on 27 January, 1921.An act was accordingly passed in Parliament
in May, 1955 and the State Bank of India was constituted on 1 July, 1955. More
than a quarter of the resources of the Indian banking system thus passed under the
direct control of the state. Later, the State Bank of India (Subsidiary Banks) Act
was passed in 1959 enabling the State Bank of India to take over eight former
State associated banks as its subsidiaries. The State Bank of India was thus born
with a new sense of social purpose aided by the 480 offices comprising branches,
sub offices and three local head offices inherited from Imperial Bank.

The Bank’s aim is to reach global best standards in the area of risk management
and to ensure that risk management processes are sufficiently robust and efficient.
The Risk Management Committee of the board oversees the policy and strategy
for integrated risk management relating to various risk exposures of the bank &
Credit Risk Management Committee (CRMC) monitors banks domestic credit
portfolio. Moreover SBI has developed sensitive tools to hedge and minimize the
risk arising out of movements in interest rates. The Bank is using “Risk Manager”
module (part of the ALM software) to strengthen the processes of risk
management an operational risk management policy duly approved by central
board of the bank is in place. The bank has an in built internal control system with
well-defined responsibilities at each level.

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