Loading...

Top
Help
×

By creating an account you can:

Logo TaxTMI
Call Us / Help / Feedback

Contact Us At :

E-mail: [email protected]

Call / WhatsApp at: +91 99117 96707

For more information, Check Contact Us

FAQs :

To know Frequently Asked Questions, Check FAQs

Most Asked Video Tutorials :

For more tutorials, Check Video Tutorials

Submit Feedback/Suggestion :

Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters 0/2000
Make Most of Text Search
  1. Checkout this video tutorial: How to search effectively on TaxTMI.
  2. Put words in double quotes for exact word search, eg: "income tax"
  3. Avoid noise words such as : 'and, of, the, a'
  4. Sort by Relevance to get the most relevant document.
  5. Press Enter to add multiple terms/multiple phrases, and then click on Search to Search.
  6. Text Search
  7. The system will try to fetch results that contains ALL your words.
  8. Once you add keywords, you'll see a new 'Search In' filter that makes your results even more precise.
  9. Text Search
Add to...
You have not created any category. Kindly create one to bookmark this item!
Create New Category
Hide
Title :
Description :
❮❮ Hide
Default View
Expand ❯❯
Close ✕
🔎 News - Adv. Search
TEXT SEARCH:

Press 'Enter' to add multiple search terms. Rules for Better Search

Search In:
Main Text + AI Text
  • Main Text
  • Main Text + AI Text
  • AI Text
Category: ?
Categorized by AI
---- All Categories ----
  • ---- All Categories ----
  • Income Tax
  • GST
  • Customs, DGFT & SEZ
  • FEMA & RBI
  • Corp. Laws, SEBI & IBC
  • PMLA, Black Money & ED
  • Budget
  • News and Press Release
  • PTI News
Month:
---- All Months ----
  • ---- All Months ----
  • January
  • February
  • March
  • April
  • May
  • June
  • July
  • August
  • September
  • October
  • November
  • December
Year:
---- All Years ----
  • ---- All Years ----
  • 2026
  • 2025
  • 2024
  • 2023
  • 2022
  • 2021
  • 2020
  • 2019
  • 2018
  • 2017
  • 2016
  • 2015
  • 2014
  • 2013
  • 2012
  • 2011
Sort By: ?
In Sort By 'Default', exact matches for text search are shown at the top, followed by the remaining results in their regular order.
Relevance Default Date
    Orris Infrastructure MD Amit Gupta arrested in cheating case
    In a knot: Surat weaving units take voluntary two-day holiday as yarn prices shoot up
    Canada will impose retaliatory tariffs on US goods beginning Sept 8 as trade negotiations collapse
    Trade war between Canada, US deepens rupture in what had been close and durable alliance
    Canada will impose retaliatory tariffs on US good beginning Sept 8
    J-K parties oppose hike in power tarrif
    IAS officer Gangwar not ‘missing’, away in UP over father’s health: Karnataka minister
    J-K Dy CM terms ED case against his brother 'selective targeting'
    T'gana HC CJ calls for timely, expert dispute resolution in telecom, broadcasting, airport sectors
    Latur CA booked for issuing certificates to facilitate remittance of hundreds of crores abroad
    Stock Market for Beginners: How to Start Investing Without Feeling Overwhelmed
    CGST Zone detects clandestine pan masala, tobacco unit, detects tax evasion of Rs 160 cr
    Korea Industry Expo (KoINDEX) 2026 Opens at Yashobhoomi on 27 August
    Protection in predicate offence doesn't automatically extend to PMLA case: Delhi HC
    DFS Concludes Two-Day Workshop on Enhancing Accessibility of Financial Services for Divyangjans
    National Financial Reporting Authority (NFRA) conducts sixth outreach programmes with focus on small and medium auditors under the theme “Creating a...
    CCI imposes monetary and non-monetary sanctions on Agro Input Dealers Association, Agro Input Welfare Association for indulging in anti-competitive co...
    India-Finland cooperation takes centre stage at circular economy forum
    CCI imposes penalty on Rekha Agencies and SS Marketing for indulging in anti-competitive conduct in respect of Himachal Pradesh Tender 2013 for the pr...
    US is set to impose 50% tariffs on $20 billion worth of Canadian products
❯❯
Maximize Maximize Maximize
0 / 200
Expand Note
Add to Folder

No Folders have been created

+

Are you sure you want to delete "My most important" ?

NOTE:

News
Showing Results for :
Reset Filters
Results Found:
Show All Summaries Hide All Summaries
August 23, 2026
Show AI Summary
Alleged LLP record forgery raises cheating, breach of trust and conspiracy concerns over unauthorised partnership interest changes.
Alleged forgery, cheating, criminal breach of trust and conspiracy concern purported unauthorised changes to LLP statutory records filed with the Registrar of Companies. The allegations include use of false documents to remove a nominated partner, substitute another person as partner and transfer a partner's interest in the LLP. The matter also draws attention to separate land-collaboration allegations and delayed possession claims by homebuyers in a halted housing project.
August 23, 2026
Show AI Summary
Voluntary production curtailment addresses polyester yarn cost volatility as weaving units seek customs-duty relief on inputs.
Voluntary production curtailment by weaving units is being adopted in response to increased polyester yarn and related input costs. Units may reduce shifts or observe periodic holidays according to individual commercial feasibility to limit yarn consumption until prices and fabric-market conditions stabilise. Industry representatives allege that yarn-price increases exceed corresponding input-cost movements and seek examination of possible artificial pricing, along with customs-duty relief on yarn and relevant inputs.
August 22, 2026
Show AI Summary
Retaliatory tariffs escalate trade restrictions as historic tariff authority enables duties without prior investigation or a prescribed duration.
Retaliatory tariffs are set to escalate bilateral trade restrictions after the United States imposed tariffs of up to 50 per cent on specified Canadian imports. Canada proposes dollar-for-dollar countermeasures covering sectors including steel, dairy, appliances, agricultural equipment, pulp and paper and electronics. Section 338 of the Tariff Act of 1930 is invoked as the legal basis for the United States measures, permitting presidential import duties up to 50 per cent without a prior investigation or prescribed maximum duration. Escalation creates uncertainty for supply chains and renewal of the United States-Mexico-Canada Agreement.
August 22, 2026
Show AI Summary
Reciprocal tariffs reshape Canada-United States trade relations, increasing supply-chain risks and accelerating Canadian trade diversification beyond its primary export market.
Canada-United States trade relations are described as entering a confrontational phase after tariff negotiations collapsed. The United States imposed tariffs on specified Canadian goods, while Canada committed to reciprocal import taxes and suspended negotiations. The dispute marks a retreat from preferential market access and continental integration. Canada's export dependence on the United States may limit retaliation and increase risks to output, employment, investment and integrated supply chains. Trade diversification, non-United States investment and expanded Pacific export infrastructure are identified as responses to a potentially enduring protectionist bilateral relationship.
August 22, 2026
Show AI Summary
Retaliatory tariffs on United States goods will target key sectors after trade negotiations failed and reciprocal tariff relief was unavailable.
Retaliatory tariffs on United States goods will take effect from 8 September in response to United States tariffs on Canadian products and unsuccessful negotiations. The dollar-for-dollar measures will cover steel, dairy, appliances, agricultural equipment, pulp and paper, and electronics, with product-specific details to follow. Canada had been willing to remove certain retaliatory tariffs if corresponding United States tariffs were substantially reduced, but considered the final demands unacceptable.
August 22, 2026
Show AI Summary
Power tariff revision faces political opposition over increased consumer electricity costs and conflict with prior free-electricity commitments.
Power tariff regulation in Jammu and Kashmir and Ladakh has been revised through approval of an average tariff increase, effective from 1 September 2026. Political representatives have opposed the increase on the ground that it adds to consumer hardship amid unemployment, inflation, and sectoral difficulties. The criticism also contrasts the revised tariff with prior commitments concerning free domestic electricity and gas.
August 22, 2026
Show AI Summary
Recruitment examination integrity prompted enforcement scrutiny and proposed disciplinary inquiry, while an officer's absence was attributed to family emergency.
Reported absence of an IAS officer was attributed to a family medical emergency and a pending leave request, rather than enforcement searches concerning an alleged recruitment-examination scam. The officer denied any connection with those searches and expressed willingness to face an inquiry. Enforcement searches at the Karnataka Public Service Commission concerned a money-laundering investigation into alleged recruitment irregularities. The State Cabinet decided to advise suspension of the commission chairperson and initiation of an inquiry after an earlier suspension was set aside for lacking the Cabinet's aid and advice.
August 22, 2026
Show AI Summary
Money-laundering and benami asset allegations prompt enforcement proceedings, while the accused officer's brother calls the action selective targeting.
Enforcement proceedings under the Prevention of Money Laundering Act concern allegations that suspended police officer Vijay Choudhary managed numerous assets through benami transactions and engaged in money laundering. An Anti-Corruption Bureau FIR had already been registered in relation to the allegations. Surinder Choudhary characterised the action as selective targeting but maintained that investigating agencies and the judiciary should address and decide matters concerning his family.
August 22, 2026
Show AI Summary
Specialised dispute resolution requires technical expertise, timely proceedings, mediation support, and human oversight to safeguard natural justice.
Specialised, timely and effective dispute-resolution mechanisms are necessary for technically complex disputes in telecom, broadcasting, airport tariffs and cyber sectors. Technology may assist legal reasoning but cannot replace judicial reasoning, requiring verification, professional responsibility and meaningful human oversight. Effective specialised adjudication should combine domain expertise with judicial discipline, respond to technical complexity, and protect natural justice, transparency and reasoned decision-making. Mediation and other consensual mechanisms can support dispute resolution.
August 22, 2026
Show AI Summary
Form 15CB certification faces scrutiny where inadequate verification allegedly enables foreign remittances through shell companies and false certificates.
Alleged misuse of Form 15CB certification has resulted in criminal proceedings concerning certificates issued for foreign remittances without verification of underlying documents. Form 15CB requires certification of applicable taxability and tax-deduction particulars for specified remittances to non-residents before processing by an authorised dealer. The allegations concern certificates that potentially enabled cross-border transfers through shell or non-existent companies, involving cheating, false certification, false evidence and common intention.
August 22, 2026
Show AI Summary
Beginner stock market investing requires regulated accounts, risk-aware financial planning, diversification and informed company assessment before purchasing securities.
Beginner stock market investing requires a bank account, a trading or broking account with a SEBI-registered broker, and a Demat account for electronic holding of securities. Investments involve risk of loss and should align with financial goals, time horizon and loss-bearing capacity. Investors should understand primary and secondary markets, distinguish long-term investing from short-term trading, assess companies before purchase, diversify holdings, consider charges, maintain records and avoid borrowed-money investing, rumours and momentum-driven decisions.
August 22, 2026
Show AI Summary
Capacity-based tobacco taxation targets undeclared packing machinery used for clandestine production and clearance without indirect tax payment.
Clandestine manufacture and clearance of pan masala, scented jarda and tobacco products without registration or payment of GST, HSNS Cess and central excise duty was detected through an intelligence-led search. Undeclared Form-Fill-Seal packing machines, workers, finished goods, raw materials, transport vehicles, packing materials and records indicated unaccounted production and clearance. Capacity-based monthly HSNS Cess for pan masala is computed according to the number, type and capacity of installed packing machines, while a corresponding capacity-based central excise levy applies to chewing tobacco, jarda and gutkha.
August 22, 2026
Show AI Summary
Trade exhibition connects Korean exporters with Indian buyers through sector-specific consultations and certification guidance for market entry.
KoINDEX 2026 is a business-to-business trade exhibition bringing Korean manufacturers and exporters together with buyers in India and South Asia. It focuses on beauty and personal-care products, processed and functional foods, and construction, building and safety products. Commercial engagement includes pre-matched export consultations with project owners, contractors, distributors, wholesalers, e-commerce platforms and food distribution businesses. A seminar addresses Bureau of Indian Standards certification and market-entry requirements for Korean products entering the Indian market.
August 22, 2026
Show AI Summary
Independent PMLA proceedings require separate anticipatory bail assessment; predicate-offence protection alone cannot establish pre-arrest protection.
Protection in a predicate-offence FIR does not automatically extend to independent PMLA proceedings. Anticipatory bail in a money-laundering investigation must be assessed under the applicable PMLA condition and on the material connecting the applicant to alleged proceeds of crime. Relevant considerations include the financial trail, recorded statements, bank-account analysis, compliance with summonses, cooperation with inquiry, and the need for personal participation in evidence collection and confrontation with documentary and digital material.
August 22, 2026
Show AI Summary
Financial accessibility for Divyangjans requires compliance standards, practical implementation measures and stronger institutional capacity across financial services.
Accessibility of financial services for Divyangjans was examined through a workshop focused on public sector banks, insurance companies, regulators and public financial institutions. Discussions covered accessibility standards, compliance requirements, legal provisions, practical implementation challenges and institutional best practices under the Sugamya Bharat initiative. Participants considered operational measures to strengthen institutional capacity, inclusivity and equitable access to financial services.
August 22, 2026
Show AI Summary
Audit quality enhancement for small and medium auditors emphasises technology, global standards, inspection insights and stronger financial reporting.
Audit quality and financial reporting reliability were the focus of NFRA's outreach programme for small and medium audit firms. The programme promoted professional capacity-building, alignment with contemporary global standards, adoption of appropriate audit technology, and the public-interest role of the accountancy profession. Technical sessions covered audit strategy documentation, risks of material misstatement, and practical lessons from audit-firm oversight to support improved day-to-day audit practice and high-quality financial reporting.
August 22, 2026
Show AI Summary
Cartelisation by agro-input dealer associations attracted monetary sanctions, cease-and-desist directions, and mandatory competition-compliance training for responsible officials.
Cartelisation by the two agro-input dealer associations and named individuals contravened Section 3(3)(b) read with Section 3(1) of the Competition Act, 2002. Monetary sanctions were imposed, and association office-bearers were held liable under Section 48. The parties and liable officials were directed to cease and desist from future anti-competitive conduct and to organise competition-compliance training to promote awareness and compliance within the associations.
August 22, 2026
Show AI Summary
Circular economy partnerships promote resilient value chains, resource efficiency and sustainable growth alongside evolving India-EU trade integration.
India-Finland circular economy cooperation is being developed through business, technology, investment and commercial partnerships supporting resource-efficient and sustainable growth. Discussions focused on competitive and resilient value chains based on circularity, traceability, resource efficiency and sustainable business practices. Circular economy principles extend beyond waste management into product design, value chains, resource use, skills development and new business models. The India-EU free trade agreement remains subject to legal review and formal ratification and is not yet in force.
August 22, 2026
Show AI Summary
Bid rigging through pre-bid exchange of sensitive price information attracted penalties and cease-and-desist directions in tyre procurement.
Bid rigging in tyre procurement was established where Rekha Agencies and SS Marketing exchanged commercially sensitive price-bid information before submitting bids for the Himachal Pradesh Tender 2013. The concerted conduct contravened the prohibition on anti-competitive agreements and bid rigging. Monetary penalties and cease-and-desist directions were imposed on both enterprises. An official of Rekha Agencies was also penalised for liability arising from the contravention, while proceedings against the official of SS Marketing stood abated following his death.
August 22, 2026
Show AI Summary
Import tariffs on Canadian products trigger potential retaliatory levies after bilateral negotiations fail to reach agreement.
Import tariffs on Canadian products are set to be imposed by the United States at a 50% rate after bilateral negotiations did not produce an agreement. The measures cover products including hockey sticks and tongue depressors and affect a limited share of Canada's annual exports to the United States. Canada has indicated possible retaliatory levies, intensifying the bilateral trade dispute.

News

Back

All News

Showing Results for :
Reset Filters
No Records Found

News

Back

All News

Showing Results for : Reset Filters
PMLA, Black Money & ED

Indian Banking at Crossroads – Challenge of Risk Management from Globalisation to Financial Inclusion (Valedictory address delivered by Shri R. Gandhi, Deputy Governor, Reserve Bank of India on the occasion of Seminar on Banking at Hotel Taj President, Mumbai on May 8, 2014 organized by the Indian Merchant’s Chamber)

May 9, 2014

Contents
Summary
Note

Note

-

Bookmark

Print

Print

Shri Shailesh Vaifya, Chairman, Indian Merchants’ Chamber (IMC), Shri Chandan Bhattacharya, Chairman, Finance and Banking Committee, IMC and delegates to this IMC National Seminar, a very warm good evening! It is an honour for me to be here today to deliver the valedictory address of this National Seminar organised by IMC. The Seminar provides an opportunity to consider the developments in the banking risk management, assess the recent experience in this space and work on the way ahead.

Why risk management assumes greater significance in banks

2. Most business activities and operations are driven by considerations of returns or profitability. However the search for returns exposes the businesses to risks. Also risks escalate and multiply with returns sought – banks are no different; only the element of riskiness in the banks’ business and operations is higher as they not only carry out their operations with borrowed money and with high leverage but also attempt to provide a vast range of financial services.

3. Banks perform multifarious functions. However financial intermediation and maturity transformation are by far the most significant activities performed by banks. Banks essentially have a liquid liability profile, as against an illiquid asset profile, which makes them vulnerable to runs and in this process alone, they generate or are exposed to different types of risks. Credit, market and operational risks are the three primary risks that have a substantial bearing on the performance of banks. There are a number of other types of risks, emanating both from within and without that the banks are exposed to in their day to day functioning.

4. Further, banks are intricately linked to the various segments in the financial sector and the economy. Problems emanating from the banking sector can cause wide spread destabilization to the segments to which it is, directly or indirectly linked.

5. As the banks perform this role of intermediation in fiduciary capacity, ensuring a balance between the risks and returns assumes significance and the effort towards achieving this balance can be referred to as risk management. The various financial crisis of the past brought to the fore the importance of robust risk management practices in financial institutions including banks. Progressive technological developments and advanced modelling techniques have, however, rendered risk management a highly complex and sophisticated discipline lately.

What is Risk Management?

6. Risk management can be defined as a function of risk identification, measurement, monitoring and reporting to ensure that the returns are appropriate to the risk undertaken and the risks undertaken are commensurate with the risk appetite and risk tolerance. Risk management has to ensure that the bank holds adequate capital and reserves to make sure that its solvency and stability are not threatened, both in the short and the long run.

7. The capital measurement standards commonly known as the Basel Accords I and II published in 1988 and 2006 respectively, had already emphasized the importance of risk management by linking progressively the banks’ capital adequacy to the risk weighted assets (RWA) on account of the Credit and RWA equivalent for Market and Operational risks. Based on the principle of proportionality, Basel II further entails progressive advancement to sophisticated but complex risk measurement and management approaches to credit, market and operational risks depending on the size, sophistication and complexity of the respective banks. In addition, Pillar 2 and Pillar 3 of Basel II emphasize the need for developing better risk management techniques in monitoring and managing risks not adequately covered or quantifiable under Pillar 1 and increased disclosure requirements.

Recent global initiatives for strengthening risk management practices in banks

8. As a response to the global financial crisis, a package of reforms collectively referred to as Basel III has been unleashed as part of the global regulatory effort to enhance the soundness and resilience of the banking system. These reforms focus on capital, liquidity, leverage and macro prudential aspects of banking risk management. Basel III, on one hand, attempts to improve the quality and quantity of loss absorbing capital that a bank holds and aims at increasing the risk coverage of the capital framework, in particular for trading activities, securitisations exposures to off-balance sheet vehicles and counterparty credit exposures arising out of derivatives. On the other hand, it has devised regulation for dealing with systemic risk by prescribing countercyclical capital requirement, to contain pro-cyclicality and a framework for G-SIBs and D-SIBs has also been laid down to manage risks arising from inter-connectedness.

9. The reforms require banks to raise the amount of common equity to 4.5% of assets by January 2019 from the 2% requirement under Basel II. The new minimum for Tier 1 capital has now been raised to 6%. The innovative elements of the Basel III requirements include additional layers of capital in form of the Capital Conservation Buffer and Countercyclical Capital Buffer, minimum Liquidity requirements in the form of short term Liquidity Coverage Ratio (LCR) and long term structural Net Stable Funding Ratio (NSFR), a leverage ratio as a back-stop to the risk based capital framework and additional proposals for the Global Systemically Important Banks (G-SIBs). The Capital Conservation Buffer is prescribed as 2.5% of common equity in addition to the 4.5% minimum requirement bringing the total common equity requirements to 7% which if breached would restrict pay-outs of earnings to help protect the minimum common equity requirement. The capital buffer can be used to absorb losses during periods of financial and economic stress. The countercyclical capital buffer entails common equity or other fully loss absorbing capital in the range of 0% – 2.5% to be implemented according to national circumstances and kicks in when credit to GDP ratio deviates significantly from the trend. The paradigm changing approach to risk management under Basel III is introducing macro-prudential regulations to deal with systemic risk. The crisis brought home the point that even while individual financial institutions are strong, when each of them act to preserve its own interests, these actions could lead to instability of the system.

10. An internationally harmonised Leverage Ratio has been introduced as a simple back-stop facility to complement the risk based capital framework in order to contain build-up of excessive leverage in the system and comprises of 3% loss absorbing capital relative to all of a bank’s assets, including off-balance sheet assets without risk weighting. Certain enhancements have also been introduced to the Basel II framework by raising standards for the supervisory review process and public disclosures under Pillar 2 and 3, together with additional guidance in the areas of sound valuation practices, stress testing, liquidity risk management, corporate governance and compensation. The liquidity requirements include a minimum liquidity coverage ratio (LCR) intended to provide enough cash to cover funding needs over a 30-day period of stress. As such under LCR, the banks will be required to hold a buffer of high-quality liquid assets sufficient to deal with cash outflows encountered in acute short-term stress scenario. At the long-term spectrum, the net stable funding ratio (NSFR) is intended to address maturity mismatches over the entire balance sheet for upto one year and provides incentives for banks to use stable sources to fund their activities. The proposals for the G-SIBS are tougher, to include combinations of capital surcharges, contingent capital and bail-in debt as also strengthened arrangements for cross border supervision and resolution in view of the higher complexity, connectedness and riskiness. Keeping in view the need to safeguard against any disruption to the recovery of the real economy and allow national jurisdictions sufficient time to translate the new standards into national legislation, a transition phase of six years from 1 January 2013 to 1 January 2019 has been envisioned for full implementation.

Recent developments and emerging regulatory scenario in India for improving risk management in banks

11. The Reserve Bank too has adopted a proactive and calibrated approach towards demanding and facilitating robust risk management efforts by the banks. Reserve Bank has been adopting a considered approach of limiting the systemic risk originating from both the pro-cyclicality as well as interconnectedness dimensions. For example, countercyclical measures were adopted as early as 2004 to stall heating up of certain specific sectors by increasing the risk weights and provisioning ratios for sensitive sectors such as capital market, housing, commercial real estate during the period when the boom was building up. Several measures were taken to reduce the inter-connectedness among banks on the one hand and between banks and NBFCs on the other, to address the cross-sectional dimension of systemic risk and regulatory limits have been placed on exposures to capital market exposures. Such macro-prudential approach, which was not widely prevalent then, saved the domestic economy from the adverse shocks during the height of the crisis.

12. The road-map for the implementation of Basel II in India was in phases and was designed to suit the country-specific conditions.

BASLE III

13. Implementation of Basel III Capital Regulations has commenced in India from April 1, 2013; and it will also be in phases, and would be fully implemented as on March 31, 2019 close to the internationally agreed Basel III transitional arrangement.

  1. As against the minimum Tier 1 leverage ratio of 3 per cent proposed by the Basel Committee of Banking Supervision (Basel Committee) during the parallel run period beginning from January 1, 2013 to January 1, 2017, the Reserve bank has prescribed a minimum Tier 1 leverage ratio of 4.5 per cent during the parallel run period. The leverage ratio framework is being revised in line with the recent proposals of the Basel Committee.
  2. The Reserve Bank has issued enhanced Pillar 3 disclosure requirements effective from quarter ended September 30, 2013 to improve transparency of regulatory capital and to enhance market discipline.
  3. Comprehensive liquidity risk management (LRM) guidelines were issued on November 7, 2012. Based on the recent guidelines published by the Basel Committee on Liquidity Coverage Ratio (LCR) in January 2013, the Reserve Bank is in the process of finalizing its guidelines on LCR which are expected to be issued shortly.
  4. The guidelines issued by the Reserve Bank on July 2, 2013 (effective January 1, 2014) on capital requirements for bank exposures to CCPs provide incentives for banks to clear standardised OTC derivatives contracts through qualified central counterparties.
  5. While none of the Indian banks figure in the list of G-SIBs, domestic SIBs have to be identified. A draft framework for dealing with the D-SIBs has been published on December 2, 2013. It requires that additional common equity capital requirement applicable to a D-SIB with highest systemic importance will be 0.8% of RWAs.
  6. The Reserve Bank revised its guidelines on securitisation in May 2012 and introduced norms on minimum holding period, minimum retention ratio, and standards for due diligence to align the interest of the originators and investors, and induce ‘Skin in the Game’ concept to discourage ‘Originate to Distribute’ models.
  7. Un-hedged foreign currency exposures (UFCE) of the corporates are a cause of concern as they pose risk to the individual corporates as also to the entire financial system. Guidelines on risk management of un-hedged exposures as also the methodology to be followed by banks for computing incremental provisioning and capital requirements for exposure to corporates having un-hedged foreign currency exposures have since been introduced.
  8. As a prudential measure aimed at avoiding concentration of credit risk and large losses due to Intra-Group Transactions and Exposures (ITEs), the Reserve Bank of India has prescribed regulatory guidelines on February 11, 2014, putting in place both quantitative limits for the financial Intra-Group Transactions and Exposures and prudential measures for the non-financial ITEs.
  9. As the growing volume of non - performing assets along with restructured assets was becoming a major cause for concern for the financial as well as the real sector, a framework for revitalizing distressed assets in the economy has been implemented with effect from April 1, 2014. The Framework lays down guidelines for early recognition of financial distress, information sharing among lenders and co-ordinated steps for prompt resolution and fair recovery for lenders. It envisages centralised reporting and dissemination of information on large credits, early formation of lenders' forums and incentives for lenders and borrowers to agree on resolution and disincentives for both in the event of failure to act in a timely way. Improvements in the current restructuring process such as an independent evaluation of large value restructuring with a focus on viability and fair sharing of gains and losses between promoters and creditors have been mandated. Finally, a more liberal regulatory treatment of distressed asset sales, particularly to asset reconstruction companies, has been provided. It proposes to bring non-bank lenders also under its ambit for enhanced effectiveness.
  10. The Basel Committee issued the Principles for Sound Stress Testing Practices and Supervision in May 2009. In tune with these principles, the extant Reserve Bank guidelines on stress testing have been updated. Stress testing which is based on forward looking approach is expected to provide a complementary and independent risk perspective to other risk management tools such as value-at-risk (VaR) and economic capital and complement risk management approaches that are based on complex, quantitative models using backward looking data and estimated statistical relationships.
  11. With the objective of building up a buffer of capital which can be used to achieve the broader macro-prudential goal of restricting the banking sector from indiscriminate lending in the periods of excess credit growth that have often been associated with the building up of system-wide risk, the Reserve Bank has proposed to create a Countercyclical Capital Buffer (CCCB) framework for banks in India. The proposed draft CCCB framework in India is based upon the credit-to-GDP gap in conjunction with other indicators like Gross Non-Performing Assets (GNPA) growth. The CCCB shall increase linearly from 0 to 2.5 per cent of the risk weighted assets (RWA) of the bank based on the position of gap between 3 percentage points and 15 percentage points.
  12. The Reserve Bank is keen to introduce a countercyclical provisioning approach with the objective of building up provisioning buffer for the banking system when the banks in general are making profits so that this can be used to absorb losses in case of downturn. A discussion paper on Introduction of Dynamic Loan Loss Provisioning Framework for Banks in India has been put on the RBI website on March 30, 2012. A comprehensive forward looking provisioning framework based on data collected from select banks in respect of certain segments and system–wide data is being developed. The new approach would smoothen the impact of incurred losses on the Profit and Loss Account through the cycle and thereby facilitate continued lending by banks during downturns.
  13. The Reserve Bank has from time to time also issued regulatory guidelines on other areas such as Corporate Governance, Fit & Proper, Know Your Customer/Anti Money Laundering, Credit Information Sharing, Customer Services in addition to specific guidance on credit, market and operational risk management etc., to strengthen the over-all risk management culture in Indian banks.

Recent risk management in banks

14. A survey on banking risk management, conducted under the aegis of the Institute of International Finance, sees a renewed focus on risk culture. It reports that risk culture is now at centre stage and banks have made significant progress toward changing their risk governance frameworks in the wake of the financial crisis. Board risk committees are nearly universal, and members have received appropriate training in risk management. The role of the chief risk officer has broadened, while its seniority and status have been enhanced. They now report either to the chief executive officer or jointly to the CEO and risk committee. However, the survey laments that the industry continues to wrestle with the process of embedding risk culture beyond the boardroom and into business units while ensuring adequate risk transparency.

15. Many respondents cited the balance between a sales-driven front-office culture and a risk-focused culture at higher levels as their top organizational challenge; they also note lack of systems and data. They believe their organizations need to do more to instill a strong risk culture, underscoring the need for a sustained effort over a long period of time.

16. Risk appetite continues to be an essential part of risk governance, but the industry continues to be challenged to embed risk appetite into business decisions. The financial services industry recognized during the financial crisis that boards needed to change focus from share price and profitability to the risks entailed in their strategies. Also, chief risk officers needed to be empowered to create cultural change within their organizations.

17. With these shifts well underway, senior risk executives are focused on moving reputation and operational risk higher up the agenda. However, banks are still struggling to ensure that specific business decisions are consistent with risk appetite and are putting new programs in place to achieve this.

18. One of the challenges that banks face in developing comprehensive risk measurement models are the scarcity of available historical and time series loss data and the quality, completeness and reliability of the data available. Effective risk management requires specialisation and technical expertise as also independent and dedicated risk management function. While efforts are on in this direction, the HR policies and limited suitable number of the skilled human resources present myriad challenges in fully achieving this objective. Attrition and ability to retain the skilled personnel adds to the challenge.

Present experience in risk management in Indian banks

19. The regulatory initiatives as also the banks’ individual efforts in this direction have certainly improved the risk management standards in Indian banks in the last few years. Since the initiation of structural reforms in the Indian banking sector in 1991, the reach and business volumes of Indian banks have increased many fold; the operations have grown and assumed higher degree of sophistication. The Indian banks' current capital base and liquidity position are broadly comfortable, as a starting point, vis-a-vis the Basel III guidelines. Both the capital to risk weighted assets ratio (CRAR) and the core CRAR of Indian banks, respectively stood at 10.42 per cent and 9.24 per cent respectively as on March 31, 1997 and have consistently remained well above the regulatory requirement of 9 per cent and 6 per cent, respectively under Basel II. The CRAR and core CRAR were at 13.88 per cent and 9.7 per cent respectively as at March 31, 2013. Indian banks, thus, start from a position of strength in the process of transition to Basel III regime. Many challenges, however, still lie ahead and I shall touch upon these in a little while.

20. Asset quality is an important parameter to measure the health of the banks and concomitant with asset quality is the provisioning coverage that banks hold against stressed assets. Asset quality of the Indian banking system had improved significantly since introduction of prudential norms, SARFAESI Act, CDR Mechanism, Credit Information Companies, etc. The GNPAs ratio had steadily declined from 15.7 per cent in 1996-97 to 2.35 percent in 2010-11. However, as fallout of the global financial crisis and the consequent headwinds from many advanced nations in the west, the GNPAs have risen to 2.94 per cent as on March 2012 and further to 3.42 per cent as at the end of March 2013. As per the provisional data, as on December 2013, the GNPA ratio was at 4.47 per cent. The ratio of restructured standard advances to gross advances stood at 5.8 per cent at end-March 2013 adding to the total stress.

21. All Indian banks, including foreign banks in India, migrated to the standardized approaches of Basel II by March 31, 2009 in two phases. Large sized Indian banks and banks with international presence have been encouraged to adopt the Basel II advanced approaches for computation of capital for credit, market and operational risk. Out of the 14 banks that submitted applications for migration to the Internal Rating Based approach for credit risk, seven have been given approval for parallel run. Under operational risk, parallel run has been approved for two banks for The Standardized Approach (TSA) out of the 13 banks that applied. Ten banks have so far conveyed their intent for migration to the Advanced Measurement Approach (AMA) of which cases of four large banks which made preliminary submissions in this regard are under different stages of examination. In respect of Market Risk, eight banks have conveyed their intent for migration to the Internal Model Approach.

22. There is, however, another very significant aspect of the bank operations, just as in any corporate entity, and that is the commercial aspect viz., profitability management. Profitability in banks, as in the corporates, is reflective of the financial well-being, health and robustness of the entity and has a direct bearing on its capital formation ability. On the flip side, if the bank’s strategies, business models, planning and operations and risk management are weak, obsolete or outdated or not in tune with the macro-economic environment, the income flowing there from may be low or may end up in losses. Profitability is impacted by the business decisions of the bank, the business model it pursues, quality and type of asset base as also by operational efficiencies and any noteworthy shift in its strategies and policies. The risk profile of a bank can also be gauged from its income and expenditure statement to a great extent. However, currently alignment of the risk management and profitability management objectives is not so much in focus.

23. Since the profitability or the income and expenditure plans and decisions of the banks are directly connected to the regulatory concerns of capital adequacy and solvency as also the stability and soundness of banks, it is incumbent on the banks and the supervisors to carefully analyse the components of income and expenditure. A careful analysis and comparison of these streams of income and expenses would provide the bank an in-depth understanding of its business focus, structure and stability of profits and serve as the guiding principles for rebalancing and / restructuring its balance sheet. This would enable a bank to not only, derive optimum earnings, rationalize cost and expenses but also to initiate changes in and diversify its business design / model in alignment with the industry or the current and profitable market practices.

The way ahead

24. Over the years and especially in the wake of the learnings from the global financial crisis, banks have enhanced their efforts in the direction of improving risk management practices as I have enumerated earlier. However, going forward much work still remains.

i. Banks must pay greater attention to the risk governance aspects, wherein the boards must have full understanding of the risks, typical to the respective bank as also full involvement in designing appropriate policies and strategies for the risk management. For this purpose, risk appetite and risk tolerance levels must be clearly defined, keeping in past and forward looking view on likely internal and external risk environment.

ii. An independent risk management function headed by a Chief Risk Officer (CRO) with sufficient freedom and stature assumes critical importance. Banks must ensure that the board level risk committees as also the independent challenge function in form of internal and external audit / reviews are effective in the real sense and have the requisite understanding, resources and wherewithal to perform their responsibility in a meaningful way.

iii. Senior management of the banks must play a proactive role.; They should communicate the risk management policies, risk appetite and tolerance statement, risk management practices to the operational in-charges at the business units and corporate levels for proper understanding and compliance.

iv. These efforts need to be supplemented by a robust Management Information System (MIS) and information technology platforms to provide the board and the top management with timely, reliable and complete risk related information on the bank for effective decision making and decisive action taking.

v. ‘Embededness’ or ‘Use Test’ which entails use of inputs to and outputs from the quantitative models in enhancing quality risk management and decision making need better encouragement.

vi. Over-reliance on quantitative models can grossly under-estimate tail risks and it is necessary to also use expert judgement in dealing with risk estimation and management. Stress tests, as also reverse stress tests and back testing should be gainfully utilised as complements to model based risk estimation.

25. Before concluding I will like to relay what A.T. Kearney, a reputed international consultant, has got to say about risk management in banks. They believe that the framework for risk management in a bank is fundamentally no different today than it was prior to the credit crunch and recession. However, the risk function lacks certain business acumen, and continues to be considered a handbrake on growth. A.T. Kearney suggests that a return to managing risks - not ignoring them or believing they can be passed off - is the cure. I could not agree more.

References:

1. Report on Trend and Progress of Banking in India 2012-13

2. Anand Sinha: Address on ‘Perspectives in Risk Governance’ on August 23, 2012 at the Risk & Governance Summit organised by the Indian School of Business, Hyderabad and Deloitte at Mumbai.

3. Anand Sinha: Address on Reflections on Regulatory Challenges and Dilemmas on August 24, 2011 at FICCI-IBA Conference on “Global Banking: Paradigm Shift” at Mumbai.

4. Hennie van Greuning, Sonja Brajovic Bratanovic: Analysing Banking Risk: A framework for assessing corporate governance and financial risk management.

5. EY Survey on Remaking Financial Services - Risk management five years after the crisis.

6. A.T". Kearney's "Seven Tenets of Risk Management.

7. Senior Supervisors Group (2008), “Observations on Risk Management Practices during the Recent Market Turbulence”

8. The World Bank and International Finance Corporation (2010), “Bank Governance: Lessons from the Financial Crisis”, Note Number 13.

9. Group of Thirty, “Toward Effective Governance of Financial Institution

Topics

Acts Income Tax