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SynopsisOn

A STUDY ON RISK MANAGEMENT

PRACTICES IN INDIAN BANKING SECTORSUBMITTEDINTHEPARTIALFULFILLMENTOFTHEREQUIREMENTFOR

THEAWARDOFTHEDEGREE

MASTEROFBUSINESSADMINISTRATION

(2010-2012)

RESEARCH GUIDE :- SUBMITTED BY :-

Mr. ARUN KAUSHAL NEERAJ KUMAR YADAV

ROLL NO.-1006370064

G. L .A.Institute of technology and ManagementMathura (U.P.)

(Affiliated to Mahamaya Technical University, Noida

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INTRODUCTION

Indian banks, the dominant financial intermediaries in India, have made good progress over the

last five years, as is evident from several parameters, including annual credit growth,

profitability, and trend in gross non-performing assets (NPAs). While the annual rate of credit

growth clocked 23% during the last five years, profitability (average Return on Net Worth) was

maintained at around 15% during the same period, and gross NPAs fell from 3.3% as on March

31, 2006 to 2.3% as on March 31, 2011. Good internal capital generation, reasonably active

capital markets, and governmental support ensured good capitalization for most banks during the

period under study, with overall capital adequacy touching 14% as on March 31, 2011. At the

same time, high levels of public deposit ensured most banks had a comfortable liquidity profile.

While banks have benefited from an overall good economic growth over the last decade,

implementation of SARFAESI1, setting up of credit information bureaus, internal improvements

such as upgrade of technology infrastructure, tightening of the appraisal and monitoring

processes, and strengthening of the risk management platform have also contributed to the

improvement. Significantly, the improvement in performance has been achieved despite several

hurdles appearing on the way, such as temporary slowdown in economic activity (in the second

half of 2008-09), a tightening liquidity situation, increases in wages following revision, and

changes in regulations by the Reserve Bank of India (RBI), some of which prescribed higher

credit provisions or higher capital allocations.

Currently, Indian banks face several challenges, such as increase in interest rates on saving

deposits, possible deregulation of interest rates on saving deposits, a tighter monetary policy, a

large government deficit, increased stress in some sectors (such as, State utilities, airlines, and

microfinance), restructured loan accounts, unamortized pension/gratuity liabilities, increasing

infrastructure loans, and implementation of Basel III.The banking sector comprises three major segments:

Scheduled Commercial banks, State Cooperative banks, other banks like NABARD

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The Indian Financial System is tasting success of a decade of financial sector reforms. The

economy is surging and has gathered the critical mass to convert it into a force to reckon with.

The regulatory framework in India has sparked growth and key structural reforms have improved

the asset quality and profitability of banks.

Growing integration of economies and the markets around the world is making global banking a

reality.

Widespread use of internet banking has widened frontiers of global banking, and it is now

possible to market financial products and services on a global basis. In the coming years

globalization would spread further on account of the likely opening up of financial services

under WTO. India is one of the 104 signatories of Financial Services Agreement (FSA) of 1997.

Thereby giving India's financial sector including banks an opportunity to expand their business

on a quid pro quo basis.

As in different sectors, competition is driving growth in the banking sector also. The RBI

requires all banks to comply with the standardized approach of the BASEL II accord by 31st

March, 2007. The quantification and accounting of various risks would result in a more robust

risk management system in the industry.

This paper attempts to project the implications of this transition and its effects on the internal

operations of a bank followed by its effects on the banking industry and the economy.

The calculation of risk will be done by credit scoring models such as Altman's Z Score Model &

Merton Model but in a more sophisticated and developed manner.

The Indian Economy is booming on the back of strong economic policies and a healthy

regulatory regime. The effects of this are far-reaching and have the potential to ultimately

achieve the high growth rates that the country is yearning for. The banking system lies at the

nucleus of a country's development robust reforms are needed in India's case to fulfill that. The

BASEL II accord from the Bank of International Settlements attempts to put in place sound

frameworks of measuring and quantifying the risks associated with banking operations.

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OBJECTIVES

The main objectives of the study are as follows :-

(i) To analyze the risk management practices of theselected Indian

banks.

(ii) To study the various forms and sources of risk in banking spectrum and effective

management technique.

(iii) To assess the perception of financial practitioners as to risk management practices of

the Indian banking sector.

SCOPE OF THE STUDY

The scope of the study is very wide as it enlights various risk management techniques followed

by different organizations. The commodity market has witnessed a rampant growth during the

last couple of years, and managing risk is essential because of higher risk in commodity market

in comparison to equity markets.

It will also help the investors to understand various risk factors to which they are exposed.

Moreover it will certainly helpful to the students as it would make them acquaint with risk

control policies before going ahead.

The future forecast discusses the future prospects of different arms of banking industry including

rural banking, bank insurance, financial cards, mobile banking, role of technology in rural

banking, pension funds, and the future course of action and strategies for pension fund industry

to be taken at macro level

Needs to move beyond peripheral issues and act maturely by increasing profitability and

efficiency, providing better solutions to the customers.

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LITERATURE REVIEW

Bergerand Humphrey (1997) in their study provide an extensive review of studies on the

efficiency of banking sector.They pointed out that, majority of studies focused on the banking

markets of well-developed countries with particular emphasis on the market

Goyal K.A. & Joshi Vijay (2011) in their paper, gave an overview on Indian banking

industry and highlighted the changes occurred in the banking sector.

Das (1999) concluded that while there is a welcome increase in emphasis on non- interest

income, banks have tended to show risk-averse behavior by opting for risk- free investments

over risky loans.

Arora (2003) highlighted the significance of bank transformation. Technology has a definitive

role in facilitating transactions in the banking sector and the impact of technology

implementation has resulted in the introduction of new products and services by various banks in

India.

Srivastava (1981) analyzed an important reason of low profitability is because of low

productivity, and productivity could be the result of inefficient methods of operation, bad

layouts, excessive product variety, not up to par working conditions, power breakdowns and

poor maintenance of records.

Minakshi and Kaur (1990) in their study concluded that the bank rate and reserve

requirements ratios have played a significant role in having a negative impact on the

profitability of the banks in India.

Shirai, Sayuri (2002) in her study analyzed the Indian banking sector reforms and consequences

in detail.

Hawast and John (1977) in their study concluded that profitability of banks is significantly

determined by the cost control methods adopted by a particular bank. They concluded that thehigh profit earning banks recorded lower operating costs.

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RESEARCH METHODOLOGY

The research design that will be used in the research work is DESCRIPTIVE RESEARCH.. As it

has been mentioned that the objective of the research project is to know the risk management

practices of Indian banks.

(I) For Quantification of the Sensitivity of Market Performance

Aggregates as to Selected Macroeconomic Variables:

For this part of study, data for 2006 11 will be collected from RBI, OPEC, BSE webportals.

Beta factor of all variables vis--vis market performance aggregates will be computed tohighlight the sensitivity of factors.

The data shall be analyzed by SPSS using various multiple regression, correlation, andappropriate charts for tracing the movement, its fluctuation and its impact on stock

market performance aggregates.

(II) For Assessment of Perception of Investors

1- Sample Size :- 60 Respondents2- Sampling Technique :- Convenience sampling3- Sample Locale :- Agra, and Mathura4- Research tools :- Percentage and Pie & Bar charts, Appropriate Tests

for Significance Testing

DATA COLLECTION METHOD

Primary Sources-To be collected by self developed Questionnaire and schedule.

Secondary Sources- Various websites Text books containing regarding topic Magazines News paper

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BIBLIOGRAPHY

Ahmed, Khan Masood, (1992): Banking in India, Anmol publications, New Delhi.

Bilgrami.S.A.R (1982): Growth of Public Sector BanksA Regional Growth Analysis, Deep

and Deep publication, New Delhi.

Kothari.C.R (1991): Investment Banking an\d Customer Service, Vol. II, Arihant

publishers, Jaipur. Chakrabarthy.K.C (1990): Banking in 1990, Himalaya Publishing House,

Bombay.

www.indiamart.com www.google.com www.wikipedia.org www.mcxindia.com www.ncdex.com www.riskmanagementguide.com www.wikipedia.com. Need for risk managementThe Hindu Research Methodology- C.K. Kothari

http://www.indiamart.com/http://www.indiamart.com/http://www.google.com/http://www.google.com/http://www.wikipedia.org/http://www.wikipedia.org/http://www.mcxindia.com/http://www.mcxindia.com/http://www.ncdex.com/http://www.ncdex.com/http://www.riskmanagementguide.com/http://www.riskmanagementguide.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.wikipedia.com/http://www.riskmanagementguide.com/http://www.ncdex.com/http://www.mcxindia.com/http://www.wikipedia.org/http://www.google.com/http://www.indiamart.com/