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Guidance Notes on Management of Credit Risk and Market Risk
DBOD.
No. BP. 520 - 21.04.103 - dated 12th October 2002
As
you are aware, guidelines on Risk Management Systems were issued vide our
circular DBOD. No. BP. (SC) BC.98/ 21.04.103/ 99 dated October 7, 1999. These
guidelines, together with the Asset-Liability Management (ALM) guidelines issued
vide our circular DBOD.BP.BC.8/ 21.04.098/ 98-99 dated February 10, 1999 are
intended to serve as a benchmark to the banks, which are yet to establish
integrated risk management systems.
2.
As a step towards enhancing and fine-tuning the existing risk management
practices in banks, draft Guidance Notes on Credit Risk Management and Market
Risk Management were issued to banks vide our letters DBOD.BP.BC.26/ 21.04.103/
2001 dated September 20, 2001 and DBOD.BP. 1913/ 21.04.103/ 2001 dated March 26,
2002, respectively. These Guidance Notes were placed on our website for wider
discussion by banks, financial institutions and other market participants. The
Guidance Notes were based on the recommendations of two Working Groups
constituted in Reserve Bank of India drawing experts from select banks and FIs.
3.
Comments on these Guidance Notes were received from a wide spectrum of
banks, financial and academic institutions, rating agencies and other market
participants. The draft Guidance Notes on Management of Credit Risk and Market
risk have been revised in the light of the feedback received and the revised
Guidance Notes are now placed on the website of RBI (http://www.rbi.org.in),
which banks may download from the said website.
4.
Banks may use these Guidance Notes for upgrading their risk management
systems. The design of risk management framework should be oriented towards the
banks' own requirements dictated by the size and complexity of business, risk
philosophy, market perception and the expected level of capital. The systems,
procedures and tools prescribed in the Guidance Notes for effective Management
of Credit Risk and Market Risk may, therefore, be treated as indicative. The
risk management systems in banks should, however, be adaptable to changes in
business size, the market dynamics and the introduction of innovative products
by banks in future.
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