ACKNOWLEDGMENT

I take this opportunity to thank my faculty mentor, Professor, ARKA JAIN UNIVERSITY,
for her valuable guidance, closely supervising this work over with helpful suggestions,
which helped me to complete the report properly and present.

More importantly, her valuable advice and support helped me to put some creative
efforts into my project. She has really been an inspiration and drive for me and has
constantly enriched my raw ideas with her vast knowledge and experience.

Specially, I would also give my special thanks to my parents whose blessings and love
enable me to complete this work properly as well.

Name of the student: Sweta Tiwari

University enrollment: AJU/220157

 DECLARATION BY THE STUDENT
I, SWETA TIWARI, hereby declare that the project titled “RISK MANAGMENT IN BANKING”
has been carried out by me during my “SUMMER INTERNSHIP” and hereby submitted in
the partial fulfillment of the requirement of the ARKA JAIN UNIVERSITY for the award of
the degree of the BACHLELORS OF BUSINESS ADMINISTRATION.

To the best of my knowledge, the project undertaken has been carried out by me and is my
work. The contents of this report are original, and this report has been submitted to ARKA
JAIN UNIVERSITY and it has not been submitted elsewhere for the award of any
certificate/degree etc.

NAME OF THE STUDENT: SWETA SWETA

UNIVERSITY ENROLMENT: AJU/220157

BBA 2022-2025
 CERTIFICATION FROM THE FACULTY MENTOR

This to certify that I SWETA TIWARI enrollment no AJU/220157 student of BBA (2022-2025) has
undertaken the summer internship project titled (Risk management in banking, particularly
focusing on credit risk and market risk and operational risk) for the partial fulfilment of the
requirement of the Arka Jain University for the award of the degree of the Bachelor of
Business Administration under my supervision.

To the best of my knowledge, the project is the record of authentic work carried out during the
academic year (2022-2025) and has not been submitted elsewhere for the award of my
certificate/degree etc.

NAME OF THE FACULTY MENTOR:

DESIGNATION OF THE FACULTY MENTOR:

 CERTIFICATE OF APPROVAL

This summer internship report by “SWETA TIWARI” titled “A STUDY OF RISK

MANAGEMNT OF THE BANK HDFC” is approved in quality and form and has been found
to be fit for the partial fulfilment of the requirement of ARKA JAIN UNIVERSITY for the
award of the degree of the BACHELORS OD BUSINESS ADMINISTRATION.

APPROVAL OF THE DEAN:

APPROVAL OF THE PROGRAMME COORDINATOR,

DEPARTMENT OF BBA, ARKA JAIN UNIVERSITY:

INDEX
 INTRODUCTION

The Housing Development Finance Corporation Limited or HDFC Ltd was among the first
financial institutions in India to receive an “in principle” approval from the Reserve Bank of
India (RBI) to set up a bank in the private sector. This was done as part of RBI’s policy for
liberalization of the Indian banking industry in 1994.

HDFC Bank was incorporated in August 1994 in the name of HDFC Bank Limited, with its
registered office in Mumbai, India. The bank commenced operations as a Scheduled
Commercial Bank in January 1995.

On April 4, 2022, the merger of India’s largest Housing Finance Company, HDFC Limited
and the largest private sector bank in India, HDFC Bank was announced. HDFC Ltd, over
the last 45 years, has developed one of the best product offerings, making it a leader in the
housing finance business. HDFC Bank enables seamless delivery of home loans as a part
of its wide product suite catering to urban, semi urban and rural India.

As of May 31, 2024, the Bank’s distribution network was at 8,778 branches and 21,132
ATMs / Cash Recycler Machine (Cash deposit & withdrawal) across 3,836 cities / towns.
The Bank’s international presence includes branches in 4 countries and 3 representative
offices in Dubai, London and Singapore offering home loan products to Non-Residence
Indians and Persons of Indian Origin.
The HDFC Legacy

HDFC Ltd was founded in 1977, when the Late Shri. HT Parekh, Founder and Chairman of
HDFC Ltd, dreamt of millions of middle-class citizens of India owning a home and not
having to wait till their retirement. Pioneering India’s housing finance industry, the late Shri.
Parekh, a Padma Bhushan recipient, built HDFC Ltd on a strong foundation of integrity,
transparency, and professionalism. Taking the legacy further Mr. Deepak Parekh,
Chairman HDFC Ltd. and a Padma Bhushan awardee, not only made HDFC the leader in
Mortgages, but also transformed it into India's leading Financial Services conglomerate
with a presence in Banking, Asset Management, Life Insurance, General Insurance, Real
Estate Venture Fund, Education Loans and Education.

CSR

HDFC Bank Parivartan. A Step Towards Progress.

Parivartan, HDFC Bank’s social initiative has been a catalyst in transforming the lives of
millions of people in India. It aims to contribute towards the economic and social
development of the country by sustainably empowering its communities. Its wide range of
interventions spanning across different social causes has brought about the desired
change in the remotest parts of the country. Parivartan has uplifted rural lives, created
water structures, revolutionized education, supported social start-ups and opened
pathways towards financial independence through sustainable livelihood initiatives. With
a lot already done, the bank continues to bring about the change keeping with its
philosophy of Sustainability and Innovation. At Parivartan, we work in the following focus
areas:

1. Rural Development
2. Promotion of Education
3. Skill Training & Livelihood Enhancement
4. Healthcare and Hygiene
5. Financial Literacy and Inclusion

Vision, Mission and Values

HDFC Bank’s mission is to be a world class Indian bank. We have a two-fold objective:
first, to be the preferred provider of banking services for target retail and wholesale
customer segments. The second objective is to achieve healthy growth in profitability,
consistent with the bank’s risk appetite.
The bank is committed to maintaining the highest level of ethical standards, professional
integrity, corporate governance and regulatory compliance. HDFC Bank’s business
philosophy is based on five core values: Operational Excellence, Customer Focus, Product
Leadership, People and Sustainability.

As on 31-March-2024, the authorized share capital of the Bank is ₹ 1190.61 crore. The
paid-up share capital of the Bank as on the said date is ₹ 7,59,69,10,662 comprising
of 7,59,69,10,662 equity shares of the face value of ₹ 1/- each. 13.54% of the equity is held
by the ADS Depositories in respect of the Bank's American Depository Shares (ADS).
Further, 41.36% of the equity is held by Foreign Institutional Investors (FIIs)/Foreign
Portfolio Investors (FPI) and the Bank has 41,21,815 shareholders.
The equity shares are listed on the BSE Limited (BSE) and The National Stock Exchange of
India Limited (NSE). The Bank's American Depository Shares (ADS) are listed on the New
York Stock Exchange (NYSE) with symbol 'HDB'.

CBoP & Times Bank Amalgamation

On May 23, 2008, the amalgamation of Centurion Bank of Punjab (CBoP) with HDFC Bank
was formally approved by Reserve Bank of India to complete the statutory and regulatory
approval process. As per the scheme of amalgamation, shareholders of CBoP received
one share of HDFC Bank for every 29 shares of CBoP.

The amalgamation added significant value to HDFC Bank with an increased branch
network, geographic reach, customer base, and a larger pool of skilled manpower.

In a milestone transaction in the Indian banking industry, Times Bank Limited (a new
private sector bank promoted by Bennett, Coleman & Co. or Times Group) was merged
with HDFC Bank Ltd., effective February 26, 2000. This was the first merger of two private
banks in the new generation private sector banks. As per the scheme of amalgamation
approved by the shareholders of both banks and the Reserve Bank of India, shareholders
of Times Bank received one share of HDFC Bank for every 5.75 shares of Times Bank.

Distribution Network

HDFC Bank is headquartered in Mumbai. As of May 31, 2024, the Bank’s distribution
network was at 8,778 branches and 21,132 ATMs / Cash Recycler Machine (Cash deposit &
withdrawal) across 3,836 cities / towns. Customers across India are serviced through
multiple delivery channels such as Phone Banking, Net Banking, Mobile Banking, and SMS
based banking. The Bank's expansion plans take into account the need to have a presence
in all major industrial and commercial centers, where its corporate customers are located,
as well as the need to build a strong retail customer base for both deposits and loan
products. Being a clearing / settlement bank for various leading stock exchanges, the Bank
has branches in center's where the NSE / BSE have a strong and active member base. The
Bank also has a network of 18,089 ATMs across India. HDFC Bank's ATM network can be
accessed by all domestic and international Visa / MasterCard, Visa Electron / Maestro,
Plus / Cirrus and American Express Credit / Charge cardholders.

Technology

HDFC Bank has embarked on a transformative path, aspiring to be a “Technology company

with a banking license”. Adoption to state-of-the-art information technology and
communication systems along with leveraging emerging technologies and automation in
key areas has been fundamental to empower this transformation.

We conduct our operations in a highly efficient manner at our Tech competency centers at
the back end to deliver a seamless experience to our customers at the front-end. For
smoother end user operation and enhanced availability, all branches have been equipped
with online connectivity giving multi-branch access to our customers through branch
network and Automated Teller Machines (ATMs).

We are constantly evolving and upgrading to acquire the best-in-class technology available
internationally, making us truly a world class bank.

Our core banking systems are powered by Flex cube for corporate banking and Fin ware for
retail banking. The systems are open, scalable and web enabled.

At HDFC Bank, we strive towards making banking simple through seamless, neo-banking
experiences. Each of our businesses are focused with a domain-led expertise to develop
new digital products and services for our customers which will usher in the next wave of
digital banking.
MOGO - Our Musical Logo

HDFC Bank's MOGO - our Musical Logo - is a vibrant expression of the values that have
driven the Bank to become India's premier digital bank. It helps form a powerful emotional
connect with customers and builds recall among stakeholders across platforms - ATMs,
Phone Banking, Apps and other touch-points
Our MOGO reflects the two dimensions of what we stand for:

Trust
Created through being caring and reliable over the last two decades

Progressive change
To address the ever-changing needs of our customers
This piece is inspired by Raag Bilawal which expresses innovation and dynamism and
Raag Shudh Kalyan which reflects the caring, human nature of HDFC Bank. You will find
contemporary western instruments such as the Piano and Guitar accompanying our very
own Sitar, thus creating a wholesome blend of global aspiration and Indian earthiness.

RISK MANAGEMENT

Risk management in banking is the systematic process employed by banks in

identifying, assessing and mitigating various risks, such as credit, market,
operational, and compliance risks inherent in operational decision and investment
decisions.

Just like any other organization, banks are exposed to various types of risk.
However, being integral to the functioning of global financial systems, they require
robust risk management processes. Banking risk management refers to the
proactive and continuous process of identifying, assessing, and controlling risks
that a bank may face in its day-to-day operations with the goal of ensuring stability
and sustainability.

Effective risk management in banking can help ensure financial stability, protect
the interests of depositors, investors, and maintain the overall health of the
banking system. It is a critical function that requires ongoing attention and
adaptation to the evolving financial landscape.

Risk Management in banking is not only a regulatory requirement but also a

strategic imperative for ensuring long-term sustainability, profitability, and
resilience in a complex and interconnected financial environment. It plays a pivotal
role in safeguarding stakeholders' interests and maintaining trust in the banking
system.

Overview of the importance of risk management in banking:

1. Financial Stability: Effective risk management helps maintain the financial

stability of banks by identifying, assessing, and mitigating various risks. This stability
is crucial for ensuring the continuous availability of credit to businesses and
individuals, thereby supporting economic growth.
2. Protection of Stakeholder Interests: Banks have a fiduciary duty to protect
the interests of their stakeholders, including depositors, investors, and employees.
Sound risk management practices reduce the likelihood of financial losses, which
could otherwise erode stakeholder confidence and trust.
3. Regulatory Compliance: Banks operate in a highly regulated environment with
stringent requirements imposed by regulatory authorities. Compliance with these
regulations is a fundamental aspect of risk management to avoid penalties,
sanctions, and reputational damage.
4. Enhanced Decision Making: Risk management provides banks with valuable
insights into the risks associated with various business activities and investments.
This enables informed decision-making processes that align with the bank's risk
appetite and strategic objectives.
5. Optimal Capital Allocation: By understanding and quantifying risks, banks
can allocate capital more efficiently. This ensures that capital is deployed in
activities that generate appropriate returns relative to the risks undertaken,
optimizing overall profitability.
6. Operational Efficiency: Effective risk management practices improve
operational efficiency by identifying and mitigating operational risks such as
process inefficiencies, technology failures, and human errors. This enhances the
reliability and effectiveness of banking operations.
 7. Resilience to Economic Shocks: Banks are exposed to economic cycles and
external shocks that can impact on their financial health. Robust risk management
frameworks help banks anticipate and prepare for such events, minimizing the
impact on their stability and profitability.
8. Maintaining Reputation: A bank's reputation is built on trust and reliability.
Managing risks effectively helps preserve the bank's reputation by demonstrating
commitment to sound governance, transparency, and ethical practices.
9. Adaptability to Change: The financial landscape is constantly evolving with
technological advancements, regulatory changes, and market dynamics. Effective
risk management enables banks to adapt to these changes proactively, mitigating
emerging risks and seizing opportunities.

Certainly! Here are definitions for credit risk, market risk and operational
risk, which are three key types of risks faced by banks:

The three credit risks, market risk and operational risk are critical considerations for banks
in their daily operations, risk management practices, and regulatory compliance efforts.
Managing these risks effectively is essential for maintaining financial stability, protecting
stakeholder interests, and ensuring the long-term viability of banking institutions.

Credit Risk: Credit risk refers to the potential loss that a bank may incur if borrowers or
counterparties fail to fulfill their financial obligations. It arises from the possibility of
default on loans, bonds, derivatives, or other financial contracts. This risk includes both
individual borrower risk (default risk of a single borrower or counterparty) and portfolio risk
(risk that defaults occur within a portfolio of loans or investments). Banks assess credit
risk by evaluating the creditworthiness of borrowers based on factors such as their
financial health, repayment history, and collateral.
Market Risk: It is the risk of losses in a bank's trading book and investment portfolio due
to changes in market factors such as interest rates, foreign exchange rates, commodity
prices, and equity prices. It encompasses three types:

• Interest Rate Risk: Risk arising from fluctuations in interest rates

affecting the value of fixed-income securities, loans, and derivatives.
• Currency Risk: Risk arising from fluctuations in foreign exchange rates
impacting on the value of assets and liabilities denominated in foreign
currencies.
• Commodity Risk: Risk arising from changes in commodity prices
affecting the value of commodities held by the bank or exposure to
commodity-related derivatives.

Operational Risk: It is the risk of loss resulting from inadequate or failed internal
processes, systems, people, or external events. It includes a wide range of potential
sources of losses, such as:

• Internal Fraud: Misappropriation of assets, insider trading, etc.

• External Fraud: Theft of information, hacking attacks, etc.
• Employment Practices and Workplace Safety: Discrimination
claims, employee injuries, etc.
• Clients, Products, and Business Practices: Mis-selling of products,
data entry errors, etc.
• Damage to Physical Assets: Natural disasters, terrorism, etc.
• Business Disruption and System Failures: IT failures, power
outages, etc.

Operational risk is challenging to quantify and manage because it involves diverse and
sometimes unpredictable factors that can impact a bank's operations and financial health.

Managing risks effectively is crucial for financial stability due to several

key reasons:
1. Mitigating Losses: Effectively risk management helps organizations mitigate potential
losses. By identifying and assessing risks early on, businesses can take proactive
measures to minimize the impact of adverse events such as financial market fluctuations,
operational disruptions, or unexpected changes in regulatory environments. This reduction
in potential losses contributes directly to maintaining financial stability.

2.Enhancing Resilience: A well-managed risk framework enhances an organization's

resilience to external shocks. Financial stability requires businesses to weather economic
downturns, market volatility, or other crises without significant disruption to operations or
financial health. Effective risk management ensures that businesses can adapt and
respond to these challenges, thereby maintaining stability over the long term.

3. Safeguarding Reputation: Managing risk effectively also protects an organization’s

reputation. It arises when negative events or incidents damage public perception,
stakeholder trust, or brand integrity. By anticipating and addressing potential risks,
businesses can safeguard their reputation, which is crucial for maintaining customer
loyalty, attracting investors, and retaining talented employees—all of which contributes to
financial stability.

4. Compliance and Legal Obligations: Compliance with regulatory requirements and

legal obligations is another critical aspect of financial stability. In many industries, failure
to manage risks effectively can lead to regulatory sanctions, legal penalties, or lawsuits, all
of which can have severe financial implications. By implementing robust risk management
practices, organizations can ensure compliance with laws and regulations, thereby
avoiding costly legal consequences.

5. Supporting Growth and Innovation: Effective risk management fosters an

environment conducive to sustainable growth and innovation. Businesses that
manage risks well are better positioned to take calculated risks that lead to
strategic opportunities and competitive advantage. This ability to innovate and grow
in a controlled manner contributes significantly to long-term financial stability.
Risk Management
Robust and stress-tested framework

Our robust Risk Management framework and the independence of our risk management

function set us apart as a responsible banker. It enables the execution of our strategic

priorities without taking on undue financial and non-financial risks. Our risk policies and

processes and their effective implementation through technology and governance enabled

us to endure and even grow in these highly uncertain and disruptive times. Stress testing is

one of the key risk management tools we use to mitigate and manage existing as well as

emerging risks.

Risk Governance
Our Board of Directors is responsible for managing comprehensive risks. The Risk Policy &

Monitoring Committee (RPMC), constituted by the Board, oversees the implementation of

our risk strategy. The RPMC guides the development of our policies, procedures and
systems and evaluates their adequacy and appropriateness to the changing business
conditions, as well as our risk appetite.

The Chief Risk Officer (CRO) heads the independent Risk Management Group (RMG). The
CRO interacts regularly with the members of the RPMC. The RMG is primarily responsible
for implementing the risk strategy approved by the Board, and developing policies,
procedures and systems for identifying, measuring, monitoring, assessing and managing

risks.
Risk Governance
Our Board of Directors is responsible for managing comprehensive risks. The Risk Policy &

Monitoring Committee (RPMC), constituted by the Board, oversees the implementation of

our risk strategy. The RPMC guides the development of our policies, procedures and
systems and evaluates their adequacy and appropriateness to the changing business
conditions, as well as our risk appetite.

The Chief Risk Officer (CRO) heads the independent Risk Management Group (RMG). The
CRO interacts regularly with the members of the RPMC. The RMG is primarily responsible
for implementing the risk strategy approved by the Board, and developing policies,
procedures and systems for identifying, measuring, monitoring, assessing and managing
risks.

Key risk management initiatives

Evolving stress testing scenarios

In addition to the existing suite of standard stress scenarios, we are conducting stress
testing based on topical themes driven by prevailing trends such as
geopolitical/macroeconomic/sectoral, among others. These stress tests are conducted
focusing on specific areas of portfolio and the results act as early warning alerts/signals for
taking actions, if any. Some of the topical themes relevant for the present times include the
evolving geopolitical turmoil in Europe due to the Russia-Ukraine conflict, commodity price
shocks, and possible shift in key macroeconomic variables in the medium term.

Russia-Ukraine conflict

We analyzed both direct and indirect impact of the conflict on our portfolio. The situation
remains fluid globally, and there is uncertainty regarding the final outcome from a
 geopolitical as well as a financial market standpoint. Stress testing of our portfolio
considering the current information did not indicate any significant risk. We continue to
closely monitor the situation, to pre-empt and manage the risk and its outcomes.

Sri Lanka’s sovereign default

With continuous and robust monitoring of country risk exposures and stress testing, we
have proactively taken steps to limit our exposure to Sri Lanka. Although the impact of the
default is unlikely to be material for the Bank, we are keeping a close eye on the situation.

Increasing focus on non-financial risks

We believe a lot more can be done in the area of researching, analysing, monitoring and
mitigating nonfinancial risks such as operational, technology and reputation, among others.

Accordingly, we are elevating deliberations of non-financial risks in the RPMC/Board. We are

also in the process of enhancing policies, procedures and risk assessment framework for

such non-financial risks.

Leveraging technology
In line with our technology transformation agenda, we are also automating our risk
management processes. We believe it will increase efficiencies, enhance accuracy of
information, and enable maintenance of adequate audit trail for reviews.
 Credit Risk

The risk which arises from default by borrowers in their terms of contract with the Bank,
especially failure to make payments or repayments.

Mitigation
An independent Credit Group headed by a Chief Credit officer oversees the underwriting
functions and approvals across retail and wholesale credit functions. It ensures that the credit
underwriting and portfolio management policies are aligned with the Board approved credit

appetite. There are robust policies and processes for managing credit risk in both retail and
wholesale businesses, mainly through our target defined market, credit approval process,
post disbursement monitoring and remedial management procedures.

Strategies

Maintaining healthy asset quality with optimal risk-reward considerations.

Capitals Impacted

Market Risk

Market Risk

• The risk of potential loss on account of adverse changes in market variables which
effect the value of financial instructions held by the bank.

These instruments are primarily held for trading or for management of statutory reserves.
Examples of such market instruments are debt securities, equities, foreign exchange and
derivative instruments.

Mitigation

A well-defined Board approved Market Risk Policy, Investment Policy, Foreign Exchange
Trading Policy and Derivatives Policy along with robust control activities caps the risk at
trading desk level and also at securities level, through trading risk limits in line with the Bank’s

risk appetite.

The market risk is also evaluated at portfolio level and controls are implemented to mitigate

the risk.

Strategies

Optimizing profitability of mark-to-market products within the constraints of liquidity and

market risk appetite of the Bank.

Capitals Impacted

Compliance Risk

Compliance Risk
The risk of legal or regulatory sanctions as a result of failure to comply with applicable laws,
regulations and standards.

Mitigation

Comprehensive Board-approved Compliance policy in place which is reviewed on an annual

basis.

The Compliance function tracks and reviews compliance with regulatory guidelines.

Enhancing the compliance culture within the organization through an intricate and
comprehensive internal control framework along with other measures.

Strategies

Strengthening our Compliance checks and balances and ensuring businesses work within
the contours of regulation.

Capitals Impacted
 Operational Risk

Operational risk arises from inadequate or failed internal processes, people and systems or
from external events. It includes risk of loss due to legal risk.

Mitigation

A Board-approved governance structure is in place with detailed framework and processes for
managing operational risk. Under the framework, the Bank has three lines of defense namely
business line (including support and operations), An independent Operational Risk
Management Department (ORMD) and Internal Audit to manage, monitor and mitigate

Operational risks.

Strategies

Minimizing operational losses through risk mitigation mechanisms.

Capitals Impacted
 Climate Risk

At a broader level, risks from climate change are typically divided into:

• Physical risks

Economic losses (physical damage to property and assets) from extreme weather events
(flood, cyclone, etc.). due to climate change.

• Transition risks

– The possible process of adjustment to a low carbon economy and its possible effects on the
value of financial assets and liabilities.

Mitigation

An ESG policy framework has been formulated to address this risk.

Evaluation of environmental and social risk is an integral part of our overall credit appraisal
and approval process. Long-term financing proposals for large industrial/infrastructure

projects (greater than `100 million and tenor above 5 years) are evaluated through the SEMS
framework, which requires an assessment of Environmental, Health, Social, and Safety risks
in addition to other risks as part of the overall credit appraisal process. We also track and
externally verify our carbon emissions to effectively manage and reduce our footprint.
 Strategies

We are exploring frameworks to model and assess climate risk. We also continue our
endeavor to acquire granular data, further corroborated by BRSR data (from FY23
onwards), and test tools for climate risk assessment and conducting scenario analysis. We
are also exploring options to tie-up with data providers.

On the emissions front, we have set ourselves specific targets towards reduction of our

GHG emissions.

Capitals Impacted

Liquidity Risk

Liquidity risk is the risk that the Bank may not be able to meet its financial obligations as they
fall due, without incurring unacceptable losses.
Mitigation

The Bank's framework for liquidity and interest rate risk management is spelled out in our

Asset Liability Management policy. Further, a robust mechanism to comprehensively track

cash flow mismatches under normal as well as stressed conditions and critical ratios

including Basel III ratios has also been implemented. The Bank has an extensive

intraday liquidity risk management framework for monitoring intraday positions

during the day.

Strategies

• To maintain healthy liquidity as evidenced in Liquidity Coverage Ratio

(LCR)/Net Stability Funding Ratio (NSFR) in line with our Balance sheet size
to tide over any unforeseen stress scenarios.

• Maintaining competitive cost of funds.

Capitals Impacted

Reputation Risk

•
 • Any adverse stakeholder and public perception about our Bank may negatively
impact on our ability to attract and retain customers and may expose us to litigation

and regulatory actions.

Mitigation

We communicate with our stakeholders regularly through appropriate engagement

mechanisms to address stakeholder expectations and assuage their concerns, if any.

The Bank has identified reputation risk to be a material risk in its ICAAP Policy and an
assessment framework has been established to monitor the level of reputation risk.

Strategies

• Delivering superior and seamless customer experience.

• Wide range of products and services.

Capitals Impacted

Information Technology Risk

Risks associated with the use, ownership, operation, involvement, influence, and adoption of
IT within an enterprise, as well as business disruption due to technological failures.
Mitigation

There are well defined policies, frameworks, procedures, templates, and risk assessment

methodology for IT risk management.

The framework enables risk assessment of IT solutions, entities providing IT and related

services and new technology and digital implementation .

Strategies

Ensure alignment of Business and IT Strategies to provide services and superior customer
experience.

Making extensive progress on some of the key initiatives that are part of our technology

transformation agenda. The key initiatives are Infrastructure stability, Disaster Recovery
Resiliency, Security enhancements and monitoring mechanisms.

Capitals Impacted
 Cyber Security and Data Risk

Risk of cyber-attacks on the Bank’s systems through hacking, phishing, ransomware and other
means, resulting in disruption of our services or theft or leak of sensitive internal data or
customer information.

Mitigation

Each cyber security threat including data privacy issue is assessed basis the framework -
Identify, Prevent/Protect, Detect, Respond and Recover. Further controls such as firewalls,
anti-malware, anti-advance persistent threats, data loss prevention, Red Teaming, Intrusion

prevention/detection, digital rights management, 24*7 security operation centre, and

forensics solutions, have been put in place.

The international ‘General Data Protection Regulation (GDPR)’ has also been implemented
across relevant operations. The Bank is compliant with ISO 27001 and PCI DSS standards.

Strategies

Facilitating bank’s growth via secure Digital 2.0 – implemented through Social, Mobile,
Analytics and Cloud technology.

Adapting and updating Cyber Defense framework, using AI/ML to further augment cyber
defense capabilities to counter new-age threats.

Increase information security awareness among employees and customers through

specific programmed and communications.
Sustaining operational effectiveness and efficiency through secure Work from Home.

Capitals Impacted

CREDIT RISK MANAGEMENT

HDFC Bank has a comprehensive credit risk management architecture that includes
identification, assessment, measurement, monitoring, and control of credit exposures.
The bank's Risk Management Group is responsible for implementing the credit risk
strategy, developing procedures and systems, and approving individual credit
exposures. The bank's Board of Directors endorses the credit risk strategy and
approves the policies, taking into account the bank's risk appetite and targeted
profitability level. The Risk Policy & Monitoring Committee (RPMC), a committee of the
Board, guides the development of policies and procedures. The RPMC also periodically
reviews the bank's portfolio composition and the status of impaired assets.

Credit risk if defined as the potential that a bank borrower or counterparty will fail to
meet its obligations in accordance with agreed terms, or in other words it is defined as
the risk that a firm's customer and the parties to which it has lent money will fail to
make promised payments is known as credit risk. The exposure to credit risk is large in
the case of financial institutions, such commercial banks. When firms borrow money,
they in turn expose lenders to credit risk, the risk that the firm will default on its
promised payments. As a consequence, borrowing exposes the firm owners to the risk
that the firm will be unable to pay its debt and thus be forced into bankruptcy. Credit
risk is the largest element of risk that exists in the books of most banks. It has been
witnessed a number of times in the past that credit risk management not only weakens
the individual's banks but also contributes to financial instability on the whole. For
better credit risk management, banks should consider the relationship between the
credit risk and other risks. The primary objectives of credit risk management should be
the maximization of banks' risk adjusted rate of returns by maintaining it in acceptable
parameters. Credit risk management has emerged as one of essential components in
risk management and gradually lots of new tools and practices are emerging to control
credit risk. Although there are a multitude of problems that constantly threaten to pull a
bank under, at the heat of serious banking problems is just one major lapse-tax credit
standards for borrowers and counter parties. This laxity can also compass poor
portfolio risk management or can even take the forms of poor attention to changes in
economics and other factors that lead to failure in the credit standing of banks counter
parties.