A bank’s basic duty is to collect money from excess units and maximize usage by lending to individuals and corporate bodies that need it at prevailing interest rates. In doing this, banks and other financial institutions take various forms of risks. This informed the need for risk management, which ensures that depositors’ funds are safe to a very large extent. If this safety valve is not guaranteed, it could lead to failure of banks and possibly affect the national economy.
There are three kinds of risks: credit, operational and market risks. Credit risk: This constitutes the largest quantum of any bank’s risk portfolio. If not properly managed, a bank stands the risk of losing both the principal and interest accruable on the facility. In the circumstance,…
