Banks need to move into integrated risk management systems: Crisil

With the emphasis on risk management at banks growing globally, there is an urgent

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need for banks to integrate risk management processes with business and operating models, says rating agency Crisil.

Along with these, banks will also have to significantly enhance its stress testing capabilities and also increase their know-how on risk management related data requirements and analytics, the agency said in a report.

"The risk management processes at banks need to be better integrated with their business and operating models. For this, risk management needs to be viewed as a key part of strategy and operations and go well beyond merely being a compliance exercise," the report said.

Besides, there is a need to incorporate risk-based capital performance measures and stress testing more centrally into business decision-making processes, it said.

Also, banks need to do more in the area of integrated stress testing, including market, credit, liquidity and operational stress testing, besides testing their portfolios.

"Stress testing also needs to be forward-looking, with several tail risk scenarios and take into account the interconnectivity of the global financial systems and economies," it said.

The outcome of integrated stress testing scenarios should be a key input for the management and boards of banks, while deciding on their risk appetite, capital and liquidity planning, the report said.

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