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Operations

in
Banking & Financial Services
The Changing Banking Paradigm

External drivers compel banks to leverage the developments in


Information Technology and continuously innovate

 Regulatory change and consolidation


 Competitive forces
 Changing Consumer Preference
 Technological developments
 Basel II
 IAS

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Operational Risk

Operational risk can arise from failure to comply with


policies, laws and regulations, from fraud or forgery, or from
a breakdown in the availability or integrity of services,
systems or information.

» Event risk (Year 2000, Euro, Basel 2, IAS)


» Payments/settlement risk
» Technology/systems exposure
» Fraud/compliance risk
» Natural disaster
» Change management
Sources of Operational Risk
Differences between Three Lines of Business
Risk In Banking Sector

Equity Risk Trading Risk


Market Risk
Interest Rate Risk
Gap Risk
Currency Risk

Commodity Risk

Transaction Risk Counterparty Risk


Credit Risk
Financial Portfolio Issuer Risk
Concentration Risk
Risks Liquidity Risk

Operational Risk

Regulatory Risk

Human Factor
Risk

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Understanding Market Risk

It is the risk that the value of tangible and intangible of a


financial institution will be adversely affected by movements
in market rates or prices such as

 Interest rates,
 Equity prices,
 Foreign exchange rates
 Credit spreads
 Commodity prices

Resulting in a loss to earnings and capital.

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Waste In Banking

»Waste No.1: Over-Processing: Adding more value to a


service or product than customers want or will pay for

»Waste No. 2: Transportation: Unnecessary movement of


materials, products or information

»Waste No. 3: Motion: Needless movement of people

»Waste No. 4: Inventory: Any work-in-process that is in excess


of what is required to produce for the customer

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Waste In Banking…

»Waste No. 5: Waiting: Any delay between when one process


step/activity ends and the next step/activity begins

»Waste No. 6: Defects: Any aspect of the service that does not
conform to customer needs

»Waste No. 7: Overproduction: Production of service outputs


or products beyond what is needed for immediate use

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Example…Pain Areas

» The account opening process had many inter-linked &


sequential processes.

» One of the most critical ones was the “Dispatch of PIN” to


use the ATM services.

» Many customers did not receive the PIN at all resulting in


customer complaints, hence belying their expectation of a
hassle-free banking.

» Losing Customer Base

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CRISIL VaR Model

Multiple Yields Incremental


Portfolios Duration VaR
VaR

Variance-
Portfolio
Stop Loss covariance
Optimization
Matrix

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What Needs to be done

 Incorporates best-business practices


 Straight Through Processing
 Workflows to automate processes
 Process Centralization
 Single window service
 Control through relevant and timely MIS

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Efficiency – cost effective automation

Efficiency has become necessary evil and no longer an


competitive tool for Banks:

 Eliminates manual intervention


 Enables process integration (workflow, document imaging)
 More Automation
 Reducing TAT
 Reduction In Errors

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Effectiveness

 Measure, Monitor & Manage – Value at Risk


 Establish good operational processes
 Deploy Best practices framework
 Streamlining the processes
 Innovation

Slide 3
Thank You

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