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INTRODUCTION

Risk is defined as anything that can create obstruction in the way of achieving certain
objectives. It can be due to internal factors or external factors, depending on the type of risk
involved in a particular situation.
Til recently, due to regulate environment, the banks could not afford to take risks. But in
recent times, banks are exposed to the same competition and therefore are forced to encounter
various types of financial and non-financial risks. The risks and uncertainties are an integral
part of banking that inherently involves taking risks. Exposure to this risk can make a more
critical situation. A better way to deal with this situation is to take some preventive measures
to identify any kind of risks that may lead to undesirable results. In simple terms, it can be
that risk management in advance is much more better than waiting for their occurrence.

Risk Management is a measure which is used to identify, analyze and respond to a particular
risk. It is a process that is continuous in nature and is an useful tool in decision making
process.

Risk Analysis and Risk Management has gained much importance in the Indian economy
during the period of liberalization. Foremost among the challenges facing the banking
industry today is the challenge of understanding and managing risk. For management of the
risk at corporate level various risk like credit risk, market risk or operational risk have to be
converted into one composite measure

There are three main categories of risks faced in banking sector such as Credit Risk, Market
Risk & Operational Risk. There are some other categories of risk like Regulatory risk and
environmental risk. Various tools and techniques to manage Credit Risk, Market Risk and
Operational Risk and its various components, will be discussed in this report. This report will
also explains briefly about Basels New Capital Accord and role of capital adequacy, Risk
Aggregation & Capital Allocation and Risk Based Supervision (RBS), in managing risks in
banking sector.

To maintain a balance between risk and return, to increase its profitability, to avoid and
assess the risk that comes in investing and allocation of capital, to avoid the risk that comes
from giving the loans that is default of the payment from the debtors, to avoid bad debt
provision, to avoid the credit loss, to maintain its solvency and stability, to regulate the
money supply in economy, ets risk management is essential for the banks to follow.
Therefore the greater the banks is exposed to risk, greater the amount of capital bank should
have when it comes to their reserves.





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INTRODUCTION ABOUT STUDY:
Risk management underscores the fact that the survival of an organization depends heavily
on its capabilities to anticipate and prepare for the change rather than just waiting for the
change and react to it. The objective of risk management is not to prohibit or prevent risk
taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose
and clear understanding so that it can be measured and mitigated. It also prevents an
institution from suffering unacceptable loss causing an institution to suffer or materially
damage its competitive position. Functions of risk management should actually be bank
specific dictated by the size and quality of balance sheet, complexity of functions, technical/
professional manpower and the status of MIS in place in that bank.

PROBLEM DEFINITION:
Research objectives:
To analyze the various risk faced by banks.
To understand the impact of different risk on performance of banks.
To examine the tools and techniques applied in for risk identification, risk
measurement and risk management of risks in banking sectors.
To learn brief about BASEL new capital accord, role of capital adequacy.

Hypothesis:
H0: Performance of banks are affected by the risk.
H1: Performance of banks are not affected by the risk..

SCOPE OF THE STUDY

The report seeks to present a comprehensive picture of the various risks inherent in the
bank. The risks can be broadly classified into three categories:
Credit risk
Market risk
Operational risk
Within each of these broad groups, an attempt has been made to cover as
comprehensively as possible, the various sub-groups.
The computation of capital charge for market risk will also be taken practically as also the
assigning the ratings for individual borrowers. PNB is also under the key process of testing
and implementation of Reuters "KONDOR" software for its VaR calculations and other
aspects of market risk.

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LIMITATION OF THE STUDY
1. The major limitation of this study shall be data availability as the data is proprietary and
not readily shared for dissemination.
2. Due to the ongoing process of globalization and increasing competition, no one model or
method will suffice over a long period of time and constant up gradation will be required. As
such the project can be considered as an overview of the various risks prevailing in Punjab
National Bank and in the Banking Industry.
3. Each bank, in conforming to the RBI guidelines, may develop its own methods for
measuring and managing risk.
4. The concept of risk management implementation is relatively new and risk management
tools can prove to be costly.
5. Out of the various ways in which risks can be managed, none of the method is perfect and
may be very diverse even for the work in a similar situation for the future.
6. Due to ever changing environment, many risks are unexpected and the remedial measures
available are based on general experience from the past.
7. Selection of methods depends on the firms expectations as well as the risk appetite. Also
risks can only be minimized not completely erased.

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