An analysis of risk management: Role in banking sector

Risk is inherent in any business activity where it is rightly said that it refers to uncertainty of outcomes which is at times unavoidable. Management of risk becomes essential for successful operations of the business. "Risk Management is a culture, not a cult. It only works if everyone lives it, not if it's practiced by a few high priests” which means risk management refers to the practice of identifying potential risks in advance, analyzing them and taking precautionary steps to reduce/curb them. It may have an impact on bank or financial institutions having a direct effect on losses, customers and business partners. Banks play a vital role in economic development of a country as it is the nerve centre of all commerce and trade which provides instruments for developing internal as well as external trade. “An Institution, such as the banking system, which touchesand shouldtouchthe livesof millions, hasnecessarilytobe inspired by a larger social purpose and has to subserve national priorities and objectives.” A well-developed banking system provides a firm and durable foundation for the economic development of the country. Banking risk is that risk that banks is confronted within their current operations and not only risk specific to regular banking activities. To overcome banking risk banks have developed strategies which include procedure for managing risk and minimization of potential exposure. The objective is to understand the various techniques involved to conduct risk management and concludes by emphasizing on the role of RBI in risk management of bank.