Risk Management-HR Issues

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Risk Management-HR Issues

• -Mr. A.C Varma
• Chief General Manager(HR)-SBI

2
Why Risk Management?

• Horizontal expansion of the financial markets,
  entry of private and foreign players
• Deregulation across the globe in financial
  markets and stiff competition have led the banks
  to multiply their activities, types and number of
  products have exposed the banks to more
  uncertainties and more risks.
• Information Technology has on one hand
  facilitated faster movement and exchange of data
  and information it has also increased number and
  types for risk.

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Indian banking sector

• Banks in India have, therefore, started paying
  attention to the potential risks and to evolve
  mechanisms and systems to control and manage them
  in line with the global standards and procedures.
  
• Unguarded situations and complacency lead to huge
  losses. A number of banks have been exposed to
  substantial financial losses in India and abroad.
  Analysis of the reasons reveal weak risk
  management and HR undercurrents.

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What is Risk management?

• Comprehensive process adopted by an organization
  that seeks to minimize the adverse effects it is
  exposed to due to various factors -- economic,
  political or environmental, some of them inherent
  to the business, others unforeseen and
  unexpected.

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Types of risks

• Credit Risk
• Environmental and financial risk which, inter
  alia, arises from changes in the macroeconomic
  environment, interest rate fluctuations and
  market exposures.
• Operations risk, covering other aspects of
  day-to-day business, including personnel
  management, industrial relations and human
  resources development.
• Strategic risks, which are associated with the
  way an institution is managed, including the
  strategy for marketing, meeting new competition,
  improving customer satisfaction and product
  development

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BASEL-II

• Basel II is based on three pillars
• Minimum capital requirements,
• Supervisory review, and
• Market discipline- to bring stability to the
  financial system
• BASEL II also aims at
• Ensuring that capital allocation is risk
  sensitive.
• Separating operational risk from credit risk, and
  quantifying both
• Attempting to converge economic and regulatory
  capital.

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Issues faced by banks for BASEL-II

• Aligning and upgrading data and existing IT
  systems infrastructure for completeness,
  consistency and integrity across the
  organisation.
• Governance
• Need to bring in a risk culture across the whole
  organisation

8
Role Of HR

• Illustrated by Live Case in SBI

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HR Related Risks

• Integrity
• Skills- confidence level-difficult to
  adjust-stress-change management
• Recruitment Retention-cost
• Obsolescence and reskilling
• Industrial Relations-redeployment- impacting
  operations
• Ageing profile

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Some more issues

• ATMs and internet banking-potential dangers
• SBI has in a month 4.30 crores transactions
  involving cash withdrawal of Rs 5,290 crores.
• Single pc had few lac accounts in core banking
  it will have access to 5 crore accounts in
  thousands of branches- imagine the opportunity to
  fraudsters
• e-banking could lead to frauds on bigger scale
• The value of frauds in will not be in thousands
• Crime- 800 bio to 1.6 trio are laundered
  annually- half through banks- 47 in US -30 in
  Asia- Pacific

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Facts of the Case

• Central Office Inspector suspicious of see huge
  credits to NPA accounts by the way of standing
  instructions
• Number of fake entries
• Assumed role of system administrator despite
  presence of one.
• Manual entries in otherwise system generated
  accounts
• Before this, the perpetrator had worked in
  systems department of the bank.

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Human Resource Management Perspective

• Supervising Staff taking up additional roles
  other than laid down instruction.
• The erring employees behaviour and actions in the
  workplace was glaringly obvious, yet people
  ignored it for months and was posted as a Branch
  Manager
• People worked in their own small drawn out
  territory. No team work.
• Lack of focus on the vital regulating and
  back-office control roles that were seen as far
  less glamorous.
• Complacency despite all roles being assumed by
  one person no one raised an eyebrow
• Controls exercised in manual system still
  applicable

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Hence What has to be done..

• Putting in place forums where employees can
  express their views suggestions about the
  organisation.
• Like open houses with the controllers at periodic
  intervals
• Frequent team meetings
• Team getaways and get-togethers
• Change in mindset of people. Encouraging people
  to embrace technology and keep abreast of changes
  in the financial market.. (age ?)
• Awareness amongst staff of pitfalls
• Employment risk audits should be done extensively
  while recruiting staff. This would include
• Thorough background check
• Employee handbooks
• Laying down clear rules for leave, compensation
  etc

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Contd.

• Ensure employees are properly trained to do their
  jobs and have clear, defined roles. For this
  there has to be clear training need analysis,
  training delivery methods, post training
  evaluation and on job evaluation
• Identify methods of stress reduction. This could
  be through various work-life balance techniques
  like
• Rooms for taking rest breaks, gymnasium
• The chairs and work areas have to be
  aesthetically developed.
• Clear job definition and allocation of roles just
  clarifies what is expected from a person.
• Periodic job rotations and transfers in jobs that
  can lead to frauds due to extensive knowledge of
  systems especially in institutions like banks
  etc.
• Periodic HR audits to measure employee
  satisfaction, motivation etc. Suggestion schemes
  would help us know the pulse of the organization.
• Periodic Internal audits of systems and
  procedures.
• Career and Succession planning based on
  experience and performance. This should include
  performance tracking by supervisor.
• Staff Welfare does not end at provision of good
  canteens, aesthetic surroundings. Encouraging
  people to have a work life balance, flexible
  working hours. Supporting employees in difficult
  times like tragedies or participating on happy
  occasions.

15
Lessons from Nick Leeson

• Do not lose sight of your work force
• Thrust of everything was how much money are we
  going to make? Organisations need to focus on
  staff welfare
• Stress psychological aspect of the way stress
  affected him fear of failure if you ask for
  help your status is diminished-I was failing
• Need to have control and achieve success blinded
  him
• I was in mid twenties-age was not commensurate
  with responsibilities
• In risk management and compliance you need strong
  people
• No complacency
• Key decision makers did not understand business
• There will be always rogues who will bend rules
  and take risks
• Fine line between employees being stretched and
  stressed

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What Organizations like IBFS Can do

• Train people for meeting the challenges of their
  forthcoming jobs.
• The syllabus should be designed so that it
  develops necessary Knowledge, Skills and
  Attitudes
• Research on the loop holes of the new policies
  and methods of countering it

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• A stitch in time saves nine

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Thank You!