Risk Management in Bank

Abstract

The Banks are essentially engaged in the business of financial intermediation which involves mobilization of deposits and granting of loans and advances to the needy. While mobilization of deposits and funds entails a cost in the form of interest paid on deposits and borrowings, the lending operations are the mainstay of income stream for the banks. The banks need to manage the size of deposits and borrowings on the side of liability management so as to commensurate with their requirement of funds to be deployed in the form of loans and advances. The management of liabilities and assets of the bank is an exercise of balancing the size, pricing and tenor of the deposits and advances after factoring adequate amount on account of preemptive investments viz., Cash Reserve Ratio and Statutory Liquidity Ratio.