Submitted By

NEHA SHARMA
MBA(Retail Management) LUCKNOW
UNIVERSITY
ICICI Bank

Current System and

Technology
Sensing an untapped opportunity, ICICI
Bank decided to target India’s burgeoning
middle class and corporate's by offering a
high level of customer service and
efficiency that rivaled the foreign banks,
on a much larger scale, at a lower cost.

A crucial aspect of this strategy was the

emphasis on technology. ICICI Bank
positioned itself as technology-savvy
customer friendly bank.
 To support its technology focused strategy, ICICI Bank
needed a robust technology platform that would help it
achieve its business goals. After an intense evaluation of
several global vendors, ICICI Bank identified Infosys as its
technology partner and selected Finacle, the universal
banking solution from Infosys, as its core banking platform.

An open systems approach and low TCO (Total Cost of

Ownership) were some of the key benefits Finacle offered
the bank. Unlike most banks of that era, ICICI Bank was
automated from day one, when its first branch opened in the
city of Chennai. Some of the reasons cited by the bank for
its decision to select Finacle include Finacle’s future-proof
technology, best-of-breed retail and corporate banking
features, scalable architecture and proven implementation
track record
 One of the biggest challenges for Finacle was ensuring straight
through processing (STP) of most of the financial transactions.
With the ICICI group having several companies under its umbrella,
Finacle needed to seamlessly integrate with multiple applications
such as credit cards, mutual funds, brokerage, call center and data
warehousing systems. Another key challenge was managing
transaction volumes.

 ICICI Bank underwent a phase of organic and inorganic growth,

first by acquiring Bank of Madura followed by a reverse merger of
the bank with its parent organization, ICICI Limited.

 The scalable and open systems based architecture, enabled Finacle

to successfully manage the resultant increase in transaction levels
from 400,000 transactions a day in 2000 to nearly 2.1 million by
2005 with an associated growth in peak volumes by 5.5 times. With
Finacle, the bank currently has the ability to process 0.27 million
cheques per day and manage 7000 concurrent users.
Over the years, the strategic partnership between
ICICI Bank and Infosys that started in 1994 has
grown stronger and the close collaboration has
resulted in many innovations. For instance, in 1997, it
was the first bank in India to offer Internet banking
with Finacle’s e-banking solution and established
itself as a leader in the Internet and ecommerce space.

The bank followed it up with offering several e-

Commerce services like Bill Payments, Funds
Transfers and Corporate Banking over the net. The
internet is a critical element of ICICI Bank’s award
winning multi-channel strategy that is one of the
main engines of growth for the bank
ICICI Bank

MIS Report Currently in Use

Information System
Organizations Computing Resources
ICICI Bank
Management Challenges
Risk Management
As a financial intermediary, ICICI Bank is
exposed to risks that are particular to its
lending and trading businesses and the
environment within which it operates.

ICICI Bank’s goal in risk management is to

ensure that it understands, measures and
monitors the various risks that arise and that
the organization adheres strictly to the policies
and procedures which are established to
address these risks.
As a financial intermediary, ICICI Bank is primarily
exposed to credit risk, market risk, liquidity risk,
operational risk and legal risk. ICICI Bank has a
central Risk, Compliance and Audit Group with a
mandate to identify, assess, monitor and manage all of
ICICI Bank’s principal risks in accordance with well-
defined policies and procedures.

The Head of the Risk, Compliance and Audit Group

reports to the Executive Director responsible for the
Corporate Center, which does not include any business
groups, and is thus independent from ICICI Bank’s
business units. The Risk, Compliance and Audit Group
coordinates with representatives of the business units
to implement ICICI Bank’s risk methodologies.
Committees of the board of directors have been
constituted to oversee the various risk
management activities.

The Audit Committee of ICICI Bank’s board of

directors provides direction to and also monitors
the quality of the internal audit function. The Risk
Committee of ICICI Bank’s board of directors
reviews risk management policies in relation to
various risks including portfolio, liquidity, interest
rate, off-balance sheet and operational risks,
investment policies and strategy, and regulatory
and compliance issues in relation thereto
The Credit Committee of ICICI Bank’s board of directors
reviews developments in key industrial sectors and ICICI
Bank’s exposure to these sectors.

The Asset Liability Management Committee of ICICI

Bank’s board of directors is responsible for managing the
balance sheet and reviewing the asset-liability position to
manage ICICI Bank’s market risk exposure. The
Agriculture & Small Enterprises Business Committee of
ICICI Bank’s board of directors, which was constituted in
June 2003 but has not held any meetings to date, will, in
addition to reviewing ICICI Bank’s strategy for small
enterprises and agri-business, also review the quality of the
agricultural lending and small enterprises finance credit
portfolio. For a discussion of these and other committees,
see ''Management''.
As shown in the following chart, the Risk,
Compliance and Audit Group is organized
into six subgroups: Credit Risk
Management, Market Risk Management,
Analytics, Internal Audit, Retail Risk
Management and Credit Policies and
Reserve Bank of India Inspection.

The Analytics Unit develops proprietary

quantitative techniques and models for risk
measurement.
Credit Risk
In our lending operations, we are principally exposed to
credit risk.

Credit risk is the risk of loss that may occur from the
failure of any party to abide by the terms and
conditions of any financial contract with us, principally
the failure to make required payments on loans due to
us. We currently measure, monitor and manage credit
risk for each borrower and also at the portfolio level.
We have a structured and standardized credit approval
process, which includes a well-established procedure of
comprehensive credit appraisal
 In order to assess the credit risk associated with any financing proposal, ICICI
Bank assesses a variety of risks relating to the borrower and the relevant
industry. Borrower risk is evaluated by considering:

• the financial position of the borrower by analyzing the quality of its financial
statements, its past financial performance, its financial flexibility in terms of
ability to raise capital and its cash flow adequacy;
• the borrower's relative market position and operating efficiency; and

• the quality of management by analyzing their track record, payment record

and financial conservatism. Industry risk is evaluated by considering:

• certain industry characteristics, such as the importance of the industry to the

economy, its growth outlook, cyclicality and government policies relating to
the industry;

• the competitiveness of the industry; and

• certain industry financials, including return on capital employed, operating

margins and earnings stability.
After conducting an analysis of a specific borrower's risk, the Credit
Risk Management Group assigns a credit rating to the borrower.
ICICI Bank has a scale of 10 ratings ranging from AAA to B and an
additional default rating of D.

Credit rating is a critical input for the credit approval process. ICICI
Bank determines the desired credit risk spread over its cost of funds
by considering the borrower's credit rating and the default pattern
corresponding to the credit rating. Every proposal for a financing
facility is prepared by the relevant business unit and reviewed by the
appropriate industry specialists in the Credit Risk Management Group
before being submitted for approval to the appropriate approval
authority. The approval process for non-fund facilities is similar to
that for fund based facilities. The credit rating for every borrower is
reviewed at least annually and is typically reviewed on a more
frequent basis for higher risk credits and large exposures
 Investment Banking Procedures
ICICI Securities provides investment banking services,
including corporate advisory, fixed income and equity
services, to corporate customers. All investment banking
mandates, including underwriting commitments, are
approved by the Managing Director and the relevant
business group heads of ICICI Securities.

ICICI Securities is registered with the Securities and

Exchange Board of India as a merchant bank. In that
capacity, ICICI Securities has decided not to engage in
any lending and leasing activities and conducts only
activities related to the securities markets and corporate
advisory services.
Quantitative and Qualitative Disclosures
About Market Risk
Market risk is exposure to loss arising from changes in
the value of a financial instrument as a result of changes
in market variables such as interest rates, exchange rates
and other asset prices.

The prime source of market risk for us is the interest rate

risk we are exposed to as a financial intermediary, which
arises on account of our asset liability management
activities. In addition to interest rate risk, we are exposed
to other elements of market risk such as, liquidity or
funding risk, price risk on trading portfolios, and
exchange rate risk on foreign currency positions
 Market Risk Management Procedures
The board of directors of ICICI Bank reviews and approves
the policies for the management of market risk. The board
has delegated the responsibility for market risk management
on the banking book to the Asset Liability Management
Committee and the trading book to the Committee of
Directors, under the Risk Committee of the Board.

The Asset Liability Management Committee is responsible

for approving policies and managing interest rate risk on the
banking book and liquidity risks reflected in the balance
sheet. The Committee of Directors is responsible for setting
policies and approving risk controls for the trading portfolio.
 Interest Rate Risk
Since our balance sheet consists predominantly of rupee
assets and liabilities, movements in domestic interest rates
constitute the main source of interest rate risk. Our portfolio
of traded and other debt securities and our loan portfolio are
negatively impacted by an increase in interest rates.

 Exposure to fluctuations in interest rates is measured

primarily by way of gap analysis, providing a static view of
the maturity and re-pricing characteristics of balance sheet
positions. An interest rate gap report is prepared by
classifying all assets and liabilities into various time period
categories according to contracted maturities or anticipated
re-pricing date
The following table sets forth, at the date indicated,
ICICI Bank’s asset-liability gap position.
(1) Assets and liabilities are classified into the
applicable categories, based on residual maturity
or reprising whichever is earlier. Classification
methodologies are based on Asset Liability
Management Guidelines issued by the Reserve
Bank of India, effective from April 1, 2000.

(2) Items that neither mature nor re-price are

included in the “greater than five years”
category. This includes equity share capital and
fixed assets.
(3) Impaired loans of residual maturity less than three
years are classified in the “greater than one year and
up to five years” category and impaired loans of
residual maturity between three to five years are
classified in the “greater than five years” category.

(4) The risk management positions comprise foreign

currency and rupee swaps. The risk management
position has been adjusted for a sum of Rs. 586
million (US$ 12 million) on account of revaluation of
swaps.

(5) The categorization for these items is different from

that reported in the financial statements
Equity Risk
Trading account securities are recorded at
market value. For the purpose of valuation of
our available for sale equity investment
securities, an assessment is made whether a
decline in the fair value, below the amortized
cost of the investments, is other than
temporary.

Ifthe decline in fair value below the amortized

cost is other than temporary, the decline is
provided for in the income statement
Exchange Rate Risk
We offer foreign currency hedge instruments like
swaps, forwards, and currency options to clients,
which are primarily banks and highly rated corporate
customers.

We actively use cross currency swaps, forwards, and

options to hedge against exchange risks arising out
of these transactions. Trading activities in the foreign
currency markets expose us to exchange rate risks.
This risk is mitigated by setting counterparty limits,
stipulating daily and cumulative stop-loss limits, and
engaging in exception reporting.
Liquidity Risk
Liquidity risk arises in the funding of lending,
trading and investment activities and in the
management of trading positions. It includes both the
risk of unexpected increases in the cost of funding an
asset portfolio at appropriate maturities and the risk
of being unable to liquidate a position in a timely
manner at a reasonable price.

 The goal of liquidity management is to be able, even

under adverse conditions, to meet all liability
repayments on time, to meet contingent liabilities,
and fund all investment opportunities.
 Operational Risk
ICICI Bank is exposed to many types of operational risk.

Operational risk can result from a variety of factors,

including failure to obtain proper internal authorizations,
improperly documented transactions, failure of operational
and information security procedures, computer systems,
software 73 or equipment, fraud, inadequate training and
employee errors. ICICI Bank attempts to mitigate
operational risk by maintaining a comprehensive system of
internal controls, establishing systems and procedures to
monitor transactions, maintaining key back–up procedures
and undertaking regular contingency planning.
Thank You