The risk management process follows four simple steps i.e. Risk Identification, Risk Assessment, Risk Mitigation and Control, and Risk Monitoring. These steps not necessarily follow an order; rather, they occur simultaneously in real-life situations. A bank manager may have to be involved in any steps of risk management at any time. Similarly, these steps are supplementary and inter-related with each other in supporting the complete risk management process.

In a practical situation, there may be occasions when risk management requirements/processes may be perceived as an obstacle to business growth and delivery of services. This requires a mindset change and a genuine sense of commitment and actions should be inculcated among the stakeholders. The other misconception about risk management is that sometimes risk management is considered to be the sole responsibility of Risk Management Department/Committee; this is principally incorrect and what is important to understand is that the Businesses and Operating Units including individual staff members are primarily responsible for managing risks under their areas of responsibility. In essence, risk management should be a state of mind and way of work life at all levels starting from the Board of Directors to the processing level staff. In fact, risk management is everyone’s collective responsibility.

The importance of risk management is manifold in banking business; we have been witnesses to the past and have seen banking failures and subsequent regulatory stringencies. It is a must for the banks to have an effective framework and system of risk management and the Board and Senior Management need to play a supporting role and must maintain an oversight in this matter. Monitoring, reporting and control, including independent audit reviews need to be in place. Risk management culture needs to be embedded among all staff members so that it becomes a state of mind and a way of life.