Risk Management-HR Issues

1. 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.

3. 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.

4. 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.”

5. 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

6. 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.

7. 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

9. 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

10. 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

11. 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.

12. 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

13. 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

14. 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

16. 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

17. “A stitch in time saves nine”

18. Thank You!