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3.6 Risk Management
NHB’s business operations bears the following risks -
o Credit Risk - the risk arises when borrowers or counterparties fail to discharge their
repayment obligations and thereby cause a financial loss.
o Liquidity Risk - the risk arising from Bank’s inability to meet net funding requirements.
This may be because of market disruptions or downgrade of credit ratings, which may
cause certain sources of funding to become unavailable.
o Interest Rate Risk - the risk arising from re-pricing and/ or maturity mismatches
between the assets and liabilities, thus impairing our net interest income.
o Foreign Exchange Risk - borrowings of the Bank from overseas institutions attract
foreign exchange risk.
o Operational and Other Risks - the risk of loss arising from inadequate or failed internal
processes, people, systems and/or from external events, including legal risk.
o Risk of Fraud - Fraud as an act of commission and / or abetment, which is intended to
cause illicit gain to one person (s) / entity and wrongful loss to the other, either by way
of concealment of facts, by deceit or by playing a confidence trick.
To mitigate and monitor the above risks, NHB has its Risk Management System in place. For
this purpose, the Bank has constituted the following Committees:
• Rating Committee for awarding risk rating of existing clients as well as new clients
• Asset Liability Management Committee (ALCO) for monitoring the management of
liquidity risk and interest rate risk
• Credit Risk Management Committee (CRMC) for monitoring the credit risk
Annual Report 2020-21 | 239
3.6 Risk Management
NHB’s business operations bears the following risks -
o Credit Risk - the risk arises when borrowers or counterparties fail to discharge their
repayment obligations and thereby cause a financial loss.
o Liquidity Risk - the risk arising from Bank’s inability to meet net funding requirements.
This may be because of market disruptions or downgrade of credit ratings, which may
cause certain sources of funding to become unavailable.
o Interest Rate Risk - the risk arising from re-pricing and/ or maturity mismatches
between the assets and liabilities, thus impairing our net interest income.
o Foreign Exchange Risk - borrowings of the Bank from overseas institutions attract
foreign exchange risk.
o Operational and Other Risks - the risk of loss arising from inadequate or failed internal
processes, people, systems and/or from external events, including legal risk.
o Risk of Fraud - Fraud as an act of commission and / or abetment, which is intended to
cause illicit gain to one person (s) / entity and wrongful loss to the other, either by way
of concealment of facts, by deceit or by playing a confidence trick.
To mitigate and monitor the above risks, NHB has its Risk Management System in place. For
this purpose, the Bank has constituted the following Committees:
• Rating Committee for awarding risk rating of existing clients as well as new clients
• Asset Liability Management Committee (ALCO) for monitoring the management of
liquidity risk and interest rate risk
• Credit Risk Management Committee (CRMC) for monitoring the credit risk
Annual Report 2020-21 | 239
