'Pandemic risk' finds a place in banks' risk management architecture
Most banks are working on implementing mitigation measures, which include cybersecurity issues in remote working environment, maintaining an adequate level of liquidity in the event of lockdowns, and keeping capital buffers amid pandemic
- Jul 12, 2021,
- Updated Jul 12, 2021 9:04 PM IST
The Covid-19 pandemic risk is now increasingly finding a place in the banks' risk management architecture as the virus outbreak has the potential to disrupt their business.
The private lender Axis Bank has listed 'pandemic risk' as strategic risk, along with other usual risk categories like credit risk, concentration risk, market risk, liquidity risk, and operational risk.
Most banks are now working on implementing mitigation measures, which include cybersecurity issues in the remote working environment, maintaining an adequate level of liquidity in the event of lockdowns, and keeping capital buffers amid pandemic.
Also read: India's bank credit-to-GDP ratio grows 56% in 2020: BIS
Many banks, however, have not spelt out these measures clearly in public documents.
Axis Bank has listed the 'pandemic risk' as a 'medium-risk class' in a detailed note. The credit, concentration, and market risk are high risks for any bank, whereas liquidity and operational risks come under the 'low risk' category.
The 'pandemic risk' is now listed as a bigger risk than liquidity and operational risk.
The fact that the 'pandemic risk' is placed as 'medium risk' shows the risk from disruption as epidemics is becoming common globally.
Also read: Shaping India's Bad Bank
The virus outbreaks are no longer isolated events. They are more frequent now with outbreaks like SARS, EBOLA, etc. With the Covid-19 outbreak, the virus spread has taken the shape of a 'global pandemic'.
The global insurance industry is offering pandemic covers. The much-watched Wimbledon Grand Slam event in the UK is always insured for any sudden disruption due to an epidemic or pandemic.
The banks are now working on mitigation measures like ensuring the health of staff. They want to make sure branch networks (even if in a limited way) continue serving customers and immediately trigger the work from home policy to ensure operations run without disruption.
In the past, the financial services sector has seen different types of risks. For instance, the collapse of infrastructure institution IL&FS took place because of asset-liability mismatches. It was the same reason for Dewan Housing Finance Corporation, which defaulted on its funding obligations. The entire NBFC sector was hit hard by asset-liability issues, and not by any credit default.
Also read: It's raining IPOs! Watch out for these 11 public issues this month
The Covid-19 pandemic risk is now increasingly finding a place in the banks' risk management architecture as the virus outbreak has the potential to disrupt their business.
The private lender Axis Bank has listed 'pandemic risk' as strategic risk, along with other usual risk categories like credit risk, concentration risk, market risk, liquidity risk, and operational risk.
Most banks are now working on implementing mitigation measures, which include cybersecurity issues in the remote working environment, maintaining an adequate level of liquidity in the event of lockdowns, and keeping capital buffers amid pandemic.
Also read: India's bank credit-to-GDP ratio grows 56% in 2020: BIS
Many banks, however, have not spelt out these measures clearly in public documents.
Axis Bank has listed the 'pandemic risk' as a 'medium-risk class' in a detailed note. The credit, concentration, and market risk are high risks for any bank, whereas liquidity and operational risks come under the 'low risk' category.
The 'pandemic risk' is now listed as a bigger risk than liquidity and operational risk.
The fact that the 'pandemic risk' is placed as 'medium risk' shows the risk from disruption as epidemics is becoming common globally.
Also read: Shaping India's Bad Bank
The virus outbreaks are no longer isolated events. They are more frequent now with outbreaks like SARS, EBOLA, etc. With the Covid-19 outbreak, the virus spread has taken the shape of a 'global pandemic'.
The global insurance industry is offering pandemic covers. The much-watched Wimbledon Grand Slam event in the UK is always insured for any sudden disruption due to an epidemic or pandemic.
The banks are now working on mitigation measures like ensuring the health of staff. They want to make sure branch networks (even if in a limited way) continue serving customers and immediately trigger the work from home policy to ensure operations run without disruption.
In the past, the financial services sector has seen different types of risks. For instance, the collapse of infrastructure institution IL&FS took place because of asset-liability mismatches. It was the same reason for Dewan Housing Finance Corporation, which defaulted on its funding obligations. The entire NBFC sector was hit hard by asset-liability issues, and not by any credit default.
Also read: It's raining IPOs! Watch out for these 11 public issues this month