In this fast changing competitive environment, dimensions of risks faced by Indian banks are increasing with The new economic policy. This has prompted the banking sector to properly analyse financial risk and to adopt proper tools to manage it. Due to the influence of the international finance market, the Indian financial market has become less stable. The main risks associated with the banking sector are, credit risk, interest rate risk, foreign exchange risk and liquidity risk. To combat these risks, there should be a Risk management Committee which should identify, measure and monitor the risks of banks at organizational level. The present system of risk management is only a beginning and it needs a lot of professionalism, in order to manage the broad aspects of financial risks.
Any sector of the economy enjoying a protected environment is bound to face enhanced risks, challenges and opportunities when it is exposed to open market forces. The Indian banks in general and the public sector banks in particular are no exception. Banks as financial intermediaries face risks even in their normal course of business. These risks are further multiplied in a fast changing and competitive environment. The dimension of risks faced by the Indian banks have considerably increased, with the financial sector reforms of liberalization, privatization, globalization, deregulation, disintermediation, competition and integration of domestic markets with the external markets. Thus, management of financial risks has become the need of the hour for banks. The banks are required to make proper analysis of various risks and adopt required tools and techniques accordingly. it is not possible for banks to eliminate the risks totally, the banks should try to minimize the risks instead. In the process of minimizing the risks to the accepted levels, they should convert them into possible opportunities.
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