IDFC Bank provides a risk profiling report for a student. The report discusses various types of risks including systematic risk, unsystematic risk, credit risk, market risk, operational risk, and moral hazard. It analyzes IDFC Bank using a SWOT analysis and discusses the bank's mission, values, businesses, and industry landscape. The report also provides an overview of the growth and structure of banking in India.

1. IDFC Bank
Risk Profiling
Submitted to: Submitted By:
Dr. Anurag Agnihotri Prerit Aggarwal
Roll no.: 293
Section: F2

2. Introduction:
In today's scenario, the working environment in the organizations are rapidly. On the daily basis
new trends are coming up into the market place. For any organizations it is necessary to obtain a
good number of provisions and competitive advantage for risks. Those organizations who are fail
to adopt new technologies, or not to update themselves according to the environment are oftenly
goes out of the market. So, there is lot of risk involved at the market place.
Risk
Risk involves the chance an investment's actual return will differ from the expected return. Risk
includes the possibility of losing some or all of the original investment. However, in most of the
terminology the term risk includes exposure to adverse situations. There is some briefing about
the risk:
The other name of the risk is Uncertainty. If the uncertainty is positive then it leads to the
opportunity for the organizations, and if the uncertainty is negative then it leads to the risk for an
organizations.
OpportunityPositive
Uncertainty
Negative Risk

3. Types of Risks:
 Systematic Risk: Systematic risk influences a large number of assets. A significant
political event, for example, could affect several of the assets in your portfolio. It is
virtually impossible to protect yourself against this type of risk.
 Unsystematic Risk: Unsystematic risk is sometimes referred to as "specific risk". This
kind of risk affects a very small number of assets. An example is news that affects a
specific stock such as a sudden strike by employees. Diversification is the only way to
protect yourself from unsystematic risk.
Risk is an inherent component of corporate market structure. Thus, it is imperative to say that
organizations also suffer risks. Organizations should have ample provisions for managing risk
arising out of various sources.
The most probable sources that causes risk to an organization are:
 Assets
 Sales
 Purchases
 Supply Chain Management
 Humans
 Inventory

4. Industry Overview
Banking in India in the modern sense, originated in last decades of the 18th century. Among the
first banks were the Bank of Hindustan, which was established in 1770 and liquidated in 1829-
32; and the General Bank of India, established in 1786 but failed in 1791.
The Indian banking sector is broadly classified into scheduled banks and non- scheduled banks.
The scheduled banks are those included under the 2nd Schedule of the Reserve Bank of India
Act, 1934. The scheduled banks are further classified into: nationalised banks; State Bank of
India and its associates; Regional Rural Banks; foreign banks; and other Indian private sector
banks. The term commercial banks refers to both scheduled and non-scheduled commercial
banks regulated under the Banking Regulation Act, 1949.
Generally banking un India is fairly mature in terms of supply, product range and reach-even
though reach in rural Indian and to the poor still remains a challenge. The government has
developed initiatives to address this through the State Bank of India expanding its branch
network and through the National Bank for Agriculture and Rural Development (NABARD)
with facilities like microfinance.

6. Growth of Banking in India of Scheduled Commercial Banks
Indicato
rs
31 March of
2005 2006 2007 2008 2009 2010 2011 2012 2013
No. of
Commercial
Banks
284 218 178 169 166 163 163 169 151
No. of
Branches
70,373 72,072 74,653 78,787 82,897 88,203 94,019 102,377 109,811
Population
per
Banks (in
thousands)
16 16 15 15 15 14 13 13 12
Aggregate
Deposits
₹17,002
billion(U
S$260 bi
llion)
₹21,090
billion(
US$330
billion)
₹26,119
billion(U
S$410 bi
llion)
₹31,969
billion(U
S$500 bi
llion)
₹38,341
billion(U
S$600 bil
lion)
₹44,928
billion(U
S$700 bil
lion)
₹52,078
billion(U
S$810 bi
llion)
₹59,091
billion(
US$920
billion)
₹67,504.
54
billion(U
S$1.0 tri
llion)
Bank Credit
₹11,004
billion(U
S$170 bi
llion)
₹15,071
billion(
US$230
billion)
₹19,312
billion(U
S$300 bi
llion)
₹23,619
billion(U
S$370 bi
llion)
₹27,755
billion(U
S$430 bil
lion)
₹32,448
billion(U
S$500 bil
lion)
₹39,421
billion(U
S$610 bi
llion)
₹46,119
billion(
US$720
billion)
₹52,605
billion(U
S$820 bi
llion)
Deposit as
% gnp (fc)
62% 64% 69% 73% 77% 78% 78% 78% 79%

7. Growth of Banking in India of Scheduled Commercial Banks
Indicato
rs
31 March of
2005 2006 2007 2008 2009 2010 2011 2012 2013
Per Capita
Deposit
₹16,281(
US$250)
₹19,130
(US$30
0)
₹23,382(
US$360)
₹28,610(
US$440)
₹33,919(
US$530)
₹39,107(
US$610)
₹45,505(
US$710)
₹50,183
(US$78
0)
₹56,380(
US$880)
Per Capita
Credit
₹10,752(
US$170)
₹13,869
(US$22
0)
₹17,541(
US$270)
₹21,218(
US$330)
₹24,617(
US$380)
₹28,431(
US$440)
₹34,187(
US$530)
₹38,874
(US$60
0)
₹44,028(
US$680)
Credit
Deposit
Ratio
63% 70% 74% 75% 74% 74% 76% 79% 79%
By 2010, Banking in India was generally fairly mature in terms of supply, product range and
reach-even though reach in rural India still remains a challenge for the private sector and foreign
banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have
clean, strong and transparent balance sheets relative to other banks in comparable economies in
its region. The Reserve Bank of India is an autonomous body, with minimal pressure from the
government.
With the growth in the Indian economy expected to be strong for quite some time-especially in
its services sector-the demand for banking services, especially retail banking, mortgages and
investment services are expected to be strong. one may also expect M&As, takeovers, and asset
sales.
In March 2006, the Reserve Bank of India allowed Warburg Pincus to increase its stake in Kotak
Mahindra Bank to 10%. This is the time an investor has been allowed to hold more than 5% in
private sector bank since RBI announced norms in 2005 that any stake exceeding 5% in private
sector banks would need to be vetted by them.

8. Market Size:
The Indian banking system consists of 27 public sector banks, 26 private sector banks, 46 foreign
banks, 56 regional rural banks, 1,574 urban cooperative banks and 93,913 rural cooperative
banks, in addition to cooperative credit institutions. Public-sector banks control more than 70%
of the banking system assets, thereby leaving a comparatively smaller share for its private peers.
Banks are also encouraging their customers to manage their finances using mobile phones.
ICRA estimates that credit growth in India's banking sector would be at 7-8% in FY 2017-18.

9. Market Share:
The major players that form a part of this industry and their market presence in terms of thier
market share by volume are:
State Bank of India Axis Bank
Bank of Baroda Yes Bank
Kotak Mahindra Bank ICICI Bank
IndusInd Bank Punjab National Bank
IDFC Bank Oriental Bank of Commerce
HDFC Bank RBL Bank
These are the firms which majorly represent the banking industry in India. There are quite a few
players in this industry, so it is important to study their market share as well.
The contribution made by a firm in a specific industry is known as Market share. Therefore, in
order to study the market share, we have taken Net Sales as the basis for all the firms. Thus, the
resultant, i.e Market share by volume is depicted in the pie chart below:
28%
18%
12%
12%
9%
6%
6%
3% 2%
2%
2%
Market Share
HDFC Bank
State Bank of India
ICICI Bank
Kotak Mahindra Bank
Axis Bank
IndusInd Bank
Yes Bank
Bank of Baroda
Punjab National Bank

10. Road Ahead:
Enhanced spending on infrastructure, speedy implementation of projects and continuation of
reforms are expected to provide further impetus to growth. All these factors suggest that India's
banking sector is also poised for growth as the rapidly growing business would turn to banks for
their credit needs.
Also, the advancements in technology have brought the mobile and internet banking services to
the fore. The banking sector is laying greater emphasis on providing improved services to their
clients and also upgrading their technology infrastructure, in order to enhance the customer's
overall experience as well as give banks a competitive edge.
Many banks, including HDFC, ICICI and AXIS are exploring the option to launch contact-less
credit and debit cards in the market shortly. The cards, which use near field communication
(NFC) mechanism, will allow customers to transact without having to insert or swipe.
Mr. Bill Gates, Co-founder of Microsoft Corp, has stated that India will move quite rapidly to a
digital payments economy in as little as seven years, based on the introduction of digital payment
banks combined with other things like direct benefit transfers, universal payments interface and
Aadhaar.

11. Company Analysis:
IDFC have been an integral part of the country's development story since 1997, when our
company was formed with the specific mandate to build the nation.
Since 2005, we have built on our vision to be the 'one firm that looks after the diverse needs of
infrastructure development. Whether it is financial intermediation for infrastructure projects and
services, adding value through innovative products to the infrastructure value chain or asset
maintenance of existing infrastructure projects, we focus on supporting companies to get the best
return on investments.
Our growth has been driven by the substantial investment requirements of the infrastructure
sector in India combined with the growth in the India economy over the last several years. Our
ability to tap global as well as Indian financial resources makes us the acknowledged experts in
infrastructure finance. This, coupled with a strong synergy between the company management
and key shareholders, and a dedicated team over 550 people makes us an organization that is
committed to improving the face of India's infrastructure sector.
At IDFC, our commitment to building India's infrastructure goes beyond business. We work
closely with government entities and regulators to advise and assist them in formulating policy
and regulatory frameworks that support private investment and public-private partnerships in
infrastructure development.
Mission:
"To be the leading knowledge-driven financial services company, creating enduring value,
promoting infrastructure and nation building."

12. Values:
Integrity: We engage in honest and straight forward communication with all stakeholders and
adhere to the highest ethical standards in everything we do. Our reputation is paramount. We will
act in the best interests of our clients but without compromising our values and principles.
Nurturing Humility: We are modest enough to know that we can be wrong and smart enough to
learn from our mistakes. We treat everyone as an equal-- no task is beneath us.
Stewardship: We act as custodians of our firms and accept the charge of passing on a better
business than the one we inherited. Our actions will be guided by rules and ethical principles
creating long term value with due care for society and environment.
Partnership: We emphasize a ONE FIRM culture. We foster mutual respect and proactively
collaborate with each other, with clients, and with partners keeping just one thing in mind-- to be
the one best at what we do.
Initiative: We encourage new ideas and independent section within a culture that fosters sharing
knowledge and information, critical debate and constructive dissent.
Responsibility: We take complete ownership for our actions, emphasizing a results- oriented
and problem-solving approach to business. We are personally accountable to the communities
that we serve.
Excellence: We constantly strive to raise industry standards, be the employer of choice, and
work to be the best rather than the biggest. Dedication to excellence results in superior execution
and generates creative, imaginative and innovative outcomes.

13. Businesses:
Accounts and
Deposits
Cash
Management
Services
Loans
Business
Investments
Solutions
Forex Services
Online
Services
Business
Protection
Solutions
Cards

14. SWOT Analysis:
Strengths:
 Brand name
 Known to be ethical
 Presence in all over India
 Experienced people in the company
 Unbiasness
Weakness:
 Branches of company is less only 27 in
India
 Lack of manpower
 Not having necessary infrastructure
Opportunity:
 Zero Base
 Lack of proper services available in the
market
 Absence of leader in the market in
distribution mutual funds
 Huge potential of mutual fund market
 Growth of mutual fund market
 Increase in income level of people
Threats:
 Individual brokers
 Its competitor's promotional activities
 Its competitor new business plans
 Attrition
 Lack of manpower
 Not having necessary infrastructure

15. Michael Porter's 5 forces:
1. Power of buyers:
Customer's bargaining power is high because banks provide homogenous kind of
services and customers can get all information very easily. So, the switching cost
is LOW for the customer.
2. Power of suppliers:
In the banking industry, supplier's bargaining power is LOW because banks have
to meet many regulatory criteria, made by RBI.
3. Competitive Rivalry:
Competition in the banking industry is very HIGH because of large number of
public, private foreign and co-operative banks.
4. Availability of Substitutes:
There is HIGH threat from substitutes such as Mutual funds, T-bills, Government
securities and NBFC's.
5. Threat of new entrant:
Banking regulations require the approval of the regulator RBI before setting up
new bank. So, the threat of new entrants is LOW in the banking sector.

16. Types of risks and there sources:
1. Credit Risk: When the borrowers failed to pay the amount of money to bank which they
took it as a credit. to overcome this risk Bank's needs to understand possibility of risk on
credit provided by them. Also by reducing loss of loan and by accommodating
sophisticated credit risk management. The default usually occurs because of inadequate
income or business failure. But often it may be willful because the borrower is unwilling
to meet its obligations despite having adequate income.
2. Market Risk: This risk includes the interest rates and foreign currency which san causes
the alteration in the market price of a commodity. It focuses on some factors like
sensitivity of financial institutes on the negative changes in interest rates, foreign rates
and commodity prices, appropriate analyzing the foreign operations and trading sectors.
Market risk can be better understood by dividing it into 4 types depending on the
potential cause of the risk:
 Interest rate risk: Potential losses due to fluctuations in interest rate.
 Equity risk: Potential losses due to fluctuations in stock price.
 Currency risk: Potential losses due to international currency exchanges rates
(closely associated with settlement risk).
 Commodity risk: Potential losses due to fluctuations in prices of agricultural,
industrial and energy commodities like wheat, copper and natural gas
respectively.
3. Operational Risk: This type of the risk having adverse impact on the capital of Bank
through failure of internal system in the Banks like inadequate process and management,
ignorance of foreseeable events of risk by the Banks. Broadly, most operational risks
arise from one of three sources:
 People risk: Incompetency or wrong posting of personnel and misuse of powers.
 Information technology risk: The failure of the information technology system,
the hacking of the computer network by outsiders, and the programming errors
that can take place any time and can cause loss to the bank.
 Process-related risks: Possibilities of errors in information processing, data
transmission, data retrieval, and inaccuracy of result of output.
4. Moral Hazard: Moral hazard is a risk that occurs when a big bank or large financial
institution takes risks, knowing that someone else will have to face the burden of those
risks. Moral hazard refers to a situation where a person, a group, or an organization is

17. likely to have a tendency or a willingness to take a high-level risk, even if it's
economically unsound. The reasoning is that the person, group, or organization knows
that the costs of such risk-taking, if it materializes, won't be borne by the person, group,
or organization taking the risk.
5. Liquidity Risk: This risk affects the capital of Bank when it fails to meet its obligations.
Banks provides deposits and loans from which it inherent the liquidity risk. When
matured assets and liabilities of the Banks mature and it mismatched with each other, it
creates liquidity Risk. Here the liquidity Risk Management comes into the effect. It
increases the assets in order to overcome the liabilities.
6. Business Risk: Business risk is the risk arising from a bank's long-term business
strategy. It deals with a bank not being able to keep up with changing competition
dynamics, losing market share over time, and being closed or acquired. Business risk can
also arise from a bank choosing the wrong strategy, which might lead to its failure.
7. Reputational Risk: Reputational risk is the risk of damage to a bank's image and public
standing that occurs due to some dubious actions taken by the bank. Sometimes
reputational risk can be due to perception or negative publicity against the bank and
without any solid evidence of wrongdoing. Reputational risk leads to the public's loss of
confidence in a bank.
8. Systematic Risk: Systematic risk arises because of the fact that the financial system is
one intricate and connected network. Hence, the failure of one bank has the possibility to
cause the failure of many other banks as well. This is because banks are counterparties to
each other in a lot of transactions. Hence, if one bank fails, the credit risk event for the
other banks becomes a reality.

18. Risk Management Tools:
1. Credit Risk:
 Efficient Data: Bank should have accurate and appropriate data in the delays of
payment of credit by borrowers.
 Adequate control on Credits given to borrowers.
 Supervising the transaction of loans done in the Bank and ensure, identify and
monitor any possibility which could arises the risk.
2. Market Risk: In order to be able to mitigate market risks, banks simply use hedging
contracts. They use financial derivatives which are freely available for sale in any
financial market. Using contracts like forwards, options and swaps, banks are able to
almost eliminate market risks from their balance sheet.
3. Operational Risk: Focus on staff quality and training; maintaining the quality of systems
and processes as well as documentation thereof.
4. Moral Hazard: Moral hazard can be controlled through a good organizational culture,
giving credence to high ethical standards. A bank must also have a strong board of
directors to oversee management and to take remedial measures when needed. A well-
crafted compensation policy to avoid reckless risk- taking would also help reduce this
risk. Finally, strong regulation would also help control moral hazard.
5. Liquidity Risk: Liquidity Risk is managed by following norms:
 By good frame work of Decision Making.
 Creating funding strategies at every level.
 Operation limits of banks should be set
 Liquidity to be done after analyzing all the aspects
6. Business Risk: To be avoided, business risk demands flexibility and adaptability to
market conditions. Long term strategies are good for banks but they should be subject ti
change. The entire banking industry is unpredictable. Long term strategies must have
backup plans to avoid business risks.

19. 7. Reputational Risk: Banks can save their reputation by ensuring that they never
participate in any unfair or manipulative business practices. Also, banks need to
continuously ensure that their public relations efforts project them as a friendly and
honest banks.
8. Systemic Risk: The very nature of banking system therefore makes them prone to
systemic risks. systemic risks do not affect an individual bank rather they affect the entire
system. Hence, there is very little that an individual bank an do to protect itself in the
event that such a risk materializes.

20. Findings
 Credit risk is generally well contained, but there are still problems associated with loan
classification, loan loss provisioning, and the absence of consolidated accounts.
 Market risk and Operational risk are clear challenge, as they are relatively new to the
areas that were not well developed under the original Basel Capital Accord.
 The new regulations will allow banks to introduce substantial improvements in their
overall risk management capabilities, improving risk based performance measurement,
capital allocation as portfolio management techniques.
 Future complexity is expected because banks diversify their operations. It is expected that
banks will diversify their operations to generate additional income sources, particularly
fee- based income i.e. non-interest income, to improve returns.
 Basel II leads to increase in Data collection and maintenance of privacy and security in
various issues.

21. Suggestions
 The bank should review Basel II components and develop a vision, strategy and action
plan for what is expected to be a suitable framework based on how the banking system
evolves over time.
 The bank need regular engagement for sustained support. A qualified long-term advisor
would be preferable.
 A workshop should be planned to produce a road map to Basel II Compliance.
 Training and additional assistance to make it easier for the banking system to comply
with new guidelines on market and operational risk.
 Data Privacy and security needs more attention.