Risk Management Initiatives 2023-24 PDF

For Internal Use only 3. Risk Management Risk Management Initiatives during 2023-24 During FY 2023-24, Risk Management Department initiated a number of steps for improving the enterprise risk man...

For Internal Use only 3. Risk Management Risk Management Initiatives during 2023-24 During FY 2023-24, Risk Management Department initiated a number of steps for improving the enterprise risk management systems and processes, strengthening the risk management frameworks and automating the enterprise risk management functions of the Bank so as to mitigate risks and ensure business continuity. The following major initiatives were taken by Risk Management Department during FY 2023-24 to strengthen the risk management framework of the Bank. 1. Basel III Implementation RBI vide its Master Directions dated 21 September 2023 has mandated applicability of the Basel III framework for all AIFIs including NABARD with effect from 01 April 2024. Keeping this in view, RMD had conducted intense deliberations with stakeholder departments and ascertained the changes required in policies, business processes and system software for complying with norms prescribed under the Basel III framework. Accordingly, 10 risk management policies related to Basel III implementation were issued/revised during 2023- 24. Also, software applications like CLMAS, Treasury software, new ALOM Software and ERMS (along with the DDMABI Data warehouse) were fine tuned to meet the requirements under Basel III and for automated generation of CRAR. Accordingly, NABARD will proceed to comply with the necessary provisions of Basel III framework with effectively from 01 April 2024. 2. Enterprise Risk Management Software (ERMS) Risk Management Department has implemented the Enterprise Risk Management Software (ERMS) Project to strengthen the existing Risk Management Framework and automate risk management functions of the Bank. The Software has 22 modules related to Credit Risk, Market Risk, Enterprise Risk and Early Warning System (EWS). ERMS is being extensively used by users at Regional Offices and Head Office Departments in risk rating of client institutions, exposure monitoring and limit utilization. The Enterprise Risk Management Software (ERMS) has also been extensively revamped as per the requirements of RBI’s Master Directions dated 21 September 2023 on the Basel III framework for AIFIs. The ERMS has been refined to enable the Bank to comply with the requirements under Pillar I, II & III of the Basel III framework. The refined modules pertain to Credit Risk Weighted Assets, Market Risk Weighted Assets, Operational Risk Weighted Assets, Collaterals, External Credit Ratings, CRAR, ICAAP and Market Disclosures. 3. Asset Liability Management (ALM) Software An important milestone in the management of liquidity and interest rate risk of the Bank has been achieved with the launching of the new Asset Liability Management (ALM) software by RMD on 02 April 2024. The software has been developed as per the latest regulatory requirements and industry standards through M/s Surya Software Systems Private Limited. 4. Constitution of Risk Management Committees Risk Management Committees headed by Deputy Managing Directors, which include the Credit Risk Management Committee (CRMC), Operational Risk Management Committee (ORMC) and Market Risk Management Committee (MRMC) have been constituted during 61  For Internal Use only 2023-24 for focused attention and guidance on implementation of various issues related to Credit, Market and Operational risks. 5. Preparation of SOPs and Review of Policies and Operational Guidelines of the Bank RMD has initiated the preparation of Standard Operation Procedures (SOPs) for Business Products of NABARD. The work of preparation of SOPs is in progress in conjunction with concerned Business Departments. 6. Review and revision of risk management related policies RMD has reviewed and revised 24 policies related to risk management and new updated policies were issued. Sl. No. Particulars 1 Stress Testing Policy 2 Guidelines for debarring of NGOs/ Channel Partners/ other agencies by NABARD 3 Fraud Risk Management Policy 4 Review of Default Forecasting and Monitoring Format of Refinance Products for NBFCs/ NBFC-MFIs 5 Policy for Formulation and Review of Policies and Operational Guidelines/ Manuals/SOPs of NABARD 6 Policy on Review of Delegation of Sanctioning & Disbursement Powers - Refinance, Direct Finance, Grants Based Products and Costs related to Stressed Assets Management - FAQs 7 Credit (Refinance / Direct Finance) Policy 8 Policy on Review of Delegation of Sanctioning & Disbursement Powers - Refinance, Direct Finance, Grants Based Products and Costs related to Stressed Assets Management 9 Operational Guidelines for Formulation and Annual Review of Policies/ Operational Guidelines/ Manuals/ SOPs 10 Fraud Risk Management – Operational Guidelines 11 Credit Risk Mitigation and Collateral Management Framework – partial modification thereof 12 Revision in Internal Risk Rating Model for NIDA 13 Standard Operating Procedure (SOP) for preparing SOPs of Business Products of NABARD 14 Policy on Review of Delegation of Sanctioning & Disbursement Powers - Refinance, Direct Finance, Grants Based Products and Costs related to Stressed Assets Management 62  For Internal Use only Sl. No. Particulars 15 Addendum No. 01 to the Policy on Review of Delegation of Sanctioning & Disbursement Powers - Refinance, Direct Finance, Grants Based Products and Costs related to Stressed Assets Management dated 14.08.2023 16 Policy on Grant Exposure Norms for Channel Partners 17 Market Discipline: Pillar 3 Disclosures Policy 18 Enterprise Risk Management Policy 19 Operational Risk Management (ORM) Policy 20 Master Circular on Exposure Norms 21 Addendum No. 02 to the Policy on Review of Delegation of Sanctioning & Disbursement Powers - Refinance, Direct Finance, Grants Based Products and Costs related to Stressed Assets Management dated 14.08.2023 22 Policy on Outsourcing of Information Technology (IT) Services 23 Credit Risk Management Policy 24 Policy on Credit Risk Mitigation Techniques & Collateral Management 7. Vetting of Other HO Department’s Policies RMD has vetted 29 policies of other Head Office Departments during the year 2023-24. 8. Risk Assessment of Client Institutions/Vetting of proposals Risk re-assessment process in respect of 46 credit proposals involving refinance amount of ₹1,04,572 crore for various agencies viz. NBFCs, NBFC-MFIs, SFBs, and Commercial Banks were undertaken. 9. New Product Approval Framework In line with the revision in the Operational Risk Management Policy, the scope of New Product Approval Framework (NPAF), for scrutiny of new products/process under the Operational Risk Management framework, has been enhanced to include new Ventures/Subsidiaries and to put in place a structured mechanism for vetting of new Ventures/Subsidiaries. Fourteen Product Scrutiny Committee Meetings were held during 2023-24 for scrutiny of various 31 new products/processes. 10. Enterprise Level Meetings Six meetings of the Risk Management Committee of Board (RMCB) were conducted during 2023-24. For periodic review of Asset Liability Management (ALM) and to align interest rates in line with market scenarios, 14 meetings of Asset Liability Management Committee (ALCO) were conducted during 2023-24. For reviewing of all types of risks at enterprise level and to draw appropriate Risk Mitigation Strategies, 4 meetings of Enterprise Risk Management Committee (ERMC) were conducted during 2023-24. 63  For Internal Use only 11. Risk Management Corner Risk Management Department has initiated the “Risk Management Corner” to inculcate a culture of risk awareness within the organisation. Various knowledge capsules such as Risk Related Concepts, Fortnightly News Digest, Articles, stories on Risk, etc., would be made available on “Risk Management Corner” through various segments such as “Risk InSight”, “kNOw Risk”, “Risk Intel” and “Risk Aware”. 12. Other Initiatives Credit Risk i. A committee-based approach for the sanction of refinance, direct finance, grant-based products & costs related to Stressed Assets Management were introduced. ii. The process for reviewing, validating and refining extant internal risk rating models were undertaken. iii. The internal risk rating model for NIDA loans were revised from a 4-point scale to a 9- point scale. iv. Default Forecasting Model for NBFCs & NBFC-MFIs were redeveloped. Market Risk v. The screening parameters for evaluation of mutual funds were revised. vi. The screening parameters for empanelment of brokers were refined. vii. New pricing products viii. Introduced two new policies on Outsourcing of IT Services and Market Risk Management. ix. Five Regional Risk Awareness Workshops were conducted to foster a robust risk management culture for effective risk management at all staff levels to enhance the effectiveness of the risk culture in the organization. 64  For Internal Use only 4. Finance While the Asset side of the Balance Sheet is supported by all the Business Departments along with Finance Department, the Liability side is solely managed by Finance Department. During FY 2023-24, FD managed total outstanding borrowings of ₹ 4,87,233 crore and total outstanding PSL deposits of ₹ 3,01,905 crore. New Vistas Unlocked India’s first ever Rupee-denominated, AAA rated, externally certified Social bond was issued by NABARD during the year. Such was the enthusiasm and the market interest that against the base issue of ₹ 1,000 crore, the subscription was to the tune of ₹8,560 crore, of which bids worth ₹ 1,040.50 crore was accepted. This bond issuance has been externally certified by KPMG under the ICMA social bond guidelines. Leader in the Domestic Bond Issuance Market Through issuance of ₹65,393 crore of bonds in FY 2023-24, NABARD has emerged to be the largest borrower in the market on outstanding basis. Highs in Treasury Size With total outstanding investments standing at ₹ 97,574 crore as on 31 March 2024. Borrowings and Deposits During FY 2023-24, the total outstanding borrowings and total outstanding priority sector lending (PSL) deposits of NABARD stood at ₹4,87,233 crore and ₹3,01,905 crore, respectively. Further, ₹1,31,459 crore PSL deposits has been mobilised and ₹42,563 crore was disbursed towards rural infrastructure creation during FY 2023-24. Fund Management Finance Department, with the single window approach twinning, centralised mobilisation and deployment of funds of the bank, handled transactions more than ₹ 95 lakh crore, ably providing timely liquidity to all the business departments as well as ensuring prompt deployment of funds to avoid idling of funds at negative carry. 65  For Internal Use only 5. Accounts 1. Major Activities Major responsibilities of the Accounts Department are as below – Formulate accounting policies/procedures for recording of accounts and maintenance of books in accordance with Standards on Accounting (SAs) issued by ICAI and regulatory norms prescribed by Reserve Bank of India and other Statutory Regulations. Timely and accurate reporting of the financial position of the bank and its business activities and publish the Balance Sheet/P&L account at quarterly/half-year/annual basis. Statutory compliance with respect to regulations / guidelines of Income Tax, GST, SEBI, RBI etc. including statutory audit, Income Tax and GST Audit as per prescribed timelines. Calculation of Capital Adequacy Ratio Centralised accounting of all receipts and demand generation for NABARD 2. Financial Performance (provisional) during 2023-24 Assets size increased from ₹ 8,51,478 crore as on 31 March 2023 to more than 9 lakh crore as on 31st March 2024, registering growth of 13.60% in FY2024. Loans portfolio increased from ₹ 7,31,145 crore as on 31 March 2023 to ₹ 7,95,191 crore as on 31 March 2024, registering growth of 8.76% in FY2024. Investments stood at ₹ 69,685 crore as on 31 March 2024 as against to ₹ 48,320 crore as on 31 March 2023. Total Borrowings increased from ₹ 6,88,859 crore as on 31 March 2023 to ₹7,89,191 crore as on 31 March 2024, registering a growth of 14.56% in FY2024. (₹ crore) Financial Highlights FY2023-24 (prov.) 10,00,000 9,10,710 9,00,000 8,51,478 7,95,191 7,89,191 8,00,000 7,31,145 6,88,859 7,00,000 6,00,000 5,00,000 4,00,000 3,00,000 2,00,000 48,320 69,685 1,00,000 - Balance Sheet Loans O/s Investments Total Borrowings As on 31.03.2023 As on 31.03.2024 (Audited) (Provisional) 66  For Internal Use only Loan Outstanding as on 31.03.2024 - ₹7,95,191 crore (prov.) 888 ST Refinance (20%) 1,20,081 1,58,706 LT Refinance (34%) 73,491 PSL Products - RIDF, WIF & FPF (22%) BID Products - NIDA, DRA, CFF (9%) 1,73,767 2,68,258 EBR Products - LTIF,SBM- G,PMAY-G, MIF,DIDF,FIDF (14%) Other Loans (1%) 3. Major Developments/Initiatives BASEL –III: RBI came out with new master directions for AIFIs for implementation of BASEL-III guidelines from 01st April 2024. Various upgradations/modifications are brought in CLMAS by AD in consultation with the business departments and DIT for being in readiness to implement BASEL-III w.e.f 01.04.2023 – Disbursement and Phasing Schedule Security Collateral Module External rating of clients derived from Data Warehouse Calculation of CRAR as per BASEL-III Date of Commencement of Commercial Operations (DCCO) and New Restructuring module in CLMAS – implemented as per the latest RBI Master Circular on IRAC norms to bring improvement in the existing CBS system. Digitisation of monitoring and tracking Statutory Auditors Observation – A new Dashboard has been put in place for tracking all open statutory observations and closing the same after acceptance of compliance by Statutory Audito₹ This will enable MIS on all Statutory Audit related observations to ACB which regularly monitors audit observation. Full automation of NPAs in CLMAS – NPA functionality fully operationalised in CLMAS for auto identification and classification of loan accounts as NPAs. Release of Second Edition of the Handbook on Income-tax and GST which was distributed during the Annual Closing Workshop to the participants from HODs, ROs and TEs. Capacity Building of RO officials - Conducted workshop on Annual Accounts and Tax to familiarise the staff of ROs/TEs with the annual closing and audit process, nuances of Income tax provisions / GST provisions and matters relating to compliance to ensure smooth closing of accounts. Accounts Department is awarded Rajbhasha Shield (1st prize) for being the Best Performing HO Department during the year. 67  For Internal Use only 6. IT Infrastructure Accelerating digital drive and building sustainable digital infrastructure I. Infrastructure and security 1. Cyber Security Measures: NABARD, as a part of Pragati 1.0 milestones, has initiated several digital interventions by way of sustainable digital infrastructure and enhanced security posture by leveraging technology to cope effectively with lesser risks and unforeseen challenges in the cyber environment. Moreover, suitable security solutions, including Data Loss Prevention (DLP), Data Classification, and Mobile Device Management (MDM) have been acquired and pilot is undergoing for select use₹ Data classification involves categorizing data based on its sensitivity or importance, enabling organizations to prioritize security measures accordingly. DLP solution monitors, detects, and prevents unauthorized data transfer or leakage across various channels such as email, cloud storage and cloud collaboration. It enforces security policies to safeguard sensitive information, including intellectual property, financial data, and personally identifiable information (PII), thus mitigating the risk of data breaches. MDM solution enables centralized management and control of mobile devices within an organization. It facilitates device provisioning, security enforcement, and application management, ensuring compliance with corporate policies and protecting sensitive data accessed or stored on mobile devices. 2. Database Activity Monitoring (DAM): To improve the security measures, a suitable Database Activity Monitoring (DAM) solution has been procured in FY 2023-24. It will help in identifying and reporting any instance of unauthorized, fraudulent, or undesirable data access within the database. Moreover, its implementation will be seamless, with minimal disruption to user productivity and day-to-day operations. 3. Upgrading of multiprotocol label switching (MPLS): The existing secondary MPLS connectivity at all the ROs/TEs was upgraded from 8 Mbps to 16 Mbps; this provides the ROs/TEs a combined MPLS bandwidth of 32 Mbps over software- defined wide area network (SDWAN). 4. The Network Access Control (NAC) solution: A suitable NAC solution was rolled out across the organisation to ensure endpoint security and policy compliance. Additionally, it would also provide access control to guest users for connecting to NABARD’s network. II. Project management and work process improvement 1. Government e-Marketplace (GeM): NABARD has issued instructions, guidelines, and extended support and training to ROs, TEs, and HO departments during the onboarding process of the GeM portal. During FY 2023-24, 68  For Internal Use only procurement of goods and services worth approximately ₹22.36 crore was made through the GeM portal by DIT. 2. Project Management Software: Bank has been using a suitable Project Management Software for better Management, monitoring and tracking of its significant ongoing assignments. III. Applications/software development 1. Centralized Loan Management and Accounting System (CLMAS): NABARD’s core banking solution CLMAS ensures end-to-end life cycle management of loans and grants products from origination to disbursement, accounting, and servicing. It facilitates generation of balance sheet and profit/loss accounts. In FY 2023-24, the entire tech-stack of CLMAS was upgraded successfully to facilitate better functioning of the solution. 2. Enterprise content management (ECM): Bank’s corporate Enterprise Content Management (ECM) solution continues to streamline case creation, facilitate online decision-making, and expedite approval processes. In FY 2023- 24, over 62,000 cases were processed and approximately 15 lakh pages of historical documents were digitised. Additionally, the ECM Mobile app for Android and iOS, launched in July 2023, enables users to process and approve cases on the go. The HRMD-SFS module has been developed to digitise service files, further enhancing our digital transformation efforts. ‘DigiDak’, a comprehensive module integrated into ECM, was launched on 01 January, 2024, to access and track all communications organisation-wide - incoming and outgoing. In a short span of three months since launch, over 8,000 communications have been issued through DigiDak, demonstrating its effectiveness in managing organisational correspondence. 3. Human Resource Management System (Empower): HRMS-Empower system is the centralized web based online system of the Bank, which automates HR related activities and processes. Empower application is being used for Human Resource planning, appraisal & performance, promotions, reimbursements, salary processes, online submission of leave applications and various staff welfare schemes, etc. In a fresh development, the OEM for Peoplesoft, Oracle has been contracted for HRMS. There is a plan to improve UI/UX, work flows and also to revamp the HRMS. 4. NABARD Desktop App: A Microsoft Windows desktop application has been designed and launched to deliver personalised information to our desktops. The application supports Single Sign-On for streamlined access and utilises lightweight data exchange through REST APIs. The inaugural feature, the Contacts App, offers a user-friendly interface to access all organisational contacts. It includes functionalities such as quick search, favourite contacts, search within results, and Contact QR Codes for rapid data transfer to mobile devices. IV. Safeguarding against cyber threats: As per the initiative conceptualised by Ministry of Home Affairs (MHA), GOI, Cyber Jagrukta Divas is being observed by NABARD on first Wednesday of every month by releasing desktop backgrounds, Windows screensavers and presentations wherein cyber awareness tips are being presented to end use₹ A quarterly newsletter on cyber security is also being released. 69  For Internal Use only As a part of National Cyber Security Awareness Month (NCSAM - October 2023), DIT has conducted various programs to enhance the cyber awareness of the Bank’s employees viz., Cyber theme SMS, online poster, awareness sessions, Email Phishing activity and cyber awareness quiz. ‘DigiDak’, a newly designed product, was launched by the Chairman on 01 January, 2024, to streamline all communications, including emails, letters, IOMs, IDMs, and more. It offers a unified central repository and a one-stop shop for accessing all the internal and external correspondences with a facility to track status. Innovative approaches like adopting a single DigiDak ID for inward and outward communication facilitate auto-inward/outward. Additionally, categorizing correspondences as actionable or informational at the source ensures that important items receive prompt attention. Built within ECM, various important features like ease of case initiation of ECM from DigiDak, bulk mailing, endorsements, vertical assignment, email alerts, search and filters, pendency tracking, and the ability for the initiating office/department to close the case, etc., enhances overall efficiency and speed in handling correspondence. Enhanced features that provide overall visibility for all the correspondences at the organization level for top management facilitate effective oversight. V. Other New Initiatives during the Year 2023-24 1. To improve the cyber security of web facing applications, a web application firewall (WAF) has been procured by the Bank and all public facing applications are being hosted on WAF. 2.Antivirus has been installed on all office Desktops, Laptops, and on all critical servers, ensuring advanced server security for physical and virtual serve₹ Antivirus solution protect devices from viruses, spyware, malware, rootkits, Trojans, phishing attacks, spam attacks, and various other cyber threats. 3. Endpoint Detection Response solution has been implemented in all the endpoints of the users that continually monitors to mitigate malicious cyber threats in the endpoint. 70