Creating awareness of emerging risks and potential threats is critical to establishing the right culture, so they regularly train and communicate with employees, writes Shalinee Mimani, Chief Risk Officer, Godrej Capital, in an exclusive interaction with Srajan Agarwal of Elets News Network (ENN)
Could you describe the process that your organisation uses to identify and manage risks across its various business units, and how do you ensure that risk management practices align with the company’s overall strategy?
At Godrej Capital, since its inception in November 2020, we have focused on building strong fundamentals in risk management with the help of using technology and analytics and also putting up a comprehensive and robust enterprise risk management framework. We have also ensured that our risk culture is deep-rooted, and everyone in the organisation aligns with it. Here is an overview of the process we follow:
We identify potential risks across all our products, including credit, operational, and reputational risks. This is done by bringing in industry knowledge, combining internal and external data sources, and deep diving into each function to identify risks, including historical data, industry trends, and regulatory changes.
We then move on to risk assessment. Once we identify potential risks, we assess the likelihood and potential impact of each risky element on our business operations and financial performance, and when they can potentially surface. We prioritise risks based on their potential impact and the likelihood of occurrence. Some frameworks like early warning systems help us achieve this.
This is followed by risk mitigation, where we develop strategies and policies to mitigate the identified risks. We have specific risk management policies and procedures for each type of risk we have identified. These policies are reviewed periodically to ensure they remain adequate and relevant.
Having set up the framework, we continuously monitor our risk exposures and update our risk management framework as needed. In addition, we use various metrics and risk indicators to track our risk exposures and monitor compliance with our risk management policies and procedures.
We further use business intelligence to ensure risk reporting, which is regular and robust to senior management, the board of directors, regulators, and other stakeholders as required.
We have integrated our risk management framework into our overall business planning process to ensure that our risk management practices align with our overall strategy. It is a part of the KPIs of most of the senior leaders in the company. This not only helps in the risk management process but also helps in setting the right culture to ensure our long-term success.
How do you stay up-to-date on emerging risks and potential threats to Godrej Capital, and what steps do you take to incorporate this information into your risk management framework?
Staying up-to-date on emerging risks and potential threats is critical to our business.
We monitor industry trends, regulatory changes, and best practices to stay informed about emerging risks and potential threats. Engagement with our critical partners like bureau, data intelligence consultants, etc. is vital as they work on much larger data sets across geographies and customer segments. We are a listening organisation. We listen to market, employees, business associates and our customers. This helps us in staying close to the market practices and proactive risk management.
We also have an early warning framework which helps us prevent and control the emerging risks in the portfolio.
We proactively update our risk policies and operating procedures to address new risks and potential threats. We develop contingency plans to address emerging risks and potential threats that may impact our business operations. In addition, we conduct stress testing, scenario analysis, and business continuity planning to ensure that we are prepared to manage potential risks.
Creating awareness of emerging risks and potential threats is critical to establishing the right culture, so we regularly train and communicate with employees. In addition, we have further tied up with CRISIL to impart risk-focused training to our employees, and we strongly believe in investing in the same.
Overall, we take a proactive and an agile approach to risk management and incorporate emerging risks and potential threats into our framework to ensure we are well-prepared to manage potential risks.
What role does technology play in modern risk management, and how is your organisation leveraging new technologies to improve its risk management capabilities?
Technology plays a significant and leading role in modern risk management, and at Godrej Capital, we are leveraging new technologies to improve our risk management capabilities.
Even though we are a relatively new company, we have invested in setting up a proper data infrastructure by setting up a data warehouse and data mart with our partner Snowflake.
Our data mart is a golden data source, resulting in getting faster insights. In addition, it supports automated reporting, bureau analytics capabilities, and risk metrics tracking.
Investment in technology helps in all legs of risk management, starting from identification and analysis, and allows us to make data-driven decisions and develop risk mitigation strategies that are tailored to our specific business needs.
Further, we are using Artificial Intelligence and Machine Learning to develop scorecards and risk management models.
Overall, we are committed to leveraging new technologies to improve our underwriting processes, risk management capabilities and ensure that we are well-prepared to manage potential frauds and delinquencies.
How do you measure the effectiveness of Godrej Capital’s risk management program, and what metrics do you use to evaluate its success?
Here are some metrics that we use to evaluate the success of our risk management program at Godrej Capital:
Risk appetite measured through cost of risk:
Our risk appetite defines the level of risk we are willing to accept as an organisation. We regularly review our risk appetite and ensure it aligns with our business financials.
Key risk indicators:
We use key risk indicators (KRIs) to measure and monitor potential risks across our business operations. These KRIs are designed to provide early warning signs of potential risks, allowing us to take timely and appropriate action.
Portfolio analysis:
We regularly stress-test our portfolio to ensure that the risk we have taken on different customer segments remains checked and we can balance the kind of loans we want to do to manage the company’s overall risk.
Reporting from internal audit:
We have also set up internal audit teams which evaluate the customers and the kind of loans we do independently. Thus, reports of internal audits are also critical to assess the success of our risk management framework.
Risk culture:
A strong risk culture is essential for effective risk management. We regularly assess our risk culture and ensure it aligns with our risk management objectives.
Ahead to the future, how do you see the role of risk management evolving, both within Godrej Capital and across the broader business landscape? What new challenges do you anticipate, and how is your team preparing to address them?
Risk management plays an increasingly important role in the success of our organisation and the broader business landscape. With the rapid pace of technological advancement, increasing regulatory requirements, and evolving customer needs and expectations, the role of risk management is likely to become more complex and critical in the coming years.
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As we scale up to different geographies, customer segments, and products, a significant challenge we anticipate is the increasing demand for real-time risk management, insights, and reporting.
To address this, we leverage advanced analytics and data visualization tools to improve our ability to monitor, analyse, and report nonpotential risks in real-time.
Risk management’s future role is likely to be more strategic and proactive, requiring risk managers to work closely with business leaders to identify and manage potential risks and opportunities. We are preparing for these challenges by investing in new technologies, developing new risk management frameworks and processes, and building a team with diverse skills and expertise to meet the evolving needs of our business and customers.
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