This document summarizes the risk management framework of ICICI Bank. It discusses the key risks faced by the bank including credit, market, liquidity, operational, compliance and reputation risks. The risk management strategy involves identifying, measuring, monitoring and controlling risks. Oversight of risks is provided by the Board of Directors and associated committees. Policies govern each type of risk and business activities are undertaken within this framework. Independent groups evaluate, monitor and manage risks across the bank.

1. Submitted in fulfillment of the Requirements of the Risk Management
Course of Post Graduate programme (PGP).
Submitted By -:Mr. Abhay Pratap
Submitted to -:Prof. Vandana Mehrotra

2. Contents
1. About ICICI
2. Shareholding pattern
3. Risk-An Introduction
4. Key Risks
5. Risk management framework
6. Managing Credit Risk
7. Managing market Risks
 Interest rate risk
 Foreign Exchange risk
 Equity price risk
8. Managing liquidity Risk
9. Managing operational Risk
10. Initiatives taken by the bank to minimize the risk

3. About ICICI
ICICI Bank is India's second- largest bank with total assets of Rs. 3,634.00 billion (US$ 81
billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31, 2010. The Bank has a network of 2,518 branches and 5,808 ATMs in India, and
has a presence in 19 countries, including India. ICICI Bank offers a wide range of banking
products and financial services to corporate and retail customers through a variety of delivery
channels and through its specialized subsidiaries in the areas of investment banking, life and
non- life insurance, venture capital and asset management. The Bank currently has subsidiaries in
the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong
Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in
United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our
UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares
are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited
and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange
(NYSE).ICICI Bank is India's second- largest bank with total assets of Rs. 3,634.00 billion (US$
81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year
ended March 31, 2010. The Bank has a network of 2,518 branches and about 5,808 ATMs in
India, and has a presence in 19 countries, including India. ICICI Bank offers a wide range of
banking products and financial services to corporate and retail customers through a variety of
delivery channels and through its specialized subsidiaries in the areas of investment banking, life
and non- life insurance, venture capital and asset management. The Bank currently has
subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore,
Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and
representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand,
Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany.
ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the Natio nal Stock
Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New
York Stock Exchange (NYSE).

4. Shareholding Pattern
The shareholding pattern of a bank refers to the scenario of a bank’s equity capital among
various entities from whom the bank has financed its capital. These include Individuals,
Insurance companies, MFs, Bodies Corporate and the most important are the depository receipts
through which the bank can finance its capital by issuing shares in other countries through listing
in the foreign exchange .
2009 Shareholder Pattern
Foreign Insts/ Banks
0%
MFs
7%
Depository Insurance
Reciepts Companies
27% 15%
Individuals
9%
FIIs
36%
Bodies Corporates
6%
The pie charts above show that only 9% is the individual holding in comparison to 11% of last
year along with decrease in FIIs holdings from 57% to 36%.The holding in shares by insurance
companies is the same. Also the holding by the mutual funds is only 7% as compared to 9% of
earlier year. The bank has gone for the Depository Receipts for funding of the capital in 2009 i.e.
American Depository Receipts and Global Depository Receipts.

5. Risk an Introduction
Risks are usually defined by the adverse impact on profitability of several distinct sources of
uncertainty. While the types and degree of risks an organization may be exposed to depend upon
a number of factors such as its size, complexity business activities, volume etc, it is believed that
generally the banks face Credit, Market, Liquidity, Operational, Compliance ,legal ,regulatory
and reputation risks.
Risk Management is a discipline at the core of every financial institution and encompasses all the
activities that affect its risk profile. It involves identification, measurement, monitoring and
controlling risks to ensure that
a) The individuals who take or manage risks clearly understand it.
b) The organization’s Risk exposure is within the limits established by Board
of Directors.
c) Risk taking Decisions are in line with the business strategy and objectives
set by BOD.
d) The expected payoffs compensate for the risks taken
e) Risk taking decisions are explicit and clear.
f) Sufficient capital as a buffer is available to take risk
Key risks
We have included statements in this annual report which contain words or phrases such as ‘will’,
‘expected to’,etc., and similar expressions or variations of such expressions, may constitute
‘forward- looking statements’. These forward- looking statements involve a number of risks,
uncertainties and other factors that could cause actual results, opportunities and growth potential
to differ materially from those suggested by the forward- looking statements. These risks and
uncertainties include, but are not limited to, the actual growth in demand for banking and other
financial products and services in the countries that we operate or where a material umber of our
customers reside, our ability to successfully implement our strategy, including our use of the
Internet and other technology, our rural expansion, our exploration of merger and acquisition
opportunities both in and outside of India, our ability to integrate recent or future mergers or
acquisitions into our operations and manage the risks associated with such acquisitions to
achieve our strategic and financial objectives, our ability to manage the increased complexity of
the risks we face following our rapid international growth, future levels of impaired loans, our
growth and expansion in domestic and overseas markets, the adequacy of our allowance for
credit and investment losses, technological changes, investment income, our ability to market
new products, cash flow projections, the outcome of any legal, tax or regulatory proceedings in
India and in other jurisdictions we are or become a party to, the future impact of new accounting
standards, our ability to implement our dividend policy, the impact of changes in banking
regulations and other regulatory changes in India and other jurisdictions on us, the state of the
global financial system and other systemic risks, the bond and loan market conditions and
availability of liquidity amongst the investor community in these markets, the nature of credit
spreads, interest spreads from time to time, including the possibility of increasing credit spreads

6. or interest rates, our ability to roll over our short-term funding sources and our exposure to
credit, market and liquidity risks.
Risk management framework
The Bank’s risk management strategy is based on a clear understanding of various risks,
disciplined risk assessment and measurement procedures and continuous monitoring. The
policies and procedures established for this purpose are continuously benchmarked with
international best practices. The key principles underlying our risk management framework are
as follows:
• The Board of Directors has oversight on all the risks assumed by the Bank. Specific
Committees of the Board have been constituted to facilitate focused oversight of various risks.
The Risk Committee reviews risk management policies of the Bank in relation to various risks
and regulatory compliance issues. It reviews key risk indicators covering areas such as credit
risk, interest rate risk, liquidity risk, and foreign exchange risk and the limits framework,
including stress test limits, for various risks. It also carries out an assessment of the capital
adequacy based on the risk profile of the Bank’s balance sheet and reviews the status with
respect to implementation of Basel II norms. The Credit
Committee reviews developments in key industrial sectors and Bank’s exposure to these sectors
as well as to large borrower accounts. The Audit Committee provides direction to and also
monitors the quality of the internal audit function. The Asset Liability Management Committee
is responsible for managing the balance sheet and reviewing asset- liability position of the Bank.
• Policies approved from time to time by the Board of Directors/Committees of the Board form
the governing framework for each type of risk. The business activities are undertaken within this
policy framework.
• Independent groups and sub-groups have been constituted across the Bank to facilitate
independent evaluation, monitoring and reporting of various risks. These groups function
independently of the business groups/sub-groups.
The Bank has dedicated groups namely the Global Risk Management Group (GRMG),
Compliance Group, Corporate Legal Group, Internal Audit Group and the Financial Crime
Prevention and Reputation Risk Management Group (FCPRRMG), with a mandate to identify,
assess and monitor all of the Bank’s principal risks in accordance with
well-defined policies and procedures. GRMG is further organized into the Global Credit Risk
Management Group, the Global Market Risk Management Group and the Global Operational
Risk Management Group. These groups are completely independent of all business operations
and coordinate with representatives of the business units to implement ICICI Bank’s risk
management methodologies. The internal audit and compliance groups are
responsible to the Audit Committee of the Board.

7. Managing credit risk
In a bank’s portfolio, losses stem from outright default due to inability or unwillingness of a
customer or counter party to meet commitments in relation to lending, trading, settlement and
other financial transactions. Alternatively losses may result from reduction in portfolio value due
to actual or perceived deterioration in credit quality. Credit risk emanates from a bank’s dealing
with individuals, corporate, financial institutions or a sovereign. For most banks, loans are the
largest and most obvious source of credit risk; however, credit risk could stem from activities
both on and off balance sheet. In addition to direct accounting loss, credit risk should be viewed
in the context of economic exposures. This encompasses opportunity costs, transaction costs and
expenses associated with a non-performing asset over and above the accounting loss.
Total credit risk exposures (March 31, 2010)
Credit risk exposures include all exposures as per RBI guidelines on exposure norms subject to
credit risk and investments in held-to- maturity category. Direct claims on domestic sovereign
which are risk-weighted at 0% and regulatory capital instruments of subsidiaries which are
deducted from the capital funds have been excluded.
Rupees in billion
Category Credit exposure
Fund-based 3,355.66
Non-fund based 2,109.75
Total 5,465.41
Credit risk monitoring process of ICICI Bank
For effective monitoring of credit facilities, a post-approval authorisation structure has
been laid down. For corporate, small enterprises and rural micro -banking and agri-
business group, Credit Middle Office Group verifies adherence to the terms of the approval
prior to commitment and disbursement of credit facilities. Within retail, the Bank has
established centralized operations to manage operational risk in the various back office
processes of the Bank’s retail loan business except for a few operations, which are
decentralized to improve turnaround time for customers. A fraud prevention and control
group has been set up to manage fraud-related risks through fraud prevention and through
recovery of fraud losses. The fraud control group evaluates various external agencies
involved in the retail finance operations, including direct marketing associates, external
verification associates and collection agencies. The Bank has a collections unit structured
along various product lines and geographical locations, to manage delinquency levels. The
collections unit operates under the guidelines of a standardized recovery process.
The segregation of responsibilities and oversight by groups external to the busine ss groups
ensure adequate checks and balances.

8. Measurement of Credit Risk in ICICI Bank
Credit exposure for ICICI Bank is measured and monitored using a centralized exposure
management system. The analysis of the composition of the portfolio is presented to the Risk
Committee on a quarterly basis.ICICI Bank complies with the norms on exposure stipulated by
RBI for both single borrower as well as borrower group at the consolidated level. Limits have
been set by the risk management group as a percentage of the Bank’s
consolidated capital funds and are regularly monitored. The utilization against specified limits is
reported to the Committee of Executive Directors and Credit Committee on a periodic basis.
Managing Market Risk
It is the risk that the value of on and off-balance sheet positions of a financial institution will be
adversely affected by movements in market rates or prices such as interest rates, foreign
exchange rates, equity prices, credit spreads and/or commodity prices resulting in a loss to
earnings and capital.
Financial institutions may be exposed to Market Risk in variety of ways. Market risk exposure
may be explicit in portfolios of securities ,equities and instruments that are actively traded.
Conversely it may be implicit such as interest rate risk due to mismatch of loans and deposits.
Besides, market risk may also arise from activities categorized as off-balance sheet item.
Therefore market risk is potential for loss resulting from adverse movement in market risk
factors such as interest rates, forex rates, equity and commodity prices. The risk arising from
these factors have been discussed as following:-
1.Inte rest rate risk
Interest rate risk arises when there is a mismatch between positions, which are
subject to interest rate adjustment within a specified period. The bank’s lending,
funding and investment activities give rise to interest rate risk. The immediate
impact of variation in interest rate is on bank’s net interest income, while a long
term impact is on bank’s net worth since the economic value of bank’s assets,
liabilities and off-balance sheet exposures are affected. Consequently there are
two common perspectives for the assessment of interest rate risk.
a) Earning perspective: In earning perspective, the focus of analysis is the
impact of variation in interest rates on accrual or reported earnings. This is
a traditional approach to interest rate risk assessment and obtained by
measuring the changes in the Net Interest Income (NII) or Net Interest
Margin (NIM) i.e. the difference between the total interest income and the
total interest expense.
b) Economic Value perspective: It reflects the impact of fluctuation in the

9. interest rates on economic value of a financial institution. Economic value
of the bank can be viewed as the present value of future cash flows. In this
respect economic value is affected both by changes in future cash flows
and discount rate used for determining present value. Economic value
perspective considers the potential longer-term impact of interest rates on
an institution.
Interest rate risk occurs due to
Differences between the timing of rate changes and the timing of cash flows (re-pricing risk)
changing rate relationships among different yield curves effecting bank activities (basis risk)
Changing rate relationships across the range of maturities (yield curve risk)
Interest-related options embedded in bank products (options risk).
2.Foreign Exchange Risk:
It is the current or prospective risk to earnings and capital arising from adverse
movements in currency exchange rates. It refers to the impact of adverse
movement in currency exchange rates on the value of open foreign currency
position. The banks are also exposed to interest rate risk, which arises from the
maturity mismatching of foreign currency positions. Even in cases where spot
and forward positions in individual currencies are balanced, the maturity
pattern of forward transactions may produce mismatches. As a result, banks
may suffer losses due to changes in discounts of the currencies concerned. In
the foreign exchange business, banks also face the risk of default of the counter
parties or settlement risk. Thus, banks may incur replacement cost, which depends upon the
currency rate movements. Banks also face another risk called time-zone risk, which arises out of
time lags in settlement of one currency in one center and the settlement of another currency in
another time zone. The forex transactions with counter parties situated outside Pakistan also
involve sovereign or country risk.
3.Equity price risk
It is risk to earnings or capital that results from adverse changes in the value of equity related
portfolios of a financial institution. Price risk associated with equities could be systematic or
unsystematic. The former refers to sensitivity of portfolio’s value to changes in overall level of
equity prices, while the later is associated with price volatility that is determined by firm specific
characteristics.

10. Managing Liquidity Risk
Liquidity risk is considered a major risk for banks. It arises when the cushion
provided by the liquid assets are not sufficient enough to meet its obligation. In
such a situation banks often meet their liquidity requirements from market.
Accordingly an institution short of liquidity may have to undertake transaction at heavy cost
resulting in a loss of earning or in worst case scenario the liquidity risk could result in
bankruptcy of the institution if it is unable to undertake transaction even at current market prices.
An incipient liquidity problem may initially reveal in the bank's financial
monitoring system as a downward trend with potential long-term consequences
for earnings or capital. Given below are some early warning indicators that not
necessarily always lead to liquidity problem for a bank; however these have potential to ignite
such a problem. Consequently management needs to watch carefully such indicators and exercise
further scrutiny/analysis wherever it deems appropriate. Examples of such internal indicators are:
a) A negative trend or significantly increased risk in any area or product line.
b) Concentrations in either assets or liabilities.
c) Deterioration in quality of credit portfolio.
d) A decline in earnings performance or projections.
e) Rapid asset growth funded by volatile large deposit.
f) A large size of off-balance sheet exposure.
g) Deteriorating third party evaluation about the bank
A liquidity risk management involves not only analyzing banks on and off-balance
sheet positions to forecast future cash flows but also how the funding
requirement would be met.
The formality and sophistication of risk management processes established to
manage liquidity risk should reflect the nature, size and complexity of an
institution’s activities. Sound liquidity risk management employed in measuring,
monitoring and controlling liquidity risk is critical to the viability of any
institution. Institutions should have a thorough understanding of the factors that
could give rise to liquidity risk and put in place mitigating controls.
Liquidity risk is the risk of inability to meet financial commitments as they fall due, through
available cash flows or through sale of assets at fair market value. It is the current and
prospective risk to the Bank’s earnings and equity arising out of inability to meet the obligations
as and when they become due. It includes both, the risk of unexpected increases in the cost of
funding an asset portfolio at appropriate maturities as well as the risk of being unable to liquidate
a position in a timely manner at a reasonable price. The goal of liquidity risk management is to
be able, even under adverse conditions, to meet all liability repayments on time and to fund all
investment opportunities by raising sufficient funds either by increasing liabilities or by
converting assets into cash expeditiously and at reasonable cost. The Bank has diverse sources of
liquidity to allow for flexibility in meeting funding requirements. For the domestic operations,
current accounts and savings deposits payable on demand form a significant part of the Bank’s
funding and the Bank is working with a concerted strategy to sustain and grow this segment of
deposits along with retail

11. term deposits. These deposits are augmented by wholesale deposits, borrowings and through
issuance of bonds and subordinated debt from time to time. Loan maturities and sale of
investments also provide liquidity. The Bank holds unencumbered, high quality liquid assets to
protect against stress conditions. For domestic operations, the Bank also has the option of
managing liquidity by borrowing in the inter-bank market on
a short-term basis. The overnight market, which is a significant part of the inter-bank market, is
susceptible to volatile interest rates. To limit the reliance on such volatile funding, the ALM
Policy has stipulated limits for borrowing and lending in the inter-bank market. The Bank also
has access to refinancing facilities extended by the RBI. For the overseas operations too, the
Bank has a well-defined borrowing program. The US dollar is the base currency for the overseas
branches of the Bank, apart from the branches where the currency is not freely convertible. In
order to maximize the borrowings at reasonable cost, liquidity in different markets and
currencies is targeted. The wholesale borrowings are in the form of bond issuances, syndicated
loans from banks, money market borrowings, inter-bank bilateral loans and deposits, including
structured deposits. The Bank also raises refinance from banks against the buye r’s credit and
other forms of trade assets. The loans that meet the criteria of the Export Credit Agencies are
refinanced as per the agreements entered with these agencies. Apart from the above the Bank is
also focused on increasing the share of retail deposit liabilities, in accordance with the regulatory
framework at the host countries. Frameworks that are broadly similar to the above framework
have been established at each of the overseas banking subsidiaries of the Bank to manage
liquidity risk. The frameworks are established considering host country regulatory requirements
as applicable. In summary, the Bank follows a conservative approach in its management of
liquidity and has in place robust governance structure, policy framework and review mechanism
to ensure availability of adequate liquidity even under stressed market conditions.

12. Managing Operational Risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people
and system or from external events. Operational risk is associated with human error, system
failures and inadequate procedures and controls. It is the risk of loss arising from the potential
that inadequate information system; technology failures, breaches in internal controls, fraud,
unforeseen catastrophes, or other operational problems may result in unexpected losses or
reputation problems. Operational risk exists in all products and business activities. The objective
of operational risk management is the same as for credit, market and liquidity risks that is to find
out the extent of the financial institution’s operational risk exposure; to understand what drives
it, to allocate capital against it and identify trends internally and externally that would help
predicting it. The management of specific operational risks is not a new practice; it has always
been important for banks to try to prevent fraud, maintain the integrity of internal controls, and
reduce errors in transactions processing, and so on. The Bank’s operational risk management
governance and framework risk is defined in the Policy. While the Policy provides a broad
framework, detailed standard operating procedures for operational risk management processes
are established. For the purpose of robust quality of operational risk management across the
Bank, the operational risk management processes of the Bank have been certified for ISO 9001
standard. The Policy specifies the composition, roles and responsibilities of Operational Risk
Management Committee(ORMC). In line with the RBI guidelines, an independent Operational
Risk Management Group (ORMG) was set up in 2006. The key elements in the operational risk
management framework include:
1. Identification and assessment of operational risks and controls;
2. New products and processes approval framework;
3. Measurement through incident and exposure reporting;
4. Monitoring through key risk indicators; and
5. Mitigation through process and controls enhancement and insurance

13. Initiatives taken by the bank to minimize the Risk
In each type of business to reap out maximum profits an organization has to leverage itself so
that it can achieve targeted and projected growth, which cannot be achieved without taking risk.
So it does not mean that by increasing some extent of risk there will be higher possibility of more
profit since higher risk does not mean higher profit. Hence the company will have to take some
steps bring the risks to which it is exposed to its minimum level. Under each category of risks
ICICI bank has taken some initiatives which are as follows:-
The institution’s plan to grant credit based on various client segments and products, economic
sectors, geographical location, currency and maturity. Target market within each lending
segment, preferred level of diversification/concentration. Ensure that the bank implements sound
fundamental principles that facilitate the identification, measurement, monitoring and control of
credit risk. It is essential that banks give due consideration to their target market while devising
credit risk strategy. The credit procedures should aim to obtain an in depth understanding of the
bank’s clients, their credentials & their businesses in order to fully know their customers. Devise
policies and guidelines for identification, measurement, monitoring and control for all major risk
categories. The committee also ensures that resources allocated for risk management are
adequate given the size nature and volume of the business and the managers and staff that take,
monitor and control risk possess sufficient knowledge and expertise. The bank has clear,
comprehensive and well-documented policies and procedural guidelines relating to risk
management and the relevant staff fully understands those policies. Reviewing and approving
market risk limits, including triggers or stop losses for traded and accrual portfolios. Ensuring
robustness of financial models and the effectiveness of all systems used to calculate market risk.
The bank has robust Management information system relating to risk reporting.