A Consortium of commercial banks has joined hands to float a new company, Loss Data Consortium (Cordex), which will collect data related to frauds and security risk. The new company will collect from member banks’ historical data on issues related to operational risk faced by banks and analyse it.
As many as 13 banks will have ownership in the new company, with each bank initially contributing Rs 1 crore. Banks such as State Bank of India, ICICI Bank, Union Bank of India, Punjab National Bank, Bank of Baroda and Canara Bank, will hold equity in the new company.
The initiative to set up the company is taken by Indian Banks’ Association — a body of bank management. The formation of the new company to collect and analyse data is in line with practice followed in the overseas market, said officials from IBA.
As of now, banks have assigned capital on various risk which broadly includes credit risk, market risk and operational risk. Credit risk deals refer to the possibility of the borrower not repaying in time while market risks pertain to the fall in the market value of debt and equity securities held by banks. Operational risk pertains to hazards posed by weakness in internal processes and system, people and external factors.
While the Reserve Bank of India (RBI) has prescribed the extent of capital banks need to set aside for credit risk and market risk, each bank has to figure out what its operational risks are and how much capital needs to be set aside. Banks assign capital for operational risk based on their own analysis.
The new company Cordex will have loss of data, which is one aspect of operational risk, as a focus area. Loss of data will cover frauds caused because of internal or external factors, data lost due to natural calamities and various geographical risk. Banks will provide their data on each of these aspects to the new company which will analyse it and disseminate among member banks.
However, Cordex will not disclose the identity of bank (that provide data as input) in their analysis. Based on the analysis received from Cordex on loss data, each bank will decide on the quantum of capital needed to assign on aspects of operational risk.
Banks need to have historic data in order to arrive at how much capital needs to be assigned on loss data. Since most Indian banks do not have historic data, pooling of data would enable all member banks to benefit from the new company. In the meanwhile, IBA is looking for a fulltime CEO to head the new company.
+1.jpg)
0 comments
Post a Comment