Globally, banks have learnt the lesson of the 2008 economic crisis and have adopted stringent stress testing practices to protect themselves from future shocks. But banks in India are yet to catch up. The result:
Weak stress testing practices have impaired the resilience of banks, and they have been hit by an alarming high level of NPAs.
Top-down or bottom-up approach?
Some banks in India are already doing their bit to improve their risk assessment but they aren’t doing it right. Following just the top-down approach is not enough. They should follow the footsteps of their global counterparts who have realized that the right mix of top-down and bottom-up approaches to stress testing is the secret sauce to building resilience and keeping NPAs at bay.
So, how much risk is good risk?
Stress test helps identify banks’ risk appetite and mitigate the impact of risks. Simply put, it helps understand if banks have enough in them to keep going strong in the most adverse scenarios. However, stress test is no longer viewed as a mere regulatory exercise. It’s not just about managing risks or a buffer against economic catastrophes. Banks can use the insights from stress tests to make smarter business decisions and strategic choices. And Accenture can help banks in India set up the right framework to strengthen their financial systems across:
- Risk Appetite
- Risk Management
- Balance Sheet Management
- Capital Management
Get the most out of stress test
Accenture is a proven partner in implementing the right stress testing framework that can capture complex risk sensitivities. Not just that, we can help address data quality issues, so banks can get the most out of these tests. By bringing together our expertise across people, technology and process, we can highlight core areas banks should focus on to beef up their financial systems.