Module: | MODULE B: RISK MANAGEMENT
Q373: Consider the following statements regarding the organizational structure of Credit Risk Management in banks:
1. The Board of Directors holds the ultimate responsibility for overseeing the credit risk profile of the bank.
2. The Credit Risk Management Committee is responsible for independently sanctioning high-value corporate loans.
3. The Risk Management Committee of the Board is exclusively tasked with formulating the overall risk management policy.
Which of the statements given above is/are correct?
2. The Credit Risk Management Committee is responsible for independently sanctioning high-value corporate loans.
3. The Risk Management Committee of the Board is exclusively tasked with formulating the overall risk management policy.
Which of the statements given above is/are correct?
✅ Correct Answer: C
The correct answer is C. Statement 1 is correct: In the organizational structure of a bank, the Board of Directors holds the ultimate responsibility for overseeing the entire credit risk profile and ensuring proper frameworks are in place.
Statement 3 is correct: The Risk Management Committee of the Board (RMCB) dictates and formulates the overarching risk management policy.
Statement 2 is incorrect: The Credit Risk Management Committee (CRMC) is an executive-level committee responsible for executing the policies laid down by the RMCB.
However, the CRMC does NOT sanction loans.
Loan sanctioning is the prerogative of the business units or specific credit sanctioning committees.
The Credit Risk Management Department must operate independently of the sanctioning units to ensure unbiased risk assessment.
Statement 3 is correct: The Risk Management Committee of the Board (RMCB) dictates and formulates the overarching risk management policy.
Statement 2 is incorrect: The Credit Risk Management Committee (CRMC) is an executive-level committee responsible for executing the policies laid down by the RMCB.
However, the CRMC does NOT sanction loans.
Loan sanctioning is the prerogative of the business units or specific credit sanctioning committees.
The Credit Risk Management Department must operate independently of the sanctioning units to ensure unbiased risk assessment.