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Good governance demands disclosure of risk perceptions
August, 09th 2007

All the sectors of the economy are beginning to realise the importance of risk in various activities, although financial risks occupy prime position in the context of new products, changing technologies and market-savvy players, along with fierce competition.


The Hyderabad-based Institute of Insurance and Risk Management (IIRM), jointly set up by the IRDA and the Andhra Pradesh Government in 2002, which has been offering one-year post-graduate diploma courses in insurance and risk management, recently opened an International School of Actuarial Sciences (ISAS).

The school, which offers a two-year post-graduate diploma course in actuarial sciences, is supervised by the IIRM board and the Managing Director, Mr Vepa Kamesam.

Speaking to Business Line on risk management and how useful it can be for various industry sectors, Mr Kamesam said that risk management has assumed enormous significance as the volume of money passing through the financial system a s a consequence of globalisation is growing at a very high rate.

All the sectors of the economy are beginning to realise the importance of risk in various activities, although financial risks occupy prime position in the context of new products, changing technologies and market-savvy players, along with fierce competition.

Separate courses needed

Despite each corporate actively practising risk management in some way to protect assets, there is a need for a separate course on risk management because companies have begun to look at it as an important part of day-to-day activity in a holistic manner, which cannot be looked at in isolation.

According to Mr Kamesam, the standalone course on risk management designed by IIRM addresses three basic issues: the relevance of the insurance segment to corporates, how the business economics of a whole country works and the issue of operations management, apart from appreciation of liabilities arising due to various acts.

The course content is delivered from a practitioners point of view and learning is based on inputs from the practitioners, he said, adding that inputs are based on global standards as built into the CII (Chartered Insurance Institute, London) syllabus, modified to the extent required to cover the Indian scenario.

On the categories of risk that the course focuses on, he said that apart from standard fire, marine, financial and catastrophe risks, the risks of earthquake, tsunami, cyclone and terror events are also being addressed.

Mr Kamesam believes that the new-generation risk managers, by virtue of exposure and learning they undergo at IIRM, should be able to plug the loopholes and offer expert advice. Risk managers have a vital role to play and several sectors stand to benefit, including finance, industry, oil and gas, shipping, aviation and health.

He pointed out that tightening of accounting standards by factoring in greater appreciation of risks is always welcome.

No conflict of roles

There is a perception that focus on risk kills the entrepreneurial spirit that is essential for breakthrough growth. But Mr Kamesam does not subscribe to this view.

Risk managers only present the various dimensions of the parameters that must be considered before taking crucial decisions. The roles are different and I dont see a conflict.

Actually, I would say the role is supportive. Entrepreneurs could end up in serious trouble if they overlook or override the risk potential and mitigation.

Corporates should also disclose risk perceptions as perceived by the management in the annual financial statements, since this falls within the realms of good governance, according to him.

On the recent rupee appreciation and the resultant woes, Mr Kamesam said that these cannot be attributed to risk management failure.

Sharpshooters are employed as forex managers in IT and other industries where 90 per cent of the revenues are in foreign currency; it takes conscious decisions (positions) based on risk appetite to hedge or leverage by carrying open positions and pay the price. Sometimes you win, sometimes you dont.

Investor education

Another category badly in need of information on the types of risks involved is the individual investor. Mr Kamesam, who strongly believes that India has a long way to go in the area of investor education, said that more publicity is needed, as are active steps by all players in various segments of the industry.

Financial advisors should step in to bridge the gap and do the handholding, educating the ordinary investors of the risk involved in every type of investment.

He added that a beginning can be made by bringing risk management into the educational syllabus at the high school and college levels across the board and in all disciplines.

Prior to heading IIRM, Mr Kamesam spent about 39 years with State Bank of India, before retiring as Managing Director. In 2001, he was appointed Deputy Governor of RBI for two years and his term was extended till December 2003, when he retired.


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