KONDOR GLOBAL RISK

AXIS BANKBEYOND REGULATION, AN OPPORTUNITY FOR GROWTHCase study

Axis Bank, one of India’s top three private banks, has selected Kondor Global Risk for real-time risk management across its trading operations. The new system allows Axis to make proactive business decisions based on genuine risk intelligence while operating in line with regulatory demands and supporting growth opportunities.

Company profileAxis Bank is one of India’s top three private banks, created in 1994 as part of India’s opening up of its banking sector that for decades had been dominated by government banks. As an innovative, new-generation bank in India, Axis has expanded consistently at a rate higher than the industry average and currently has over 1400 branches, including seven overseas offices serving retail and corporate customers. Today Axis is growing at 30-35% per annum, but with a state-of-the-art risk monitoring function its business could push itself to higher annual growth rates. It offers a wide range of services and products ranging from core banking products, treasury products like money market and FX, fixed income products (including corporate Indian bonds), and derivatives.

The business challengeAxis Bank is one of India’s most forward looking banks in terms of transitioning to an advanced risk management system. The move is being driven as much by the bank’s strong risk management culture as by the Indian banking regulator which has embraced the advanced approaches under Basel II including the internal model (IM) approach and has set timelines for its adoption. The majority of risk management systems in Indian banks do not effectively support transition to IM. Regulation was not the only driver behind Axis’ proactive decision to implement a modern risk management solution. Even more important was Axis’ strategic decision to up its risk management wherewithal as a way to enable accelerated growth.

The risk systems’ technology in Indian banks has not kept pace with the business growth. This is because banking software in this market has traditionally

been accounting-oriented, designed to meet financial controls, rather than address risk management needs. As a result, Indian banks’ flagship systems have been focused on core banking functions which can capture the trades and do static credit checks, but lack comprehensive and dynamic market risk functionality. At Axis, this was addressed by building internal market risk functionality as an add-on to multiple in-house trading systems, typically involving more manual and less of STP type computation of risk numbers. The limitations of fragmented, manual computation precludes enablements namely dynamic stress-testing and Management Information System, flexible limits definitions and back testing – all parts of the risk arsenal needed by today’s risk analysts to keep the pace with the speed of business.

Pravat Dash, Head of Market Risk Management at Axis Bank, explained, “We were looking for an enterprise wide market risk system capable of integrating with multiple trading systems and consolidating all economic position information in a single place that could drive dynamic risk engines, define limits and support drill-down”. Importantly, all this functionality needed to be performed on a timely basis and in an STP, automated process that would significantly cut the extent of effort needed to obtain meaningful risk assessments. The consolidation of positions in a single system separate from pre-existing trading systems was an important requirement, both to ensure enterprise-wide consistency by harmonizing the data, as well as to ensure timely analysis by virtue of not having to constantly go back to source systems.

After looking at a number of vendors and short-listing four, Axis Bank decided to use the Kondor Global Risk system from Misys.

BEYOND REGULATION, AN OPPORTUNITY FOR GROWTH

Axis Bank – Kondor Global Risk – Beyond regulation, an opportunity for growth

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The solutionThe Kondor Global Risk (KGR) system, conceived from scratch as an enterprise risk system that can exist independently of any trading system (including trading systems from Misys like Kondor+), was a good fit to Axis Bank’s needs. Dash said, “KGR provides a good platform for the bank’s requirements in VaR, limits, and compliance with our internal model requirements. It provides stress testing and back testing, as well as responsive risk dashboards to ensure risk transparency at any level of the organization.”

Beyond the functional and technological benefits, another important element in Axis’ decision was the comprehensive nature of Misys delivery and support organization, and in particular the fact that it has a local support team in India that has previous experience in implementing VaR systems from Misys at six other Indian banks. This was important to Axis because the Indian market has a number of peculiarities (for instance, corporate bonds in India require special treatment). The project also required the integration of numerous front office systems from different vendors. The local Misys team had the skills to ensure that project risk would be kept to a minimum.

In total, there will be three core user groups who will benefit from the new market risk system:• Users focused on producing reports, both for

internal use and for regulators• Risk analysts for modeling risk and conducting

drill-down analysis• Users who will do some integration with the

current credit risk system

The project has been structured around three phases, delivered over 2011/2012:• Position consolidation and implementation of

market limits to support pricing in client front office applications

• Implementation of historical simulation for market risk VaR

• Implementation of Monte Carlo simulation for market risk VaR

Key benefitsThe new system is expected to have a significant impact in a number of areas:• Can support growth: Effectively support

Axis Bank in its high growth momentum by enhancing effectiveness of market risk measurement, monitoring and control related to treasury products and target a stable business and income growth rate.

• Regulatory-ready: Prepare Axis Bank to comply with IM regulations when they decide on migration.

• Less manual processes: Significantly reduce the manual effort involved in analytics and Management Information System, thus making the risk management process more accurate and timely.

• Source of insight: Provide good visibility on the risk dynamics faced by Axis Bank through the dashboard for its large portfolio encompassing around 15 banking products and an array of derivative products.

Looking to the futureAfter the implementation of the new market risk system, the next natural milestone is to tune it to the IM regulations eventually enforced. Ideally, Axis Bank would like to remain ahead of the other major banks in the market and finish the project ahead of schedule.

Beyond that, credit risk presents the next area where Axis Bank might upgrade its risk management practices, especially in terms of a convergence between market and credit risk. Today credit risk is managed in the core banking systems, so trading credit risk is excluded. As a possible future plan, Axis Bank might consider leveraging KGR as well for credit risk and use it as a platform for potential new credit regulations, which are expected to be in the form of add-ons.

“Kondor Global Risk provides responsive risk dashboards to ensure risk transparency at any level of the organization.”

Pravat DashHead of Market Risk Management, Axis Bank

Axis Bank – Kondor Global Risk – Beyond regulation, an opportunity for growth

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NUMBER ONE RISK MANAGEMENT TECHNOLOGY PROVIDER

ASIA RISK TECHNOLOGY RANKINGS 2011

Number One Overall Risk ManagementNumber One Trading System – EquitiesNumber One Trading System – Foreign exchangeNumber One Trading System – Interest ratesNumber One Derivatives pricing and risk analytics – EquitiesNumber One Derivatives pricing and risk analytics – Interest ratesNumber One Derivatives pricing and risk analytics – HybridsNumber One Support services – Implementation effi ciency

BEST TRADING PLATFORM BACK OFFICE

ASIAN BANKER TECHNOLOGY AWARDS

STRUCTURED PRODUCTS TECHNOLOGY RANKINGS 2012Number One Trading System – CreditNumber One Trading System – Cross AssetNumber One Trading System – Foreign ExchangeNumber One Trading System – RatesNumber One Risk Management – Collateral Management

NUMBER ONE TRADING SYSTEM TECHNOLOGY PROVIDER

RISK TECHNOLOGY RANKINGS 2011

Number One Overall Trading SystemNumber One Pricing and Analytics – EquityNumber One Pricing and Analytics – Infl ation

MISYS RECENT MARKET RECOGNITION

BEST RISK MANAGEMENT INITIATIVE

ASIA ASSET MANAGEMENT AWARDS

LEADING SINGLE TECHNOLOGY PLATFORM – PORTFOLIO, TRADING AND RISK MANAGEMENT

HEDGE FUND JOURNAL AWARDS 2011

STRUCTURED PRODUCTS TECHNOLOGY RANKINGS 2011Number One Trading System – EquitiesNumber One Trading System – Interest ratesNumber One Pricing and Analytics – Equities

Misys is at the forefront of the fi nancial software industry, providing the broadest portfolio of banking, treasury, trading and risk solutions available on the market. With 1,800 customers in 120 countries our team of domain experts and partners have an unparalleled ability to address industry requirements at both a global and local level.

Misys was formed by the merger of Misys with Turaz, which includes the award-winning Kondor+ product line. Combined they are able to address all customer requirements across both the banking and trading book businesses. Misys is the trusted partner that fi nancial services organisations turn to for help solving their most complex problems.

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