How to become a risk manager

Star Bank wants to increase its lending to small businesses – with a turnover of 1- 50 crore. It builds a risk model, which evaluates the various parameters that should be considered to measure the risk of such lending; as well as the weightages of each parameter.

It checks the model on an ongoing basis, against the real life performance of these clients.

What risks does the Bank face with this decision? Who monitors and reports these risks?

The answer is, the ‘Risk Manager’

The primary responsibility of a risk manager is to identify the risks emanating from various external as well as internal factors. She measures the risk, monitors and analyses it.

This is to ensure that the risks undertaken by banks and Financial Institutions are in line with both – the regulatory requirements set by RBI (in India) and the internal policies of the bank. A Risk Manager reports to the Chief Risk Officer (CRO) of a bank or FI.

Risk Management has gained increasing importance over the years, and the regulators are increasing the pressure on financial institutions, to strengthen their risk management policies. Therefore, risk is a good career option, for someone who wants a career in ‘core’ finance.  It will involve analyzing financials, measuring the various types of risk that a particular action will lead to – and whether that much risk, is acceptable to the bank/FI.

To make this clearer, let us understand the three primary risks that a bank faces. These are credit risk, market risk and operational risk.

what is credit risk

Credit Risk refers to the risk of default- what if the borrowers fail to repay, on time? This is the biggest risk that a lender faces. Note that, a Risk Manager will work on models and policies for the bank/FI. She is part of the team which sets the overall risk policies for the bank. She is not the person checking the risk profile of every customer or transaction.

 In India, the level of such bad loans, or Non Performing Assets (NPAs), is among the worst in the world. See the chart below:

NPAs at top indian banks

What is Market Risk

Market risk refers to the loss an FI faces, while trading in financial markets. Across the world, such losses have bankrupted financial institutions – here is an interesting article of some of the biggest losses in financial markets:

Market risk models and policies consider how external factors, such as interest rates, exchange rates or commodity prices, can impact a particular financial instrument. Political events also impact markets – for example, if an election results in a weak coalition party, that impacts the economy – and the markets. Risk analysts use analytical techniques to assess market risks They work on historical portfolios and basis analytical findings, provide opinions on how various future scenarios will impact markets.

What is operational risk in risk management

Apart from credit risk and market risk, banks also face huge operational risk. Operational risk has been defined by the Basel Committee on Banking Supervision as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

The biggest recent example of operational risk, was the Punjab National Bank (PNB) scam, where one employee was able to issue fake Letters of Undertaking, which were not verified or checked by anyone else – there wasn’t even an automated process, to ensure that any issued LoUs were entered into the Core Banking System.

What does it take to become a Risk Manager?

 Skills required to become a risk manager

As a Risk Manager, you are not just responsible to do the math. You are required to have a strong Business Understanding, the ability to deal and negotiate across teams to get the risk management policies into practice and a very strong academic foundation in Finance/Mathematics topped with credible risk management focus – the obvious way to showcase this focus, is to get a good Risk Management certification.

Let us have a look at some of the most popular Risk management certifications:

FLIP’s Risk Management Certification:

FLIP Risk Management

FLIP’s Risk Management program is India’s only industry endorsed certification in Risk Management; covering Market, Credit and Operational Risk.

The program includes two certifications –

  1. FLIP NCFM certification in Market Risk, issued by the National Stock Exchange (NSE)
  2. Industry endorsed FLIP certification in Credit & Operational Risk.

The certification is ideal for anyone looking for a career as a Risk Analyst/Manager. Typical roles are in a bank, NBFC or in an MNC KPO – also called the Shared Services unit -such as Barclays, JPMC etc. These global banks outsource their risk analysis to captive units in India, called ‘Shared Services.

Recommended learning hours: 20 learning hours

Examination frequency: Available through the year, at 36 centers across India

Total Cost: INR 12,450 + GST

Note: An additional examination fee of INR 1700 + GST is payable to NSE directly, for the FLIP-NCFM Market Risk certification


Speaking of FLIP certified candidates, Mr. Somak Ghosh, Managing Partner – Contrarian Capital (earlier Group President @ YES Bank & Co-CEO at Motilal Oswal PE) said

“FLIP Certified candidates come with practical, India focused knowledge – which a CFA does not give. They come better prepared and hit the ground running much faster than other candidates who do not have the relevant certification. I would strongly prefer FLIP Certified candidates over others (all else being equal)”

Financial Risk Manager (FRM):

Financial Risk Manager program details

Offered by the Global Association for Risk Professionals (GARP), the Financial Risk Manager(FRM) is a globally recognized certification in Risk Management. The certification will help you in roles like Risk Assessment, Financial Risk Consultant, Risk Management, Asset Liability Management etc.,

The examination is conducted in two parts – Part I & Part II. While there is no pre-requisite educational qualification, in order to obtain the final certification, you are expected to produce at least 2 years of relevant full-time work experience. 

Recommended learning hours: 250 hours/Level

Examination frequency: Twice a year (June & November), 9 testing centers across India

Total Cost:

One-time registration fee: $300

Examination fee (Level 1): $650**

Examination fee (Level 2): $650**

Training Material cost: $300/Level

The total cost to complete both the levels will come down to INR 1,43,000. So, given the cost and effort, it is a worthwhile investment only if you’re sure that you want a career only in Risk Management. 

** The exam fees varies in the range of $350-$650 per level, depending how early you register for the exams.


Professional Risk Manager (PRM):

Professional risk manager certification details

Issued by Professional Risk Managers’ Association, the Professional Risk Manager certification is another popular option for individuals looking to build a career in Risk Management.

To be eligible for the certification, one needs to have 2 years relevant work experience if he/she is just a graduate. There is no experience needed if you’re a post-graduate.

While there is a lot of similarity between the coverage of each program, the prospects of FRM and PRM differ. FRM pushes you towards a career as Risk Management Analyst, Risk Assessments Manager, Head of Treasury, Investment Banker; PRM leads you towards a career as Predictive Analyst, Chief Risk Officer, Senior Risk Analyst, Head of Operation Risk, Investment Risk Manager.

Examination Frequency: Conducted in 8 date slots spread through the year.

Website: Click Here

Total Cost:

Application Fee: $ 150

Program Fee: $ 1280 (for 4 levels)

Take Away:

Risk is a niche area. You do need to get a good certification, which will give you the knowledge you need. The certification will also show your interest to the recruiter.The choice of the right certification for you depends on the below factors:

  1. Your current profile and experience in Finance
  2. How much time do you have at hand
  3. Your ROI expectation
  4. Your career plan in Risk Management

Hope you liked the article! Share your feedback in the comments section below.

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