Committees, i.e. Risk Management Committee of Executives (RMCE) and Asset Liability Management Committee
(ALCO). The risk teams primarily focus on independently analyzing and providing guidance on managing the risk at
regular intervals.

Credit Risk

Credit risk is the possibility of losses associated with diminution in the credit quality of borrowers or counterparties. We
record losses in our portfolio from defaults that arise due to inability or unwillingness of a borrower or counterparty to
meet commitments in relation to lending, trading, settlement and other financial transactions. The credit risk governance
framework ensures that there is segregation of duties across the three lines of defence, i.e. (a) business units, which are
responsible for implementing corrective actions to address process and control deficiencies as they retain accountability
for managing the credit risks, (b) credit risk function that independently manages the risk, provides policy guidance,
recommendations, risk reporting and analysis and (c) internal audit unit, which independently assesses the design and
operational effectiveness of the entire credit risk management framework.

The credit risk function, with support from business units, is responsible for implementing processes for credit risk
identification, assessment, measurement, monitoring and control. The key roles and responsibilities of the credit risk
function include (i) stringent monitoring and management of specifically assigned problem accounts; (ii) monitor
portfolio performance on a quarterly basis and identify associated risks; (iii) study the impact of various stress scenarios
on different portfolios to complement the regular risk measurement methods; and (iv) implementation of internal audit
recommendations specific to credit risk function.

Liquidity Risk

Liquidity risk could be due to funding risk and market liquidity risk. Funding liquidity risk is the risk of not being able to
meet the expected and unexpected current and future cash flows and collateral needs without affecting its daily operations
or its financial condition, due to reasons such as heavy withdrawal on account of alternative investment opportunities in
market, change in market interest rates or strong loan growth. Market liquidity risk is the risk that we cannot easily offset
or eliminate a position at prevailing market prices because of inadequate market depth or market disruption. We typically
maintain adequate liquidity with a buffer to mitigate the risk of unanticipated large premature closure of deposits or to
meet any other large unanticipated outflows. As of December 31, 2020, we maintained excess liquidity of = 13,836.43
million in addition to mandatory SLR and CRR requirement and deployed primarily in SLR securities. We undertake
periodic stress testing with various scenarios to determine the liquidity requirements under such conditions. Investments
that are not categorized as HTM are in maintained as AFS. The securities held in excess of the mandatory SLR
requirements are mostly sovereign securities which are to a large extent liquid or semi-liquid. These can be liquidated at
short notice if required while also being eligible for repo operations as a source of funds at short notice. The extent and
form of liquidity is periodically set out by the ALCO. Any requirements for enhancing or altering the liquidity profile in
relation to institutional/ wholesale liabilities/ transactions is carried out by the Investment Committee.

Operational and Cash Management Risk

Operational risk is defined as the risk of losses resulting from inadequate or failed internal processes, people and systems
or from external events. The RMCB reviews risk related to people, process and systems and monitors key risk through
analysis of causative factors for operational loss events. All operational loss events/ incidents are reported to the Risk
Management Department by the divisions where they originate, immediately when they occur. Each loss event/ incident
is leveraged to modify existing controls or define new controls. We periodically and at least annually review our product
and process notes to set-up corresponding control in line with evolving business environments. These are then reviewed
by the Product Approval Committee, which comprises heads of all business and functional divisions before they are
introduced. The new regulatory guidelines issued by RBI, including with respect to highlighting the weaknesses observed
in the process and system at an industry level, are analyzed to revisit internal processes and address the gaps, if any. For
each Banking Outlet, cash retention limits are defined based on the requirement of cash and customer profile of the outlet.
We also subscribe to insurance cover to mitigate risks arising out of handling of cash. We also set limits for withdrawals
for various banking channels (internet banking, mobile banking, ATMs) for risk mitigation.

The primary means to mitigate operational risk include internal controls and internal audit. We have also set up
operational risk limits for various processes, based on the measures of operational risk. The contingent processing
capabilities are also used as a means to limit the adverse impacts of operational risk. We also have knowledge -building
exercises for personnel at all levels focused on risk education to reduce operational risk. The internal control process is
aimed at reducing instances of fraud, misappropriation and errors. The internal control process is focused on proper
segregation of duties and ensuring non-allocation of conflicting responsibilities, availability of information systems,

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