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, defining control activities at every business level
accompanied by top level reviews, effective channel of communication for the staff and availability of BCP and DRP.

Market and Interest Rate Risk

Market risk is the risk that earnings or capital will be adversely affected by adverse changes in market factors such as interest
rates, volatilities, credit spreads, and equity prices. We are exposed mainly to interest rate risk and liquidity risk. While we do
not have any exposure to equity or equity related instruments, any significant impact on the global capital markets can affect
us through other markets. Interest rate risk is the exposure of our financial conditions to adverse movements in interest rates.
Interest rate risk can pose a significant threat to earnings and capital base. Interest rate risk arises from mismatches in re-pricing
of interest rate sensitive assets, rate sensitive liabilities and rate sensitive off-balance sheet items. The interest rate risk is
managed on a balance sheet level.

In order to manage interest rate risk, most of the interest rates on advances as well as liabilities are fixed in nature and not
subject to market-related resets, to contain any adverse effects. In addition, majority of our advances are for medium-term

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