Emerging Issues In Financial Management And Risk Management Finance Essay
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Housing Development Finance Corporation Limited or HDFC founded 1977 by Ravi Maurya and Hasmukhbhai Parekh, is an Indian NBFC, focusing on home mortgages. HDFC's distribution network spans 243 outlets that include 49 offices of HDFC's distribution company, HDFC Sales Private Limited. In addition, HDFC covers over 90 locations through its outreach programmers. HDFC's marketing efforts continue to be concentrated on developing a stronger distribution network.
Helping Indians experience the joy of home ownership. The road to success is a tough and challenging journey in the dark where only obstacles light the path. However, success on a terrain like this is not without a solution. Our objective, from the beginning, has been to enhance residential housing stock and promote home ownership. Now, our offerings range from hassle-free home loans and deposit products, to property related services and a training facility. We also offer specialized financial services to our customer base through partnerships with some of the best financial institutions worldwide.
TYPES OF RISK FACED BY THE NBFC's
These are the risks that face:
1.Operational Risk:- An operational risk is a risk arising from execution of a company's business functions. As such, it is a very broad concept including e.g. fraud risks, legal risks, physical or environmental risks, etc. The term operational risk is most commonly found in risk management programs of financial institutions that must organize their risk management program according to Basel II. In Basel II, risk management is divided into credit, market, liquidity and operational risk management.
The following lists the official Basel II defined event types with some examples for each category:
Employment Practices and Workplace Clients, Products, & Business Practice
Damage to Physical
Business Disruption & Systems Failures
Execution, Delivery, & Process Management
2. Market Risk:- The day-to-day potential for an investor to experience losses from fluctuations in securities prices. This risk cannot be diversified away. Also referred to as "systematic risk". The beta of a stock is a measure of how much market risk a stock faces. Market risk includes:-
Interest rate risk
Foreign exchange risk
Equity price risk
3. Financial Risk:- The risk that a company will not have adequate cash flow to meet financial obligations. Financial risk is normally any risk associated with any form of financing. Risk is probability of unfavorable condition; in financial sector it is the probability of actual return being less than expected return. There will be uncertainty in every business; the level of uncertainty present is called risk. Financial risk includes:-
CAPITAL RISK:- A common concern with any investment is that the initial amount invested may be lost (also known as "the capital"). This risk is therefore often referred to as capital risk.
CURRENCY RISK:- If the invested assets are being held in another currency, there is a risk that currency movements alone may affect the value. This is referred to as currency risk.
LIQUIDITY RISK:- Many forms of investment may not be readily salable on the open market (e.g. commercial property) or the market has a small capacity and may therefore take time to sell. Assets that are easily sold are termed liquid: therefore this type of risk is termed liquidity risk.
HDFC selects Nt(Neural Technologies) for Risk Management
HDFC, one of India's premiers, today announced that it is using neural predictive models from Neural Technologies for risk management in its Credit Cards and other Retail Assets portfolios. HDFC selected Neural Technologies following a comprehensive proof of concept study, aimed at finding a supplier who could provide them with a superior analytical and scientific approach to reduce the delinquency rates in their credit card and retail assets portfolio. Following selection, Neural Technologies worked alongside HDFC's personnel to develop models for Credit Card Collections, Credit Card Recovery and Retail Assets (Personal Loans) Collections.
The models are proving to be very successful. Rajesh Kumar, Sr Vice President of HDFC said "We selected Neural Technologies based upon the performance of their models and the predicted return on investment, and we are extremely satisfied with the results achieved so far."HDFC has plans to expand its relationship with Neural Technologies and explore new areas in their business where they might benefit from Nt's expertise.
Arinjay Jain, Director of Neural Technologies' Indian operation said, "Neural predictive analytics is an ideal risk management tool, providing valuable decision-support to businesses looking to manage and reduce credit risk and fraud losses. A pioneer in this field among the Indian, HDFC has enthusiastically embraced the concept and is now starting to reap the benefits. We look forward to a long and mutually beneficial relationship between our two companies".
MEASURES USED BY HDFC TO CONTROL THE RISK OF NBFC's HDFC India live with SunGard's Adaptive Market Risk
India's HDFC has deployed SunGard's Adaptive Market Risk technology at its head office in Mumbai to support company treasury operations.
SunGard says the system will be used to support HDFC's front-to-back office processing and risk management for: money market, debt securities, foreign exchange and derivatives activities and Basel II compliance. The platform, says SunGard, will also enable the to extend its product coverage by creating new instrument types and integrating new proprietary or third party pricing models. Data model field customization, internal workflow automation via scripting and client-specific analytical ad-hoc reports may also be produced.
Sudhir Joshi, treasurer, HDFC comments: "adaptive will provide centralized processing out of Mumbai for cross-asset trading, risk management and back-office operations, and will help HDFC to achieve improved processing and operational efficiencies."HDFC becomes SunGard's first live adaptive customer in India.
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