Unbridled exposure to securities, derivatives and options markets, combined with managements that are unaware of the risk such exposure entails, has been one of the main reasons for spectacular bank failures like that of the UK-based Barings Bank. Similar instance of failures like Bank of Karad and some other co-operative banks feature in India as well.

According to the RBI's Basel II compliance guidelines, banks are required to manage the market risks in their books on an ongoing basis and ensure that the capital requirements for market risk are being maintained on a continuous basis, i.e. at the close of each business day.

The software product, Market Risk System (MRS), by the IT company Aurovision, helps banks monitor and manage their market exposures to securities, derivatives and options open positions on a daily basis.

Vikas Choudhury, managing director, Aurovision, says, "Even today, despite a lot of banks opting for core banking solutions, the systems for capital charge computation for market risk for compliance with RBI / Basel II guidelines remains predominantly manual. Some of the key challenges faced by the banks are trade position data availability, integrity, data warehousing, integration and manual processes for data calculation, analysis."

MRS, a trading platform independent product, addresses these issues as it helps banks integrate data from their treasury, trading systems and already has several of the leading systems integrated. It has been developed on RBI's recommended "standardised duration method" (SDM) to arrive at the capital charge. MRS software architecture provides comprehensive security measures and provides user administration, log reports and audit trials.

Computations of parameters such as modified duration are built into the system and the reporting interface can be customised according to each organisation's needs, in addition to the standard RBI / Basel II compliance reports.

According to the company, some banks like HDFC Bank, Kotak-Mahindra Bank and Yes Bank have deployed the product as a part of their risk mitigation solution.

By helping banks mitigate risks, MRS also helps in complying with the stringent Basel II norms. "We believe our product will help banks overhaul the inefficiencies in their current capital charge computation systems and with the ability to monitor the risks on a daily basis which in turn helps their managements in more informed decision making," Choudhury adds.