Operational Risk (OR) management has got its due attention recently. The management of operational risk requires more intuitive power because there are several instances which cause higher losses even though their frequency is too low. While capital is important for any unexpected operational shocks, extremely vital for operational risk is avoidance management.

What determines how safe a bank is against operational failures is probably not the level of capital it holds, but how well managed it is.

There is nothing new about operational risk in banks. It is an old problem with a recent and crucial significance. The decade-old transformation of the banking industry through globalization, technology and consolidation may have lavished it not only with profit-making opportunities, but also with more opportunities for-and more severe consequences of-operational risk.

Based on the Basel Committee's definition, the RBI in its recent draft guidelines describes operational risk as "the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events" and recommends that all banks initially maintain a uniform capital charge on gross income under the Basic Indicator Approach.

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