179 | Annual Report | 2023-2024 Note 41: Financial risk management (Cont'd) (C) Market risk (cont'd) (b) Price risk Exposure The Company’s price risk exposure arises from investments held and classified in the balance sheet either as fair value through other comprehensive income or at fair value through profit and loss. To manage the price risk arising from investments, the Company diversifies its portfolio of assets. As on balance sheet date there is no material investment in their balance sheet. Legal and operational risk Legal risk Legal risk is the risk relating to losses due to legal or regulatory action that invalidates or otherwise precludes performance by the end user or its counterparty under the terms of the contract or related netting agreements. The Company has developed preventive controls and formalised procedures to identify legal risks so that potential losses arising from non-adherence to laws and regulations, negative publicity, etc. are significantly reduced. As at 31 March 2024, there are no material legal cases pending against the Company. Based on the opinion of the Company’s legal advisors, the management believes that no substantial liability is likely to arise from these cases. Operational risk Operational risk framework is designed to cover all functions and verticals towards identifying the key risks in the underlying processes. The framework, at its core, has the following elements: 1. Documented Operational Risk Management Policy. 2. Well defined Governance Structure. 3. Use of identification and monitoring tools such as Loss Data Capture, Key Risk Indicators, BRisk Operation Grading of branches every quarter. 4. Standardised reporting templates, reporting structure and frequency. The Company has adopted the internationally accepted 3-lines of defence approach to operational risk management. First line – Field Operations, Central Operation & Product function and Credit vertical exercise & also evaluate internal compliance and thereby lay down/ calibrates processes & policies for further improvement. Thus, the approach is “bottom-up”, ensuring acceptance of findings and faster adoption of corrective actions, if any, to ensure mitigation of perceived risks. Second line – Independent risk management vertical supports the first line in providing deep analytics insights, influencing risk mitigation strategies and provides oversight through regular monitoring. All key risks are presented to the Risk Management Committee on a quarterly basis. Third line – Internal Audit conducts periodic risk-based audits of all functions and process to provide an independent assurance to the Audit Committee. Arohan Financial Services Limited Notes to financial statements for the year ended March 31, 2024 (Contd.) (All amounts in ` lakhs unless otherwise stated)
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