At SBIFMPL, we screen the investment universe for applied negative and positive screeners at the time of investing and at the end of every month to ensure the portfolio meets the specific criteria laid out.
The risk department acts as an independent internal audit. It screens the portfolio against the specific negative and positive criteria laid out and checks for breaches. Breaches can be at the time of initial investment or subsequent to the investment. At the time of investment, the breach is rectified within 30 days by selling the position. Post investment the cause of the breach is first analysed. The breach could have occurred due to a change in the scoring criteria by the external agencies or an event occurring which has changed the score of the company. The process is to have an interaction with the investee company to understand the causes and any remedial action being taken as well as future mitigation strategies. Depending on the severity of the issues and the company response, portfolio action is determined.
All regulatory limits have zero tolerance and hence very stringent controls have been put in place to ensure compliance with the same. We have following two levels of control to check all limits pertaining to the investments made:
- Ex-ante control – Regulatory limits defined by SEBI and SID asset allocation limits are incorporated as hard limits in the front office system as a control to pre-empt the risk of a regulatory limit breach. There is a corresponding alert level defined for every regulatory hard limit. Some of the internal limits are also defined in the front office system as soft limits.
- Ex-post control – A second level control is exercised by the risk management team daily through the limit breach reports generated from the front office application.
Breaches, if any are flagged off as per the defined Breach escalation process laid down in the approved documented Risk Policy of the company.