Risk Management is the application of proactive strategy to plan, lead, organize, and control the wide variety of risks that are rushed into the fabric of an organization’s daily and long-term functioning. Like it or not, risk has a say in the achievement of our goals and in the overall success of an organization. Present paper is to attempt to identify the risks faced by the banking industry and the process of risk management. To achieve the objectives of the study data has been collected from secondary sources. Finally, it can be concluded that the banks should take risk more consciously, anticipates adverse changes and hedges accordingly; it becomes a source of competitive advantage, and efficient management of the banking industry. As depicted from the risks, the banks have to manage more types of risks in order to maximize the shareholders’ wealth. The most important categories of risks include credit risk, interest rate risk, liquidity risk and operational risk. Credit risk arises when a bank cannot get back the money from loans or investments. Interest rate risk arises when the market value of a bank asset, loan or security falls when interest rates rise. The solvency of the bank would be threatened when the bank cannot fulfill its promise to pay a fixed amount to depositors because of the decline in the value of the assets caused by increase in interest rate. Liquidity risk arises when the bank is unable to meet the demands of depositors and needs of borrowers by turning assets into cash or borrow funds when needed with minimal loss. Finally yet importantly, operational risk arises out of inability to control operating expenses, especially noninterest expenses such as salaries and wages. In a competitive environment, high operational expenses would jeopardize the bank’s prospects to survive.