The correct answer is C.

Reputational risk is the potential for negative publicity, public perception, or uncontrollable events to adversely impact a company's reputation, thereby affecting its revenue. In the context of the question, New Savings Bank has outsourced its IT services to Novel IT Service company (NIS), which has been under public scrutiny for legal violations and poor service delivery. These issues have the potential to negatively impact the bank's reputation if they become associated with NIS's negative public image. This could lead to loss of customer trust, which could in turn lead to loss of customers and revenue. Therefore, the bank is most likely exposed to reputational risk.

Choice A is incorrect. Outsourcing risk refers to the potential negative impacts that can arise from an organization's decision to outsource certain tasks or services. While New Savings Bank is indeed outsourcing its IT services, the question specifically asks about the type of risk associated with NIS's legal violations and poor service delivery, which falls under reputational risk rather than outsourcing risk.

Choice B is incorrect. Credit risk pertains to the possibility of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations. In this scenario, there is no mention of any loans or credit agreements between New Savings Bank and NIS, hence credit risk does not apply here.

Choice D is incorrect. Concentration risk refers to the potential for losses to occur due to heavy investment in a particular asset class, sector, region or other area of exposure without adequate diversification. In this case scenario, there isn't any indication that New Savings Bank has heavily invested in one particular area without sufficient diversification; thus concentration risk does not apply here.

Things to Remember

• Reputational risk can have a significant impact on a company's brand value and can lead to long-term consequences such as loss of customers, revenue, and trust.
• Outsourcing risk involves the potential negative impacts that can arise from an organization's decision to outsource certain tasks or services, such as loss of control, quality issues, and dependency on third-party vendors.
• Credit risk is the risk of financial loss resulting from a borrower's failure to repay a loan or meet contractual obligations, and it is a key consideration in lending and investment activities.