Treasury Overview

TREASURY OPERATIONS
IN BANKS
AN OVERVIEW
Presented by
CA. Rakesh Kaushik
Guest Faculty, IIBF
Email: rmkaushik@gmail.com
Cell: +91 98201 51005
INDIAN INSTITUTE OF BANKING & FINANCE

Treasury Operations (or Treasury
Management) include management of
an enterprise’s holdings in and
trading in government and corporate
bonds, shares, currencies, financial
futures, options and derivatives,
payment systems and the associated
financial risk management.

THE REGULATORY FRAME WORK
 RBI Guidelines
 FIMMDA Guidelines
 FEDAI Guidelines
 SEBI Guidelines
 Internal
 Investment Policy
 Risk Management Policy
 ALCO Directives
 Stipulated Investment Limits
INDIAN INSTITUTE OF BANKING & FINANCE 3
FINANCIAL MARKETS
Money Forex Mutual Capital Debt Insurance Commodity Pension

Market Market Funds Market Market Market Market Funds
Equity
Call/Notice Spot Equity G-Secs Bonds Life Bullion
Market
Central
Term Money Forward Debt Derivatives FI Bonds General Base Metals
Govt.
State
CMBs/T-Bills Derivatives Balanced PSU Bonds Health Energy
Govt.
Corporate
CDs Liquid Agricultural
Bonds
Livestock &
ICDs/IBPCs/PSLCs Index
Meat
CPs
Exchange
Traded
Repo/Tri-party Money
Repo Market
Bills Rediscounting
Fund of
Funds
NCDs (Maturity up
to 1 Year)

PARTICIPANTS IN THE FINANCIAL MARKET
BANKS
PRIMARY
DEPOSITORIES
DEALERS
FINANCIAL
REGISTRARS
INSTITUTIONS
CUSTODIANS MFs/PFs
FOREIGN
INSURANCE
PORTFOLIO
COMPANIES
INVESTORS
INVESTMENT
STOCK
(MERCHANT)
EXCHANGES
BANKERS
BROKERS

PLATFORMS USED IN DOMESTIC TREASURY
SECURITY PLATFORM
G-Sec Auction E-Kuber
Repo In G-Secs ➢ Recognized stock exchanges, or authorised electronic trading platform
(ETP)
➢ CROMS (Clearcorp Repo Order Matching System)
Repo In Corporate Debt ➢ Recognized stock exchanges, or an electronic trading platform (ETP)
duly authorised by
➢ F-TRAC (FIMMDA Trade Reporting and Confirmation System)
CD F-TRAC
CP F-TRAC
Tri-Party Repo TREPS(Tri Party Repo Dealing System)
Call/Notice/Term Money NDS-Call
G-Sec Trading NDS-OM/OTC/NDS-OM WEB/BSE,NSE,MCX
When Issued NDS-OM(OTC FOR EXISTING POSITION CLOSURE ALSO ALLOWED)
Rupee Derivative Trades ASTROID- Anonymous System for Trading in Rupee OTC Interest Rate
Derivatives

BASIC TREASURY FUNCTIONS
DOMESTIC OPERATIONS FOREX OPERATIONS
Maintenance of statutory Extending cover to foreign

reserves exchange trade transactions
Funding and managing forex assets

Managing liquidity
and liabilities
Trading and arbitrage Trading and Arbitrage

Providing hedge to forex risks-
Hedge and cover operations proprietary and for its
constituents
Mid/Back - Office function/s Mid/Back - Office function/s
Profitable deployment of funds Profitable deployment of funds
TRANSFORMATIONS IN BANK TREASURIES
EARLIER NOW
• Domestic Treasury • Integrated Global Treasury
• Managing Investible Surplus • Marketing for profitable investments
• Vanilla Investments • Structured Products
• Passive Investment Income • Active Trading Income
• Off-the shelf • Tailor-made solutions
• Just another Department • Strategic Business Unit
• Professional Management

THE NEED FOR AN INTEGRATED
TREASURY - REASONS
Liberalization of
Interest Rate Development of
Exchange
Deregulations Forex Market
Control
Advancements
Changes in the
in the
Dealing
Settlement
Environment
Systems

TREASURY FUNCTIONS
Reserve Management and Investment
• Meeting CRR/SLR obligations
• Having an optimum mix of investment portfolio
Liquidity and Funds Management
• Analysis of major cash flows
• Providing inputs to planning group on:
• Funding mix (currency, tenor and cost)
• Yield expected in credit and investment
Asset Liability Management and Term Money
• Determining the optimum size and growth rate of the Balance
Sheet
• Pricing the assets and liabilities
TREASURY FUNCTIONS
Risk Management
• Managing all market risks associated with the bank’s assets and liabilities
• Management of:
• Credit risks on treasury products
• Operations risks on payments and settlements
Transfer pricing
• Providing benchmark rates after assuming market risks to
• Various business groups and product categories
• For adopting the correct business strategy and
• To ensure optimal deployment of funds
Derivative products to hedge the bank’s exposure
• Developing
• Interest Rate Swaps
• Other Derivative Products
• Selling of such products to customers or other banks

TREASURY FUNCTIONS
Arbitrage
• Simultaneous buying and selling of the same type of assets
in two different markets in order to make risk-less profits
Capital adequacy
• Focuses on quality of assets
• Return on investments - The key criteria for evaluating the
efficiency of deployed funds
Monitoring Rating Migrations

• On an ongoing basis and
• Take timely corrective action

TREASURY FUNCTIONS
Canalizing and managing other asset
instruments into investment instruments
• Instruments resulting out of:
• Corporate Debt Restructuring
• Asset Reconstruction
• Pass Through Certificates
• Asset Backed Securitization (ABS)
• Mortgage Backed Securitization(MBS)
Minimizing the level of provisional

requirements due to NPIs
FRONT OFFICE DIVISIONS
Domestic Treasury
Non SLR
Money Market Reserve Maintenance G-Sec trading investments Equity MF/VCF
• Call Money
• SLR
• Term Money
• CRR
• TREPS
• Liquidity Mgt
• Market Repo
14
FOREX DESKS
IN TREASURY
INR
INR Spot Forward Crosses
Corporate Desk: Desk: Desk:
Desk: Market Market To cover Currency
To quote rate making in making in the Futures:
to the USD/INR, USD/INR,
Corporate Arbitraging Forex
covering of covering of and Research
branches and Corporate flows,
take the Corporate jobbing Proprietary
flows and flows ,
Forex arbitraging and trading
reporting Proprietary
trading and Proprietary
Proprietary trading
trading

Call/Notice
Money
Market
Repo/
Term Repo
Tri-Party
Repo
Borrowing/
Liquidity Lending
Management in
Export
Refinance
Overnight
Liquidity
Adjustment
Marginal Facility
Standing
facility

Investment in
• Govt.
Securities
• State
Development
Loans
SLR/CRR
Management
Management Generation of
of Liquidity
investments through
over & above Repo/Tri-
SLR Party Repo
Requirements Market

Certificates of
Deposit
ICDs/Inter-
Bank Commercial
Participation Paper
Certificates Investing
and trading
in Money
Market
Instruments
Bills
Rediscounting Treasury Bills
Scheme

Corporate Commercial
Bonds Paper
Non SLR
instruments
Investment
and
trading in
Interest Interest
Rate Rate
Derivatives Futures

TREASURY
FOREX
CURRENCY USD/ INR GOLD STRUCTURED FORWARD RATE
TRANSACTIONS
PURCHASE/SALE FORWARDS PURCHASE/SALE PRODUCTS: AGREEMENTS
REPORTING
USD/INR OPTIONS SWAPS FUTURES
CROSS INTEREST RATE INTEREST RATE

CALL
CURRENCY PAIR SWAP FUTURES
CURRENCY
PUT CURRENCY SWAP
FUTURES
COMMODITY
FUTURES
INDEX FUTURES
INDIAN INSTITUTE OF BANKING & FINANCE STOCK FUTURES

EQUITIES AND COMMODITIES MARKETS
Functions Performed by Treasury
• Proprietary Trading in Equities
• Investment in Equities through QIP, IPOs, Mutual
Funds, Private Placement and through secondary
market.
• Equity Research
• Quoting prices for physical sale of gold and covering
the sales
• Offering forward contracts in gold to Jewellers for
hedging the price risk
Subject to RBI, SEBI and Listing Guidelines
EQUITIES AND COMMODITIES MARKETS
• Aggregate exposure of the bank to the Capital market

in all forms should not exceed 40% of its net worth as
on 31st March of previous year.
• Overall ceiling for direct investment in shares, CDs,
VCFs & units of equity-oriented mutual funds – 20% of
Important the Bank’s Net Worth.
• Ceiling for investment in units of Liquid schemes of
Regulatory Debt Oriented Mutual Funds-10% of the Bank’s Net

Worth.
• Ceiling for HFT portfolio – 20% of the Bank’s net worth
Ceilings or Rs. 400 crore, whichever is lower.
• Banks are not allowed to undertake arbitrage trading
and short-selling of shares.
• Investment in unlisted non-SLR securities not to
exceed 10% of total investment in non-SLR securities
as on 31st March of previous year.

ALTERNATE ASSETS
• Private Equity
• Venture Capital
Alternate • Securitization
Assets • Alternate
Investment
include Funds
investment • Other products
in like Credit Risk
and Credit
Derivatives
PORTFOLIO MANAGEMENT SERVICES
PMS may include

• Investment Management and custody
services to Provident & Pension Funds
• Offering advisory and investment
services to RRBs to manage their SLR
requirements
• Non-discretionary PMS and custody
services
TREASURY MARKETING
A Treasury should have a dedicated
Marketing Team for
• Interacting with Institutional and Corporate Clients
• Bringing new business flows for the treasury
• Marketing of Structured Products
• Marketing of Forex Products
• Marketing of all other treasury products
• Acting as link between branches, Customers and
Head Office
• Sharing market leads with various business groups
SOURCES OF PROFIT FOR TREASURY
SOURCES EXAMPLES/TYPES
Buying a 3 year 7% Corporate Bond financed by Deposits
Investments costing 6%.
Spreads Borrow short-term at 5% and deploy in CP yielding 6%

1. Exploitation of Market anomalies
2. Swapping low yield Bonds for high yield bonds with
Relative Value
same credit quality
1. Focus on short-term
2. Mostly directional trades
3. Buying 9.81% Government of India security 2018 at
Proprietary Trading Rs.116.50 at a yield of 8.40% in anticipation of the
yield falling to 7.70%, on fundamental/ technical)
grounds.
1. Portfolio Management Services
2. Structured Products
Customer Services 3. Plain Vanilla Products

SOURCES OF PROFIT FOR TREASURY
SOURCES EXAMPLES/TYPES
1. Exploitation of Differences in quotes-Currency
Arbitrage Arbitrage
2. Exploitation of pricing between the currency
pairs-Cross Currency Arbitrage
3. Using favourable interest rate differentials to
invest in a higher-yielding currency, and hedging
the exchange risk through a forward currency
contract-Covered Interest Rate Arbitrage
4. Changing a domestic currency carrying a lower
interest rate to a foreign currency offering a
higher rate of interest on deposits-Uncovered
Interest Rate Arbitrage
5. Taking positions in the same currency in the spot
and futures market-Spot-Future Arbitrage
ARBITRAGE-SIMPLE EXAMPLE
The stock of Company X is trading at $20
on the New York Stock Exchange (NYSE)
while, at the same moment, it is trading
for $20.05 on the London Stock Exchange
(LSE). A trader can buy the stock on the
NYSE and immediately sell the same
shares on the LSE, earning a profit of 5
cents per share. The trader could
continue to exploit this arbitrage until
the specialists on the NYSE run out of
inventory of Company X’s stock, or until
the specialists on the NYSE or LSE adjust
their prices to wipe out the opportunity.
TRIANGULAR ARBITRAGE EXAMPLE
As an Arbitrage Dealer, You have $5 million to invest.
You observe that three different institutions are quoting the following
currency exchange rates:
• Institution 1: Euros/USD = 0.894
• Institution 2: Euros/British pound = 1.276
• Institution 3: USD/British pound = 1.432
First, you would convert the $5 million to euros at the 0.894 rate, giving you 44,70,000 euros.
Next, you would take the 44,70,000 euros and convert them to pounds at the 1.276 rate, giving
you 35,03,135 pounds. Next, you would take the pounds and convert them back to U.S. dollars at
the rate of 1.432, giving you $50,16,489.
Your total risk-free arbitrage profit would be $16,489.

• A/360 (Actual by 360)
• A/365 (Actual by 365)
• A/A (Actual by Actual)
DAY COUNT
CONVENTIONS • 30/360 (30 by 360 -
American)
• 30/360 (30 by 360-
European)

DAY COUNT CONVENTION
Money Market Basis: Actual/365
Worldwide different currencies follow different conventions
• USD/CHF/EUR: Actual/360
• GBP/HKD/SGD (Commonwealth Nations): Actual/365
Money invested @10% for 365 days – yield at Actual/365 &

Actual/360
• 10% & 10.14%

DAY COUNT CONVENTION
➢ Bond basis: 30/360
➢ Broken Period Interest
➢ All months have 30 days
➢ 31st day is treated as 30th i.e. Broken Period (BP) is 29 days for deal done
on 30th/31st
➢ 28th Feb/ 29th Feb is treated as any other day i.e. BP is 27/ 28 days for deal
done on 28th/29th Feb
LIP Settlement Date BP
28 July 14 Aug 16
18 Sep 31 Oct 42
23 Feb 05 Mar 12
06 Jan 28 Feb 52
28 Feb 17 Mar 19

INTEREST PAYMENT FREQUENCY
➢ Annual/ Semi annual/ Quarterly
➢ Indian bond market follows SA coupon
payment frequency
➢ Which one would you like to buy – A bond with
annual coupon or a bond with SA coupon when
the coupon rates are same?
➢ Reinvestment – Do you see any RISK?
➢ What is SA equivalent of 10% annual rate of
interest?
➢ Remember Annual coupon is Simple but SA
coupon is Compound interest
YIELD OF BONDS
TYPES OF YIELD
• Coupon Yield:
• Coupon Payment / Face Value
• Current Yield:
• Annual coupon rate / Purchase price X100
• Yield to Maturity (YTM):
• Expected rate of return on a bond if it is held until its
maturity.
• Price of bond is the sum of the present values of all its
remaining cash flows.
YTM CALCULATION
Manual (Trial and Error) Method

• Involves taking a value for ‘r’ and solving the equation.
• Also uses Linear Interpolation Technique for finding exact ‘r’
Spread Sheet Method using MS Excel

• YIELD
(settlement,maturity,rate,price,redemption,frequency,basis)
YIELD CURVE SHAPES
Yield
Yield
NORMAL
FLAT
Term to Maturity
Term to Maturity
Yield Yield
HUMPED
INVERTED
Term to Maturity Term to Maturity

YIELD SPREAD
YIELD SPREAD
• Absolute Yield Spread
• Difference between the yield on two bonds or
bond sectors
• Relative Yield Spread
• Difference in yields as a percentage of the
benchmark yield
• Yield Ratio
• Ratio of the yield relative to the benchmark
yield
INTEREST RATE CONTRACTS
Forward Rate Agreements
• Buyer able to determine the underlying rate of interest for a specified period commencing on a specified
future date (the settlement date).
• No exchange of principal and settlement on the settlement date.
• Settlement amount is the difference between the contracted rate and the market rate prevailing on the
settlement date.
Interest Rate Swaps
• Exchange of interest obligations with the counterparty for a specified period without exchanging the
underlying (or notional) principal.
Interest Rate Caps & Floors
• Buyer able to fix maximum or minimum rate of interest.
• Writer of the contract pays the amount by which the market rate exceeds or is less than the cap rate or
the floor rate respectively.
• Combination of interest rate caps and floors creates structures like interest rate collar, cap spreads and
floor spreads.
Interest Rate Futures
• Standardised interest rate derivative contracts traded on a recognised stock exchange
• Involve Notional security/any other interest bearing instrument/an index of such instruments/interest
rates at a specified future date, at a price determined at the time of the contract.

EXCANGE RATE CONTRACTS
Forward Foreign Exchange Contracts
• Agreements to buy or sell fixed amounts of currency at agreed rates of exchange on
future date.
• Carried at fair value based on FEDAI rates or market quotations.
Cross Currency Swaps
• Agreements to exchange principal amounts denominated in different currencies.
• May also involve exchange of interest payments on one specified currency for interest
payments in another specified currency for a specified period.
Currency Options (including Exchange Traded Currency Option)
• Buyer gets the right but not an obligation, to buy or sell specified amounts of currency
at agreed rates of exchange on or before a specified future date.
• Payment of a premium is involved.
Currency Futures Contract
• Standardised contract traded on an exchange, to buy or sell a certain underlying asset
or an instrument at a certain date in the future, at a specified price.
• Underlying instrument is the rate of exchange between one unit of foreign currency
and the INR.
TYPES OF DERIVATIVE TRANSACTIONS
SALES
• Structuring and marketing of derivatives to customers to
enable them to hedge their market risks (both interest rate
and exchange risks), within the framework of regulations as
applicable from time to time.
TRADING
• On Bank’s own account mainly to generate profit from
short term fluctuations in price yields or implied volatility.
HEDGING
• Dealing in derivatives to hedge the risk embedded in some
of its Balance Sheet assets or liabilities.
NATURE & TERMS OF FRAs/IRSs
NATURE OF FRAs/IRSs
• TRADING
• HEDGING
SOME BENCHMARKS USED IN INDIA
• LIBOR-7 Maturities(Overnight/Spot Next, 1 Week, 1/2/3/6/12 Months) & 5
Currencies(USD, GBP, EUR, CHF and JPY)
• EURIBOR-5 Maturities(1 Week,1/3/6/12 Months) + Overnight known as Eonia
• MIFOR – 6 Maturities(Overnight, 1/2/3/6/12 Months)
• OIS – Floating leg linked to Overnight Index compounded daily over repayment period
• INBMK – Replaced by FBIL Benchmarks
• INCMT – Replaced by FBIL Benchmarks
TERMS
• Fixed Payable vs. Floating Receivable
• Fixed Receivable vs. Floating Payable
• Floating Payable vs. Fixed Receivable
• Floating Receivable vs. Fixed Payable
CLASSIFICATION OF INVESTMENT PORTFOLIO
Held to Maturity (HTM)
• Securities acquired by the banks with the intention to hold
them up to maturity
Available for Sale (AFS)
• Securities which do not fall within the HTM and HFT
categories
Held for Trading (HFT)
• Securities acquired by the banks with the intention to trade
by taking advantage of the short-term price/interest rate
movements
EXPECTATIONS FROM FRONT OFFICE
The Front Office Staff must have sound technical
knowledge and be well aware of
• Code of Conduct
• FEDAI
• FIMMDA
• Internal Limits
• RBI Guidelines & Limits
• Dealing Guidelines with Brokers
• Dealing Hours
• Requirements of Security & Confidentiality
• Staff Rotation & Leave Policy
• Customer/User Appropriateness and Suitability Policy
• FIMMDA/CCIL Guidelines
THE MID-OFFICE ROLE
Onsite risk measurement, monitoring and management reporting
Critical analysis of investment operations
Management of Market risks arising on account of:

• Interest rate movement
• Foreign exchange rate movement
• Commodity prices
• Equity prices
Preparation of liquidity ladder
Evolving hedging strategies for assets and liabilities
Interacting with the bank’s Risk Management Department on liquidity and market risk
Monitoring open currency positions
Calculating and reporting VAR
Stress testing and back testing of investment and trading portfolios
Marking open positions to market to assess unrealized gain and losses

THE BACK-OFFICE ROLE
Key Functions of Back-office
• Deal slip verification

• Generation and dispatch of interbank confirmations
• Monitoring receipt of confirmations from counterparty banks
• Monitoring receipt of confirmations of forward contracts
• Effecting/receiving payments
• Settlement through CCIL or direct/Nostro Accounts
• Monitoring receipt of forex funds in interbank contracts
• Statutory reports to the RBI
• Management of Nostro funds to advise latest funds position to
enable the Front Office to take the decision for the
surplus/shortfall of funds
• Reconciliation of Nostro/other accounts
• Monitoring approved exposure and position limits
• Accounting
SWIFT RELATED RBI GUIDELINES
 Strictly avoid the practice of direct creation of payment
messages in the Swift environment. Pass all payment
messages with necessary appropriate entries in the CBS /
accounting system.
 Straight through processing between CBS/Accounting
System and Swift messaging system a must.
 Users with administrative privileges not to have any
operational role and responsibility defined.
 Concurrent audit on daily basis for operations of users with
administrative privileges.
 Strict compartmentalization at all times between
maker/checker and verifier/approver.
 Limits for all corporate customers to be set and monitored
centrally by risk management function of the bank.
 Nostro balances to be kept at levels appropriate for the
business.
 Positive confirmation from the remitting bank before
effecting payment to individual beneficiaries.
 Introduction of an additional layer of preferably
centralised approval for all payment messages exceeding
a particular threshold.
 Nostro reconciliation on real time basis.
 Security Incident and Event Management (SIEM) tool to be
integrated with the concerned servers and consoles/PCs
connected to critical systems directly in its VLAN to
generate automatic alerts.
 Integration of Swift system with privileged user management
systems/identity and access management systems and
monitoring of logs through Security Operation Centre (SOC)
setup.
 Subscription to online monitoring services of correspondent
Banks.
 System to generate alerts on breach of any control
limits/any other unusual feature in the
transactions/messages.
 Auditing Swift/Nostro transactions for any anomaly by
sourcing the data in raw form from the originating system.

CASE STUDY OF SBI TREASURY OPERATIONS
Salient Features
• Advanced Treasury Infrastructure
• India's biggest and most powerful Treasury
• Contributes a major chunk of the total Money/Forex Market Turnover
• Correspondent relationship with over 700 banks across the world
Global Treasury divided in two parts

• Domestic Treasury (Global Markets)
• Overseas Treasury (Treasury Management Group)
Domestic Treasury is under Global Markets while overseas
Treasury (Treasury Management Group) is under IBG.
CASE STUDY OF SBI TREASURY OPERATIONS
Treasury functions include asset liability management, investments and
trading.
Global Markets also manages the bank’s position regarding statutory

requirements
Forex Treasury Operations

• Include both Interbank and Corporate Foreign Exchange markets
• Deal with all the major corporates and institutions located in India and abroad
Structured Product Desk of Global Markets structures and facilitates
execution of
• Derivatives including options
• Long term rupee-foreign currency swaps
• Rupee-foreign currency interest rate swaps
• Cross currency swaps
• Interest Rate Swaps

The process of planning, organizing, and
controlling asset and liability portfolio in terms of
volumes, maturities, rates, and yields in order to
minimize interest rate risk and maintain an
acceptable profitability level and protect the
capital.

ASSET AND LIABILITIES COMMITTEE(ALCO)
ALCO
• The group primarily
responsible for the asset
liability and risk management
of a bank.
• Devises broad strategies for
handling a bank’s many
competing needs over the long
run
• Monitors and manage a bank’s
inter-related risk exposures on
a daily basis.
• The focal point for
coordinating a bank’s multiple
activities to accomplish its
operating objectives.

ACTIVITIES OF ALCO
• Developing and maintaining ALM policies, processes

and related procedures
• Maintaining and executing a coordinated ALM
strategy to meet policy/risk objectives
TASKS • Maintaining the necessary analytic tools and
management systems
PERFORMED • Reviewing the annual forecast of assets

allocation/sources of funds with attendant return
BY ALCO and costs

• Documenting the current ALM strategy (investment
duration, debt issuance and type schedule,
liquidity goals and forecast)
• Reviewing performance of investment advisors and
portfolio performance

GOVERNANCE OF LIQUIDITY RISK MANAGEMENT
The Asset-Liability Management Committee (ALCO)
• The Asset-Liability Management Committee (ALCO) consisting of the
bank’s top management should be responsible for ensuring
adherence to the risk tolerance/limits set by the Board as well as
implementing the liquidity risk management strategy of the bank in
line with bank’s decided risk management objectives and risk
tolerance.
The Asset Liability Management (ALM) Support Group
• The ALM Support Group consisting of operating staff should be
responsible for analysing, monitoring and reporting the liquidity risk
profile to the ALCO. The group should also prepare forecasts
(simulations) showing the effect of various possible changes in
market conditions on the bank’s liquidity position and recommend
action needed to be taken to maintain the liquidity position/adhere
to bank’s internal limits.

ALCO MEETINGS
ALCO MEETING AGENDA
• Review the current and prospective liquidity positions
and monitor forecasts and short-term cash flow model
• Review outlook for interest rates and the economy
• Review performance of the investment portfolio
• Review status of the debt portfolio
• Review primary ALM risk objectives and performance
indicators
• Update and document the current ALM strategy
• Peruse the Structural Liquidity Statement and Statement
of Interest Rate Sensitivity and address non-compliance
issues, if any
MANAGEMENT TECHNIQUES FOR ALM
ALM TASK MANAGEMENT TECHNIQUE REMARKS
Casting of data in terms of two way
tables helps the bank to (i) determine
Gap Measurement Categorization Of Data maturity composition of both assets
and liabilities, (ii) measure the gap and
(iii)cumulative gap at each maturity
Interest rate forecasting permits the

Interest Rate Forecasting
Forecasting Techniques bank to monitor its spread by time
frame
Simulation and/or These techniques help the bank to

Projection Of Future Income project future income and measure the
Scenario Building bank’s vulnerability to alternative
interest-rate scenarios.
Optimization models can be used to
Portfolio Management
Linear Programming arrive at optimum investment portfolio
and optimum credit portfolio etc.
These models can help to arrive at
different balance sheet items : assets
Balance Sheet Management
Linear Programming side as well as liabilities side, both for
short term results and long term
INDIAN INSTITUTE OF BANKING
rewards. & FINANCE
THANK YOU
&
HAVE A NICE DAY

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TREASURY OPERATIONS

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Money Forex Mutual Capital Debt Insurance Commodity Pension

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Maintenance of statutory Extending cover to foreign

Funding and managing forex assets

Trading and arbitrage Trading and Arbitrage

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Monitoring Rating Migrations

INDIAN INSTITUTE OF BANKING & FINANCE

Minimizing the level of provisional

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

USD/INR OPTIONS SWAPS FUTURES

CROSS INTEREST RATE INTEREST RATE

INDIAN INSTITUTE OF BANKING & FINANCE STOCK FUTURES

• Aggregate exposure of the bank to the Capital market

Regulatory Debt Oriented Mutual Funds-10% of the Bank’s Net

INDIAN INSTITUTE OF BANKING & FINANCE

PMS may include

Spreads Borrow short-term at 5% and deploy in CP yielding 6%

INDIAN INSTITUTE OF BANKING & FINANCE

Your total risk-free arbitrage profit would be $16,489.

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Worldwide different currencies follow different conventions

Money invested @10% for 365 days – yield at Actual/365 &

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Manual (Trial and Error) Method

Spread Sheet Method using MS Excel

Term to Maturity Term to Maturity

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Critical analysis of investment operations

Management of Market risks arising on account of:

Evolving hedging strategies for assets and liabilities

Monitoring open currency positions

Calculating and reporting VAR

Stress testing and back testing of investment and trading portfolios

Marking open positions to market to assess unrealized gain and losses

INDIAN INSTITUTE OF BANKING & FINANCE

• Deal slip verification

INDIAN INSTITUTE OF BANKING & FINANCE

Global Treasury divided in two parts

Global Markets also manages the bank’s position regarding statutory

Forex Treasury Operations

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

• Developing and maintaining ALM policies, processes

PERFORMED • Reviewing the annual forecast of assets

BY ALCO and costs

INDIAN INSTITUTE OF BANKING & FINANCE

INDIAN INSTITUTE OF BANKING & FINANCE

Interest rate forecasting permits the