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A Presentation on Asset Liability Management Classification of: Assets & Liabilities Information System & Process
What Banks are expected to do?
• • • Currency wise GAP REPORTS. Currency wise Short Term DYNAMIC LIQUIDITY Statement. EARNING AT RISK.
• • • •
At fortnightly interval and of closing date September and March. To include balance sheet and off-balance sheet items. 100% coverage of assets and liabilities. DSB Return Report on SLR & IRS
Contractual Maturity & Residual Maturity. Core and Volatile Assets and Liabilities. Rate sensitive and Rate non-sensitive Assets and Liabilities.
Sensitive to Maturity Sensitive to change in rate Floating rate and fixed rate
Behavioral pattern of Assets and Liabilities.
Maturity Gap. Interest Rate Sensitivity Gap. Earning at Risk. Duration Gap. Modified Duration. Simulation. Value at Risk. Stress Testing.
Risk Identification Measurement Management
Liquidity Risk Interest Rate Risk Exchange Risk Equity Price Risk Commodity Price Risk
Structural Liquidity- 8 time buckets Interest Rate Sensitivity- 8 time buckets First & Second bucket of Structural Liquidity is clubbed into first bucket in IRS IRS has additional Rate Non-sensitive bucket Revised Proposal SLR: 1-7 & 8-14 days IRS: 5-7; 7-10 & 10+ years
Classification in to Buckets
S.No. Liabilities Structural Perpetual (Over 5 years) Perpetual (Over 5 years) Minimum Core; Core & Volatile Minimum Core; Core & Volatile Residual Maturity as per ALMAN(Overdue Deposits in 1-14 Days Bucket) Residual Maturity Residual Residual Residual Residual Maturity Maturity Maturity Maturity/ Option Non-sensitive Non-sensitive Non-Sensitive Interest paid portion sensitive. Non-interest paid portion non-sensitive. Residual Maturity (Overdue Deposits 1-14 Days Bucket) Sensitive to Maturity Sensitive Sensitive Sensitive Sensitive to to to to Maturity Maturity Maturity Maturity Interest Rate 1 Capital 2 Reserves 3 Deposits I) Current Deposits II) Savings III) Term Deposits IV) CDs 4 Borrowings I) Call & Short Notice II) Inter Bank Term Loan III) Refinance IV) Other Subordinated Debt 5 Other Liabilities & Provisions I) Bills Payable II) Inter office Adjustment III)Provisions IV) Others 6 Off-Balance Sheet Items I) Line of Credit II) Unavailed CC/OD III) LC/Guarantee 7 8 9 10 IV) Repos Bills Rediscounted Swaps Interest payable Others
20%:80% Core & Volatile portion. 1-14 Days
As per maturity of underlying asset/liability Non-sensitive 20%:80% Non-sensitive
Expected Date of Disbursment i.e.1-14 days Proportionately upto 1 year Proportionately upto 90 days for LC and upto 1 year for Guarantee 1-14 Days As per Residual Maturity As per Residual Maturity Sensitive to Maturity As per payable date As per Residual Maturity or 20%:80%
Classification in to Buckets Cont.)
S.No. Assets Structural 1-14 Days As per Residual Maturity of NDTL 20%:80% 1-14 Days As per Residual Maturity As per Residual Maturity As per Residual Maturity Minimum Core; Core & Volatile As per Residual Maturity Sub-standard(3-5 years); Doubtful/ loss.(Over 5 years) Over 5 years 1-14 Days Over 5 years As per Residual Maturity/20%:80% Residual Maturity 1-14 Days Residual Maturity Receivable Date 1-14 Days Non-sensitive Non-sensitive Non-sensitive Sensitive to Maturity As per Residual Maturity As per Residual Maturity (Shares & MFnon-sensitive) As per Residual Maturity Change in BPLR. Fixed Rate maturity; Floating Rate-BPLR. Sub-standard(3-5 years); Doubtful/ loss.(Over 5 years) Non-sensitive Non-sensitive Sensitive to Cash Flow Non-sensitive 1-14 Days Residual Maturity Residual Maturity Interest Rate 1 Cash 2 Balance with RBI 3 Balance with Other Banks I) Current Accounts II) Money at Call & Short Notice III) Term Deposits 4 Investments 5 Advances I)BP/BD II)CC/OD III)Term Loan 6 NPAs 7 Fixed Assets 8 Other Assets I)Inter-Office Adjustment II)Leased Assets III) Others Reverse Repo Swaps IRS Interest Receivable Export Credit Refinance
9 10 11 12 13
Tolerance Limits for SLR & IRS (BOB)
S.No. 1 2 3 4 5 6 7 8 9 Time Bucket 1 Day to 14 Days 15 Days to 28 Days 29 Days to 90 Days 91 Days to 6 Months 6 Months to 12 Months 1 year to 3 years 3 years to 5 years Over 5 years TOTAL Structural Negative Gap Limit % 15% 20% 40% 60% 60% 45% 40% 20% 20% Interest Rate Sensitivity ( Negative Gap)
20% of the Total Assets 20% of the Cumulative Assets 20% of the Cumulative Assets 20% of the Cumulative Assets 15% of the Cumulative Assets 2.5% of the Cumulative Assets 2.5% of the Cumulative Assets
other limits in SLR (BOB)
Cumulative Mismatch Limit upto 1 year is (50%) Inter Bank deposits should be within 10% of total deposits. Total bulk term deposits of Rs. 25 crores and above shall not exceed 20% of total term deposits. Limit on single bulk deposit is fixed at Rs. 750 crores. Limit for CDs fixed at Rs. 2500 crores. Purchased funds (CDs, term deposit of Rs. 25 Crs. & above and borrowings.) should not exceed 10% of total domestic assets as on previous year Core assets i.e. required CRR (5%), SLR (25%) & Loans should not exceed core deposits
Bifurcation of B/S: Rupee & Other Currencies
ALM-Sources of Data(Cont.)
S.No. 1 Reserves
I) Satutory Reserves in Foreign Currency. II) Forex Revaluation Reserves EEFC Deposits FCNR(B) & RFC Foreign Currency Loans ODTL-Inter Office Adjustment & Bills Payable.
2 Current Deposits 3 Term Deposits 4 Advances 5 Other Liabilities
Short Term Dynamic Liquidity Statement
• Fortnightly for ending 90 days in three buckets; 1-14; 15-28 & 29-90 Days. • Based on Inflow & Outflow
Inflow Outflow Increase in Liabilities i.e. Deposits & Borrowings Decrease in Assets i.e. Advances & Investments Decrease in Liabilities i.e. Deposits & Borrowings Increase in Assets i.e. Advances & Investments
Recovery Department, ASCROM, Treasury, COD. Deposit growth to be estimated based on trend & efforts
Additional Disclosure in Annual Report
Schedule-18 Notes on Accounts
Maturity Pattern of Assets and Liabilities Assets/Liabilities Maturity Pattern Deposits Domestic & Overseas, All Currencies Advances Domestic & Overseas, All Currencies Investments Domestic & Overseas, All Currencies Borrowings Domestic & Overseas, All Currencies Foreign Currency Assets Domestic & Overseas, FC Only Foreign Currency Liabilities Domestic & Overseas, FC Only
S.No. 1 2 3 4 5 6
Sources Rupee Resouces RMD DFB & Overseas International Division Certified by Central Statutory Auditors
Consolidated Prudential Reporting
As of September & March Closing Date
• Structural Liquidity Gap Report only. • ALM Dept.-Rupee B/S, Domestic Subsidiaries & Associate Banks. • International Division-DFB, Overseas Operations, Overseas Subsidiaries & Associate Banks. • ALM Dept.-Tally with final Consolidated B/S.
Interest rate risk
• A change in interest rate may have negative effect on net interest income • Earning perspective • Economic value perspective • Impact depends upon composition of assets and liabilities and their interest rate sensitivity.
Earning At Risk
• Reduction in Net Interest Income(NII) for one percent change in interest rate. • BOB has got a limit of Rs.75 Crores or 4% of Net Interest Income of previous year. • Change in NIM depends upon RSA-RSL. • Increasing Interest rate scenario positive gap is desirable and in decreasing interest rate scenario, negative gap is better.
Earning At Risk- Calculation
• Sum of Rate sensitive Assets and Liabilities, product based upto one year. • All Fixed rate Assets and Liabilities over one year and non-sensitive assets and liabilities are to be excluded. • Calculate interest income and expenditure for 100bps change in interest rate. • Change in income less change in expenditure will provide EaR
SLR & IRS within one month to ALCO. To Board in ensuing meeting To Sub-Committee of Board To Board in case of breach in tolerance limit. DSB within 10 days of last reporting fortnight of the month. Annual Report one month after closing date Consolidated Prudential Reporting two months after closing date.
ALM-RBI Guidelines for Reference
• BP.BC.8/21.040098/99 dated 10.02.1999 • BP 1913/21.04.103 dated 26.03.2002 • DBOD.WO.BP.7/21.04.098/2005-06 dated 17.04.2006
Mark to market
• • • • • • HTM – Mark to market at transfer AFS – Mark to market on B/S date HFT – Mark to market on B/S date Value with reference to market rate Market rate based Yield based
Value at Risk
• • • • Maximum amount of loss Specific holding period Specified level of confidence, 99%, 95% E.g. 2% loss on an asset of Rs 500 mean maximum loss of Rs 10 for 10 days holding period at 95% confidence level.
• Current deposits higher than • Savings deposits higher than • Time deposits • Assets yielding less than 5%, cash, NPA, CRR • Assets yielding 5% 8% • Assets yielding over 10% higher than