alm ppt-revised dr. a n
TRANSCRIPT
Bank of BarodaBank of BarodaA Presentation on Asset Liability A Presentation on Asset Liability
ManagementManagement
Classification of:Classification of:Assets & LiabilitiesAssets & Liabilities
Information System & ProcessInformation System & Process
ALM- What Banks are expected to do?
1. Currency wise GAP REPORTS.2. Currency wise Short Term DYNAMIC
LIQUIDITY Statement.3. EARNING AT RISK.
4. At fortnightly interval and of closing date September and March.
5. To include balance sheet and off-balance sheet items.
6. 100% coverage of assets and liabilities.7. DSB Return Report on SLR & IRS
ALM- Concepts
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.
ALM- Tools
Maturity Gap. Interest Rate Sensitivity Gap. Earning at Risk. Duration Gap. Modified Duration. Simulation. Value at Risk. Stress Testing.
ALM- Functions
Liquidity RiskInterest Rate Risk
Measurement Exchange RiskEquity Price Risk
Commodity Price Risk
Risk Identification
Management
Bucketing Norms
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 BucketsS.No. Liabilities Structural Interest Rate
1 Capital Perpetual (Over 5 years) Non-sensitive2 Reserves Perpetual (Over 5 years) Non-sensitive3 Deposits
I) Current Deposits Minimum Core; Core & Volatile Non-Sensitive
IV) CDs Residual Maturity Sensitive to Maturity4 Borrowings
I) Call & Short Notice Residual Maturity Sensitive to MaturityII) Inter Bank Term Loan Residual Maturity Sensitive to MaturityIII) Refinance Residual Maturity Sensitive to MaturityIV) Other Subordinated Debt Residual Maturity/ Option Sensitive to Maturity
5 Other Liabilities & ProvisionsI) Bills Payable 20%:80% Core & Volatile portion. Non-sensitiveII) Inter office Adjustment 1-14 Days Non-sensitive
IV) Others 20%:80% Non-sensitive6 Off-Balance Sheet Items
I) Line of Credit Expected Date of Disbursment i.e.1-14 daysII) Unavailed CC/OD Proportionately upto 1 year
IV) Repos 1-14 Days7 Bills Rediscounted As per Residual Maturity8 Swaps As per Residual Maturity Sensitive to Maturity9 Interest payable As per payable date
10 Others As per Residual Maturity or 20%:80%
III) LC/GuaranteeProportionately upto 90 days for LC and upto 1 year for Guarantee
Interest paid portion sensitive. Non-interest paid portion non-sensitive.
Minimum Core; Core & VolatileII) Savings
As per maturity of underlying asset/liabilityIII)Provisions Non-sensitive
III) Term Deposits Residual Maturity as per ALMAN(Overdue Deposits in 1-14 Days Bucket)
Residual Maturity (Overdue Deposits 1-14 Days Bucket)
Classification in to Buckets Cont.)
S.No. Assets Structural Interest Rate
1 Cash 1-14 Days Non-sensitive2 Balance with RBI As per Residual Maturity of NDTL Non-sensitive3 Balance with Other Banks
I) Current Accounts 20%:80% Non-sensitive
III) Term Deposits As per Residual Maturity As per Residual Maturity
5 AdvancesI)BP/BD As per Residual Maturity As per Residual MaturityII)CC/OD Minimum Core; Core & Volatile Change in BPLR.III)Term Loan As per Residual Maturity Fixed Rate maturity; Floating Rate-BPLR.
7 Fixed Assets Over 5 years Non-sensitive8 Other Assets
II)Leased Assets Over 5 years Sensitive to Cash FlowIII) Others As per Residual Maturity/20%:80% Non-sensitive
9 Reverse Repo Residual Maturity 1-14 Days 1-14 Days10 Swaps Residual Maturity Residual Maturity11 IRS Residual Maturity12 Interest Receivable Receivable Date13 Export Credit Refinance 1-14 Days
6 NPAsSub-standard(3-5 years); Doubtful/ loss.(Over 5 years)
Sub-standard(3-5 years); Doubtful/ loss.(Over 5 years)
4 Investments As per Residual Maturity
II) Money at Call & Short Notice
1-14 Days Sensitive to Maturity
I)Inter-Office Adjustment 1-14 Days Non-sensitive
As per Residual Maturity (Shares & MF-non-sensitive)
ALM-Functions(Cont.)
Tolerance Limits for SLR & IRS (BOB)
1 1 Day to 14 Days 15%2 15 Days to 28 Days 20% 20% of the Total Assets3 29 Days to 90 Days 40% 20% of the Cumulative Assets4 91 Days to 6 Months 60% 20% of the Cumulative Assets5 6 Months to 12 Months 60% 20% of the Cumulative Assets6 1 year to 3 years 45% 15% of the Cumulative Assets7 3 years to 5 years 40% 2.5% of the Cumulative Assets8 Over 5 years 20% 2.5% of the Cumulative Assets9 TOTAL 20%
Time BucketStructural Negative Gap
Limit % Interest Rate Sensitivity
( Negative Gap)S.No.
ALM-Functions(Cont.)
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
ALM-Sources of Data(Cont.)
Bifurcation of B/S: Rupee & Other Currencies
2 Current Deposits EEFC Deposits3 Term Deposits FCNR(B) & RFC
5 Other Liabilities ODTL-Inter Office Adjustment & Bills Payable.
4 Foreign Currency Loans
Reserves1 I) Satutory Reserves in Foreign Currency. II) Forex Revaluation Reserves
S.No.Items Deductions
Advances
Short Term Dynamic Liquidity Statement • Fortnightly for ending 90 days in three
buckets; 1-14; 15-28 & 29-90 Days.• Based on Inflow & Outflow
Increase in Liabilities i.e. Deposits & BorrowingsDecrease in Assets i.e. Advances & InvestmentsDecrease in Liabilities i.e. Deposits & BorrowingsIncrease in Assets i.e. Advances & Investments
Outflow
Inflow
SourcesRecovery Department, ASCROM, Treasury, COD. Deposit growth to be estimated based on trend & efforts
Additional Disclosure in Annual ReportSchedule-18 Notes on Accounts
S.No. Assets/Liabilities Maturity Pattern1 Deposits Domestic & Overseas, All Currencies2 Advances Domestic & Overseas, All Currencies3 Investments Domestic & Overseas, All Currencies4 Borrowings Domestic & Overseas, All Currencies5 Foreign Currency Assets Domestic & Overseas, FC Only6 Foreign Currency LiabilitiesDomestic & Overseas, FC Only
Maturity Pattern of Assets and Liabilities
Rupee Resouces RMDDFB & Overseas International Division
Certified by Central Statutory Auditors
Sources
Consolidated Prudential ReportingAs 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
REPORTINGSLR & IRS within one month to ALCO.To Board in ensuing meetingTo Sub-Committee of BoardTo 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.
ALM Strategy
• 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
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