mbfi risk management
TRANSCRIPT
-
7/23/2019 MBFI Risk Management
1/13
MBFI
Risk Management in Banks
-
7/23/2019 MBFI Risk Management
2/13
Risks on a Banks Balance Sheet
Liquidity Risk
Credit Risk
Market Risk
Operational Risk
-
7/23/2019 MBFI Risk Management
3/13
Liquidity Risk
CASA
ithdra! a"le on demand
Core portion # $olatile portion
F%s & 're&Mature !ithdra!al
Loans ( in)lo! only on maturity
Cash Credit ( in)lo! unpredicta"le
Liquidity risk inherenton a commercialbanks balance sheet
-
7/23/2019 MBFI Risk Management
4/13
Issues in Liquidity Management
%ay&to&%ay liquidity management
Su))icient cash in the $aults to meet
!ithdra!als *depositors and Cash Credit+ Maintenance o) CRR
In$esting day&to&day surplus
Borro!ing to co$er day&to&day shortages
'otential, un)oreseen liquidity crunch
-
7/23/2019 MBFI Risk Management
5/13
Managing liquidity risk
Cash in $aults
Liquid assets *SLR+ &- Bills # .OI/ S%L
Call Money
RBI Repos # Re$erse Repos
CBLO
Repos !ith other Banks # FIs
Liquidity management is a trade-off
between need for liquidity and return
-
7/23/2019 MBFI Risk Management
6/13
Call Money Market
O$ernight )unds , deposits
'articipants &Banks # 'rimary %ealers
%emand And Supply 0
-emporary surpluses , de)icits o)"anks and '%s
-
7/23/2019 MBFI Risk Management
7/13
Characteristics o) Call Money Market
Clean Lending *!ithout any security "acking+
In the )orm o) an o$ernightdeposit
Interest rates & determined "y the market )orces 1olatile 0 !ide )luctuations e$en during the day
Inter$ention o) RBI through LAF/ OMO
Contracted o$er the telephone 2igh 1alue transactions
Brokers not allo!ed
-
7/23/2019 MBFI Risk Management
8/13
-reasury Bills
Short -erm %e"t o) .o$ernment o) India &Maturityless than a year
Issued
through RBI at a discount to )ace&$alue and redeemed at F 1
)or 34/ 456 days and 789 days
"y auction .ood secondary market
.ood instrument )or cash management
-
7/23/2019 MBFI Risk Management
9/13
.o$ernment %e"t
1ery Large requirements o) .OI e$ery year RBIs role 0 ad$ise/ issue management and
registrar
Forms 0 %&Mat 0 S.L Balances *maintained "yRBI+ # C&S.L *Constituent S.L+ throughintermediaries
Coupons0 semi&annual/ :ero/ )loating rate Inde;ed Bonds Issued thro auctions 0 normal or price auctions State %e$elopment Bonds ( Bonds issued "y
State .o$ernments through RBI
-
7/23/2019 MBFI Risk Management
10/13
Repos and Re$erse Repos
Repurchase agreement , R's Buy&Backs, Ready For!ard
Com"ination o) a Ready -ransaction and a For!ard %eal Simultaneous sale o) an asset *today+
And an agreement *contract+
-o repurchase the same asset on a )uture date at a price )i;edtoday
-!o legs Sale
.i$e the asset and recei$e rupees
-itle passes on
-
7/23/2019 MBFI Risk Management
11/13
RBI and the Money Market
RBI inter$ention and signaling through the money market
RBI Re$erse Repo&
sells .OI "onds )rom o!n holding and "uys "ack
Implications
Borro!s )rom the market
Sucks up liquidity
In)luences interest rate s& > )loor?
RBI Repo
Buys .OI "onds into o!n holding and sells them "ack Implications
Lends to "anks , '%s
In@ects liquidity
In)luences interest rates ( >ceiling?
-
7/23/2019 MBFI Risk Management
12/13
RBI & LAF and OMO
LAF *Liquidity Ad@ustment Facility+
$ery day one to 7 days Repo # -erm repos
Both R'O and Re$erse Repo !indo!
're&announced interest rates *Monetary 'olicy+
1ery e))ecti$e )ine tuning o) money supply ,liquidity , interest rates
se)ul )or "anks in da&to&day liquidity management
OMO sale or purchase o) RBI on >o!n account?
In)luences the money supply , liquidity
Longer&term e))ect that LAF
-
7/23/2019 MBFI Risk Management
13/13
C B L Os
Collaterali:ed Borro!ing and Lending O"ligations
Separates the claims o) a lender and the repaymento"ligations o) the "orro!ers
))ecti$ely makes the Claims # O"ligations liquid
Mechanism to "orro! and lend )unds againstsecurities )or the desired period
'lat)orm )or the lenders and "orro!ers to cometogether
ot only )or "anks "ut also )or primary dealers/)inancial institutions/ mutual )unds/ non&"anking)inance companies and corporatesD