Alm Ppt-revised Dr. A N

Bank of Baroda A Presentation on Asset Liability Management Classification of: Assets & Liabilities Information System & Process

ALM-

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

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

Risk Identification Measurement Management

Liquidity Risk Interest Rate Risk Exchange Risk Equity Price Risk Commodity Price Risk

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 Buckets S.No.

Liabilities

1 Capital 2 Reserves 3 Deposits I) Current Deposits

Interest Rate

Perpetual (Over 5 years) Perpetual (Over 5 years)

Non-sensitive Non-sensitive

Minimum Core; Core & Volatile

II) Savings

Minimum Core; Core & Volatile

III) Term Deposits

Residual Maturity as per ALMAN(Overdue Deposits in 1-14 Days Bucket) Residual Maturity

Non-Sensitive Interest paid portion sensitive. Non-interest paid portion non-sensitive. Residual Maturity (Overdue Deposits 1-14 Days Bucket) Sensitive to Maturity

Residual Residual Residual Residual

Sensitive Sensitive Sensitive Sensitive

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

Structural

IV) Repos Bills Rediscounted Swaps Interest payable Others

Maturity Maturity Maturity Maturity/ Option

20%:80% Core & Volatile portion. 1-14 Days

to to to to

Maturity Maturity Maturity Maturity

Non-sensitive Non-sensitive

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

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

1-14 Days As per Residual Maturity of NDTL

Non-sensitive Non-sensitive

20%:80%

Non-sensitive

1-14 Days

Sensitive to Maturity

As per Residual Maturity

4 Investments

As per Residual Maturity

As per Residual Maturity As per Residual Maturity (Shares & MFnon-sensitive)

5 Advances I)BP/BD II)CC/OD III)Term Loan

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

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

I)Inter-Office Adjustment

1-14 Days

Non-sensitive

II)Leased Assets III) Others Reverse Repo Swaps IRS Interest Receivable Export Credit Refinance

Over 5 years As per Residual Maturity/20%:80% Residual Maturity 1-14 Days Residual Maturity

Sensitive to Cash Flow Non-sensitive 1-14 Days Residual Maturity Residual Maturity

6 NPAs 7 Fixed Assets 8 Other Assets

9 10 11 12 13

Receivable Date 1-14 Days

ALM-Functions(Cont.)

Tolerance Limits for SLR & IRS (BOB) S.No.

Time Bucket

Structural Negative Gap Limit %

Interest Rate Sensitivity ( Negative Gap)

1 2 3 4 5 6 7 8 9

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

15% 20% 40% 60% 60% 45% 40% 20% 20%

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

ALM-Functions(Cont.) other limits in SLR (BOB)

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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

S.No.

Items

Deductions

1 Reserves

I) Satutory Reserves in Foreign Currency. II) Forex Revaluation Reserves

2 Current Deposits 3 Term Deposits 4 Advances

EEFC Deposits FCNR(B) & RFC Foreign Currency Loans

5 Other Liabilities

ODTL-Inter Office Adjustment & Bills Payable.

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

Sources

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

S.No. 1 2 3 4 5 6

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

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

REPORTING  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.

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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