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

Thank you…