Asset Liability Management

ALM and Fund Management
Jyoti Kumar Pandey Deputy General Manager & Member of Faculty College of Agricultural Banking, Pune
10/20/2013
College of Agricultural Banking, RBI, PUNE
What is Banking
Section 5(b) defines banking Accepting for the purpose of lending or investment of deposits or money repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise
Risk taking is an inherent function of banking - Allan Greenspan

10/20/2013 College of Agricultural Banking, RBI, PUNE
Banks get affected by

Actions of Central Banks Actions of the Government Domestic and International Disturbances Inflation
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Deregulation
Banks are now operating in a fairly deregulated environment and are required to determine on their own, interest rates on deposits and advances Intense competition for business involving both the assets and liabilities together with increasing volatility in the interest rates has brought pressure on the management of banks to maintain a good balance among spreads
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Risks Faced by Banks

Credit Risk Market Risk
Liquidity Risk Interest Rate Risk
Operational Risk
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Effects of Risk Factors

Loss of Market Value Loss of Reserves Loss of stakeholders confidence
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ALM
The ALM guidelines issued by RBI has been formulated to serve as a benchmark for banks which lack a formal ALM system Those who already have their existing system may fine tune their information and reporting system
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Purpose of ALM
Capture the maturity structure of the cash flows (inflows and outflows) in the Statement of Structural Liquidity Tolerance levels for various maturities may be fixed by the bank keeping in view banks ALM profile, extent of stable deposit base, nature of cash flows etc.
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ALM
ALM is about managing market risk and liquidity risk together Capital market exposure of banks is small Exchange risk is highly specialized Hence ALM is an integrated risk management approach for managing liquidity risk, interest rate risk
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The problem of mismatch

Mismatches in maturity Mismatches in interest rate How does bank makes the spread? Borrow short and lend long and keep the spread Maturity mismatch is the basis of profitability Risk management does not eliminate mismatch merely manages them
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The problem of mismatch

Interest Rate Risk Affects profitability Liquidity Risk May lead to liquidation General Strategy
Eliminate Liquidity Risk (not the mismatch) Manage Interest Rate Risk
Consciously create gaps
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Asset Liability Transformation

Banks are exposed to credit and market risks in view of the asset-liability transformation With liberalisation, banks operations have become complex and large , requiring strategic management
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ALM Pillars
ALM Information Systems ALM Organisation ALM Process
Applicable to Scheduled UCBs and Tier II UCBs For Tier II UCBs effective date is December 2008
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ALM Pillars
ALM Information systems
MIS Information availability Accuracy Adequacy Expediency
(Contd.)
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ALM Pillars
ALM Organisation
Structure and responsibilities Level of top management involvement
(Contd.)
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ALM Pillars
ALM Process Risk Parameters Risk Identification Risk Measurement Risk Management Risk Policies and Procedures, prudential limits and auditing, reporting and review
(Contd.)
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ALM Information Systems

ALM framework built on sound methodology with necessary information system back-up ALM to be supported by management philosophy and clearly states risk policies and procedures / prudential limits Banks may utlilise Gap Analysis or Simulation Important to have availability of timely, adequate and accurate information
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ALM Information Systems

ALM Data could be developed by following approach, in case UCBs do not have requisite information
Analyse behaviour of asset and liability products in sample branches that account for significant business (60-70 per cent) Based on this make rational assumption for the other branches
(Contd.)
UCBs have limited area of operations and hence it would be easier for them to make such assumptions and better access to data
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ALM Organisation
Board should have overall responsibility for management of risk
Board should decide risk management policy and procedure, set prudential limits, auditing, reporting and review mechanism in respect of liquidity, interest rate and forex risk
ALCO
Consisiting of banks senior management including CEO Responsible for adherence to the polices and limits set by Board Responsible for deciding business strategies (on asset liability side) in line with banks business and risk objectives
ALM Support Group

Consisting of operating staff Responsible for analysing, monitoring and reporting risk profiles to ALCO Prepare forecasts showing effects of various possible changes in market conditions affecting balance sheet and suggesting action to adhere to banks internal limits
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ALM Organisation
ALCO decision making unit responsible for
(Contd.)
Balance Sheet planning from risk-return perspective which includes management of liquidity, interest rate and forex risks Pricing of deposits and advances, desired maturity profile etc. Monitoring the risk levels of the bank Review of the results and progress of implementation of decisions made in previous meeting Future business strategies based on banks current view on interest rates To decide on source and mix of liabilities or sale of assets To develop future direction of interest rate movements To decide on funding mix between fixed and floating rate funds, wholesale vs. retails deposits, short term vs. long term deposits etc.
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ALM Organisation
(Contd.)
ALCO size would be dependent on the size of the UCB May comprise of
CEO or Secretary Chief of Investment / Treasury including those of forex, credit, planning etc. Head of IT if a separate division exists
UCBs may at their discretion may have Subcommittees and Support Groups
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ALM Process
Scope is
Liquidity Risk Management Interest Rate Risk Management Trading (Price) risk Management Funding and Capital Management Profit Planning and business Projections
UCBs, generally, are not exposed to forex risk
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ALM
Liquidity Risk
Interest Rate Risk
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Liquidity Risk
Arising due to
Over extension of credit High level of NPAs Poor asset quality Mismanagement Hot Money Non recognition of embedded option risk Reliance on few wholesale depositors Large undrawn loan commitments Lack of appropriate liquidity policy and contingent plan
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Liquidity vs. Earnings

Bank must be in a position to: Balance their need for liquidity with their need for earnings More liquid assets tend to provide lower return than do less liquid assets
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Assessing Liquidity Position

Assessing a banks liquidity position can be challenging An adequate position for one bank may not be sufficient for another A position considered adequate for a bank in one time period may not be so in another BANK SPECIFIC & DYNAMIC
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Liquidity risk-Manifestation
Funding risk
Need to replace net outflows due to unanticipated withdrawal/non-renewal of deposits
Time Risk
Need to compensate for non-receipt of expected inflows of funds-performing assets turning into non-performing assets
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Liquidity Risk - Measurement

Two methods are employed:
Stock approach - Employing ratios Flow approach - Time bucket analysis
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Liquidity Risk - Measurement

Liquidity Ratios
Volatile Liability Dependence Ratio
Volatile Liabilities minus Temporary Investments to Earning Assets net of Temporary Investments Shows the extent to which banks reliance on volatile funds to support Long Term assets
where volatile liabilities represent wholesale deposits which are market sensitive and temporary investments are those maturing within one year and those investments which are held in the trading book and are readily sold in the market
Growth in Core Deposits to growth in assets

Higher the ratio the better
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Liquidity Risk Measurement

Purchased Funds to Total Assets
(Contd.)
where purchased funds include the entire inter-bank and other money market borrowings, including Certificate of Deposits and institutional deposits
Loan Losses to Net Loans Loans to core deposits
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Liquidity Risk Measurement

Does not lead to proper assessment of liquidity gaps due to:
Illiquidity of liquid assets Their ready marketability Difficulty to convert easily into liquid cash with least loss of value from the previously quoted market rates
(Contd.)
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Liquid Assets to Total Assets

Liquid Assets to Total Assets
Show the percentage of liquid assets in the asset structure of the bank - 18-20%
Liquid assets generally are cash balances with RBI + balances with other banks + investments available for sale + money market instruments
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Liquid Assets to Total Deposits

Liquid Assets to Total Deposits
This ratio indicates extent of liquidity maintained by a bank for meeting the demand made by the depositorsSometimes taken as a measure of bank liquidity-2022%
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Loans to Deposits
Loans to Deposits
Loans to deposits ratio indicates the degree to which the bank has already used up its available resources to accommodate the credit needs of the customers A high loan deposit ratio indicates that a bank will have comparatively low liquidity
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Loans to Assets
Loans to Assets
This ratio indicates the percentage of illiquid assets to total assets A rise in this ratio would indicate lower liquidity
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Loans to Core Deposits

Loans to Core Deposits
Those deposits which are not subject to any large volatility Average level of previous years deposit is generally taken as core deposits This ratio helps in assessing level of deployment of core portion of deposits
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Loans to Investments
Loans to Investments
While loans provide higher returns compared to investments, these suffer from credit risk and are more illiquid than investments A proper mix of loans and investments keeping in view liquidity and yield considerations need to be fixed
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Cash Flow Approach

Preparing a structural liquidity by taking into account balance sheet on particular date and place in maturity ladder according to time buckets Identify the liquidity needs - to evolve methods to meet it Negative gaps in individual time buckets indicate the need. The need could be controlled by
prudential limits as also by regulating the basis of business structure/financial flexibility of banks
Regulatory Limit of 20% on outflows in first two time buckets
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RBI Guidelines on Liquidity Risk

Methodology prescribed in ALM System- Structural Liquidity Statement & Dynamic Liquidity Ladder are simple Need to make assumptions and trend analysis- Behavioural maturity analysis Variance Analysis at least once in six months and assumptions fine-tuned Track the impact of exercise of options & potential liquidity needs Cap on inter-bank borrowings & Call money
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SSL Layout
Structural Liquidity Statement Sch. UCBs
Circular Sept. 17, 2008 for Scheduled UCBs

More granular approach adopted by splitting first bucket of 1 14 days in SSL into Next Day, 2-7 days and 8 14 days Net cumulative negative mismatches during the Next Day, 2 7 days, 8 14 days and 15 28 days bucket should not exceed 5%, 10%, 15% and 20% of the cumulative cash outflows in the respective buckets Banks may undertake dynamic liquidity management and should prepare the SSL on daily basis to Top Management / ALCO SSL may be reported to RBI at fortnightly intervals within 10 days of the reporting Friday
Revised format would be applicable from January 01, 2009

UCBs in Tier II are also covered Scheduled UCBs to report structural liquidity position and interest rate sensitivity to RBI as part of OSS data

(Contd.)
Heads of Account A. Outflows
Classification into time bands
1.Capital, Reserves and Surplus 2. Demand Deposits (Current & Savings)
Over 5 year band Volatile and Core Deposits. Savings (10%) and Current (15%) are withdrawable on demand generally and hence volatile. Volatile portion in 1 day, 2 7 days and 8 14 days, depending upon the experience and estimates of the banks and rest (core portion) in over 1-3 years time band. It is only a benchmark if the system is better developed can classify based on behavioral instead of contractual maturity Respective maturity buckets Appropriate time bands can be given based on behavioral instead of contractual maturity. However, wholesale deposits (Deposits over Rs. 15 lakh should be shown in respective residual time band) Respective maturity buckets
3. Term Deposits
4. CDs 5. Other Liabilities i. Bills payable
Core component which could be estimated on the basis of past data and behavioral pattern in over 1 3 years time bucket. Balance in Day 1, 2 7 days and 8 14 days time band Respective time bands. Items not representing cash payables (Guarantees fees received in advance etc.) may be placed in over 5 years time band Respective Time bands of underlying assets
iii. Provisions other than for loan loss and dep. On investments 6. Export Refinance Availed

Heads of Account B. Inflows 1. Cash Day 1 bucket Excess balance over required CRR / SLR under Day 1 bucket. The statutory balances distributed in different time bands corresponding to the maturity profile of DTL with 14 days time lag Classification into time bands
(Contd.)
2. Balance with RBI / PSU banks / SCBs and DCCBs etc. 3.Balances with other banks
i. ii.
Current Account Money at Call & Short Notice
Non-withdrawable portion on stipulation of minimum balance in 1-3 years band and remaining balance in Day 1 bucket band. Respective residual maturity bands
4. Investments i. i. ii. iii. iv. v. Approved Securities PSU Bonds, CDs and CPs, Units of UTI (Close ended) etc. Equities of All India FIs etc. Units of mutual funds Securities in trading books Investment in subsidiaries Respective Residual time bands except amount required to be reinvested for maintaining SLR / CRR Residual maturity. Investment classified as NPAs in 3-5 years band (substandard) and over 5 years (doubtful) Listed shares in 2 7 days bucket with haircut of 50 %. Other shares in over 5 years bucket Day 1 bucket Day 1 bucket, 2-7days, 8-14 days, 15-28 days and 29 90 days according to defeasance period Over 5 years bucket
6. NPAs i. ii. Substandard Doubtful and Loss

3-5 years band Over 5 years band Over 5 years band
(Contd.)
7. Fixed Assets 8. Other Assets i. Intangible assets
Intangible assets and assets not representing cash flows may be shown in over 5 years bucket Assets created out of developments may be shown under respective maturity bucket on the basis of probable date of recovery
9. Contingent liabilities LCs / Guarantees (outflows)
10. Lines of credit committed i. Lines of credit committed to / from institutions and Export Refinance ii. Unavailed portion of cash credit / overdraft etc. Repo etc. Interest Payable
Day 1 bucket
Based on behavioral pattern and seasonal pattern arrive at potential availments and put under relevant maturity bucket up to 12 months Based on respective residual time bands Respective Time Band
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Liability on account of event cash flows CRR / SLR shortfall, wage settlement and any other contingency under respective maturity bands All overdue liabilities in Day 1, 2 7 days and 8 14 days bucket based on behavioral estimates Interest and installments from advances and investments which are due for less than one month 1-6 months time band Interest and installments from advances and investments which are over due for less than one month may be placed in Day 1, 2-7 days and 8 14 days based on behavioral pattern. Further, interest and installments due (before classification as NPAs may be placed in 29 days 3 months bucket if the earlier receivables remain uncollected
(Contd.)
Liquidity Risk Management for Tier 1 UCBs

Basic guidelines for liquidity management issued on September 17, 2008 Banks advised to prepare
Statement of Structural Liquidity and Statement of Short Term Dynamic Liquidity
To be prepared as on the last reporting Friday of March / June / September / December and submit to the Board within one month from the last reporting Friday First such submission to be made to the Board as on last reporting Friday of December 2008
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Liquidity Risk Management for Tier 1 UCBs (contd.)

Maturity profile of SSL into 8 buckets
i. 1-14 days ii. 15-28 days iii. 29 and up to 3 months iv. Over 3months and up to 6 months v. Over 6 months and up to 1 year vi. Over 1 year and up to 3 years vii. Over 3 years and up to 5 years viii.Over 5 years
Mismatches (negative gaps) during 1-14 and 1528 days time bands in normal course should not exceed 20 % of the cash flows in each time band
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Short Term Dynamic Liquidity Statement
i. 1-14 days ii. 15-28 days iii. 29-90 days
STDL required for securities in the trading book SLR investments / securities are generally not very liquid and lack depth and are therefore shown in the residual maturity bands corresponding to residual maturity
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Holding period not to exceed 90 days Cut loss limit is prescribed Defeasance periods are prescribed Time taken to liquidate the position on the basis of liquidity in the secondary market are prescribed Marking to market on a weekly basis
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Trading Book
Maintained distinctly from those required for complying with Statutory Reserve Requirements Subject to preconditions
Composition and volume clearly defined Maximum maturity / Duration of the portfolio restricted Holding period not exceeding 90 days Cut Loss prescribed Marked to market on a weekly basis
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Maturity Profile Liquidity for Tier 1 UCBs

Heads of Account A. Outflows Over 5 year band Volatile and Core Deposits. Savings (10%) and Current (15%) are withdrawable on demand generally and hence volatile. Volatile portion in 1-14 days and rest in over 1-3 years time band. It is only a benchmark if the system is better developed can classify based on behavioral instead of contractual maturity Respective residual time bands Appropriate time bands can be given based on behavioral instead of contractual maturity. However, wholesale deposits (Deposits over Rs. 15 lakh should be shown in respective residual time band) Respective Residual Time Bands Classification into time bands
1.Capital, Reserves and Surplus 2. Demand Deposits (Current & Savings)
3. Term Deposits
4. CDs 5. Other Liabilities i. Bills payable ii. Branch Adjustments iii. Provisions other than for loan loss and dep. On investments
1-14 days time band Net credit balance in 1-14 days time band Respective time bands. Items not representing cash payables (Guarantees fees received in advance etc.) may be placed in over 5 years time band
6. Export Refinance Availed
Respective Time bands of underlying assets

(contd.)
Heads of Account B. Inflows 1. Cash 1-14days time band Excess balance over required CRR / SLR under 1-14 days band. The statutory balances distributed in different time bands corresponding to the maturity profile of DTL with 28 days time lag Classification into time bands
2. Balance with RBI / PSU banks / SCBs and DCCBs etc. 3.Balances with other banks i. ii. Current Account Money at Call & Short Notice
Non-withdrawable portion on stipulation of minimum balance in 14-3 year band and remaining balance in 1-14 days band. Respective residual maturity bands
4. Investments i. i. Approved Securities PSU Bonds, CDs and CPs, Units of UTI (Close ended) etc. Equities of All India FIs etc. Securities in trading books Respective Residual time bands except amount required to be reinvested for maintaining SLR / CRR Residual maturity. Investment classified as NPAs in 3-5 years band (substandard) and over 5 years (doubtful) Over 5 year band 1-14, 15-28 and 29-90 days time bands
ii. iii.

(contd.)
6. NPAs i. ii. Substandard Doubtful and Loss 3-5 years band Over 5 years band Over 5 years band
7. Fixed Assets 8. Other Assets i. ii. Branch Adjustments Leased Assets
Net debit balance in 1-14 days band. Intangible assets and assets not representing cash receivables in 5 years time band Interim cash flows under residual maturity time bands Under residual maturity time bands within 12 months based on behavioral and seasonal patterns
Contingent liabilities i. Unavailed portion of Cash Credit / Overdraft / Demand Loan component of working capital ii. Export Refinance Unavailed (inflow)
1-14 days band
LC Repo etc. Interest Payable
Based on past history Based on respective residual time bands Respective Time Band
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ALM for Tier II UCBs

Similar to what prescribed to Scheduled UCBs Initially at least 60% of assets and liabilities to be covered and remaining 40% on assessment basis only 100% coverage by April 01, 2010 Statements required to be prepared
Statement of Structural Liquidity Statement of Interest Rate Sensitivity Short-Term Dynamic Liquidity Statement
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ALM for Tier II UCBs SSL

To be prepared, to start with, as on last reporting Friday of March / June / September / December To be put up to the ALCO / Top Management within a month from the close of the last reporting Friday Reporting on a fortnightly basis from December 2008 (intended) Maturity profile of SSL into 8 buckets
i. 1-14 days ii. 15-28 days iii. 29 and up to 3 months iv. Over 3months and up to 6 months v. Over 6 months and up to 1 year vi. Over 1 year and up to 3 years vii. Over 3 years and up to 5 years viii.Over 5 years
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ALM for Tier II UCBs SSL

(contd.)
Mismatches in cash flows to be kept at minimum Initially for 1-14 and 15-28 days it may not exceed 20% normally In case banks wishes to operate on a higher limit, it could be done with approval of the Board / Management Objective of RBI is to enforce tolerance level strictly with effect from April 01, 2010
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ALM for Tier II UCBs SIRS

Only rupee assets, liabilities and off-balance sheet positions to be reported Statement to be prepared as on last Friday of March / June / September / December To be submitted to ALCO / Top Management within one month of reporting Friday To be placed before the Board in its next meeting Banks expected to move over to monthly reporting system from April 01, 2010
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Maturity profile of SIRS into 7 time bands
i. Up to 3 months ii. Over 3months and up to 6 months iii. Over 6 months and up to 1 year iv. Over 1 year and up to 3 years v. Over 3 years and up to 5 years vi. Over 5 years vii. Non-sensitive
(contd.)
Gap is the difference between Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) If RSA > RSL = +ve Gap Bank benefits if interest rate goes up If RSA < RSL or RSL > RSA = -ve Gap Bank benefits if interest rate goes down
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(contd.)
Banks to set prudential limits on individual gaps with the approval of the Board The prudential limits should have a bearing on the Total Assets, Earning Assets or Equity Banks need to work out Earnings at Risk (EaR) i.e. 20 30% of the last years NII or Net Interest Margin based on their views of interest rate movements After sufficient experience is gained by the UCB in ALM, RBI may consider introduce capital adequacy for market risk
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ALM for Tier II UCBs STDS

To be prepared as on each reporting Friday To be put up to the ALCO / Top Management within 2-3 days from the close of the reporting Friday
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ALM for Tier II UCBs Other Issues

SSL and SIRS could be reported through OSS
Communication to be issued
All the three ALM Statements may be put up to the ALCO as on last Friday of December 2008
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Some points
Break the beyond 5 year bucket into financial and non-financial The sum of all the gaps in the structural liquidity may or may not be zero The cumulative gaps also called forward payment structure Why is the forward payment structure significant? Stress testing
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Cumulative Gaps
0d-14d 14d-28d 28d- 3m 3m-6m Cash Inflow Cash Outflow Gap Gap % Cumulative Gap Cum Gap % 195 180 15 15 7.69% 210 240 -30 -15 230 261 -31 -46 250 285 -35 -81 6m-1y 295 322 -27 -108 1y - 3y 375 445 -70 -178 3y - 5y Above 5y 430 480 -50 -228 525 560 -35 -6.67% -263 -50.10%
7.69% -14.29% -13.48% -14.00%
-9.15% -18.67% -11.63%
-7.14% -20.00% -32.40% -36.61% -47.47% -53.02%
Forward Payment Structure indicates future liquidity position Long term strategic approach needed to correct an increasingly negative FPS
Dynamic Liquidity Gap Analysis

Tracking cash flow on a short term time horizonchanges on account of fresh business are interpolated in the projections
RBI has asked banks to monitor short term liquidity on a dynamic basis over time horizon spanning from 1-90 days
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Short-Term Dynamic Liquidity Statement

Main focus on short term mismatches
1-14days 15-28 days 29-90 days
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Dynamic Liquidity Analysis

(Amount Rs. Crore)
OUTFLOWS Net increase in loans and advances Net increase in investments TOTAL OUTFLOWS INFLOWS Net cash position Net increase in deposits(less CRR) Refinance Total Inflows Mismatch(Inflows-Outflows) Mismatch as a % of Total Outflows 50 619 60 729 (-)496 (-)40.49% 1-90 days 950 275 1225
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Reasons for Interest Rate Risk

On account of asset transformation
Many deposits are used for one big loan
Periodical review of assets and liabilities Due to mismatches between maturity / repricing dates as well as maturity amounts between assets and liabilities Depositors and borrowers may pre-close their accounts
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RSA and RSL

Rate Sensitive Assets (RSA) Assets whose value is dependent on current interest rate Risk Sensitive Liabilities (RSL) Liabilities whose value is dependent on current interest rate
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Gap / Mismatch Risk

Arises on account of holding RSA and RSL with different principal amounts, maturity / repricing rates Even though maturity dates are same, if there is a mismatch between amount of assets and liabilities it causes interest rate risk and affects NIM
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Interest Rate Risk

Assessed by Gap Report Gaps between RSA and RSL Asset / Liabilities are rate sensitive if:
Within the time interval under consideration there is a Cash Flow
Repayment of term loans
Interest rate resets / reprices

Change in interest rate in CC account, Term Loans before maturity
RBI changes interest rates

Interest on Savings Bank Deposits, CRR balance etc.
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Interest Rate Risk

Assessed by Gap Report Gaps between RSA and RSL Gaps may be identified in the following time bands:
Upto 3 months Over 3 months and upto 6 months Over 6 months and upto 1 year Over 1 year and upto 3 years Over 3 years and upto 5 years Over 5 years Non-sensitive
(contd.)
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Interest Rate Risk
(contd.)
Immediate impact of changes is on banks profit by change in its spread NII

NII gives the earning perspective
Long term impact is change in its MVE or Net Worth

As marked to market value of banks asset liabilities, off-balance sheet positions get affected Gives the economic value perspective
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Interest Rate Risk
(contd.)
Each bank to set its prudential limits on individual gaps with approval of Board Prudential limits set with respect to bearing on Total Assets, Earning Assets or Equity Banks may work out their Earnings at Risk 2030% of last years NII or NIM
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Interest Rate Sensitivity

Heads of Account A. Liabilities Non Sensitive Non Sensitive Classification into time bands
(Contd.)
1.Capital, Reserves and Surplus 2. Current Deposits 3. Savings Bank Deposits 4. Term Deposits and CDs 5. Borrowings Fixed 6. Borrowings Floating 7. Borrowings Zero Coupon 8. Borrowings from RBI 9. Refinance from other Agencies
Sensitive to the extent of interest paying (core) portion. Include in 3-6 months time band. Non interest part in non-sensitive band Sensitive. In different time bands based on residual term of maturity Sensitive. In different time bands based on residual term of maturity Sensitive. Distributed to appropriate time bands that refers to resetting dates Sensitive. In different time bands based on respective maturity band Upto 3 months time band Fixed Rate As per maturity Floating Rate Reprices when interest rate is reset Non-Sensitive
10. Other Liabilities & Provision Bills payable, Branch Adjustments, Provisions, Others 11. Repos / Bill Rediscounted
Sensitive. Reprices on maturity and should be distributed to respective maturity bands College of Agricultural Banking, RBI, PUNE

Heads of Account B. Assets 1.Cash 2. Balance with RBI 3. Balance with other banks i. Current Accounts ii. Money at Call and Short Notice, Term Deposits and other placements 4. Investments (performing) i. Fixed Rate / Zero Coupon ii. Floating Rate 5. Share of All India FIs, other cooperatives / Units of UTI 6. Advancers (performing) i. Bills purchased and discounted ii. Cash Credits / Overdrafts / Loans repayable on demand and Term Loans Non Sensitive Interest portion in 3-6 months time band. Balance is non sensitive Classification into time bands
(Contd.)
i. ii.
Non sensitive Sensitive on maturity. Amount distributed in different time bands
i. ii.
Sensitive on maturity Sensitive at next repricing date
Non Sensitive
i. ii.
Sensitive on maturity Sensitive may be shown in 3+6 months band

Heads of Account 7. NPAs (Advances & Investments) i. Substandard ii. Doubtful and Loss 8. Fixed Assets 9. Other Assets i. Inter-Office Adjustments ii. Leased Assets iii. Others Classification into time bands
(Contd.)
i. ii.
Over 3-5 years time band Over 5 year time band
Non Sensitive
i. ii. iii.
Non Sensitive Sensitive on cash flows. Distributed in respective maturity bands corresponding to cash flow dates Non Sensitive
10. Reverse Repos, Swaps, Bills Rediscounted

11. Other products (Interest Rate) i. Swaps ii. Other
Sensitive on maturity
i. ii.
Sensitive. Should be distributed under different bands with reference to maturity Should be suitably classified as and when introduced
Gist
Scheduled UCBS and Tier II UCBs
Have 3 pillars I n place
ALM Information Systems ALM Organisation ALM Process
Prepare 3 statements
Statement of Structural Liquidity (quarterly) Short Term Dynamic Liquidity Statement (fortnightly) Statement of Interest Rate Sensitivity (quarterly)
Review of Statements by ALCO / Top Management To report from last reporting Friday of December 2008 SIRS to be moved to monthly reporting by April 01, 2010 SSL to be fortnightly basis from December 2008
Gist
Scheduled UCBs already reporting SSL and SIRS through OSS For Tier II UCBs separate communication to follow
(contd.)
10/20/2013
Gist
Tier I UCBs
Prepare 2 Statements
Statement of Structural Liquidity (quarterly) Statement of Short Term Dynamic Liquidity (quarterly)
(contd.)
To be put up to the Board as on last Friday of December 2008 For reporting through OSS separate communication to follow
10/20/2013
Thank You
10/20/2013

Asset Liability Management

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ALM and Fund Management

College of Agricultural Banking, RBI, PUNE

Risk taking is an inherent function of banking - Allan Greenspan

Banks get affected by

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

Risks Faced by Banks

College of Agricultural Banking, RBI, PUNE

Effects of Risk Factors

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

The problem of mismatch

College of Agricultural Banking, RBI, PUNE

The problem of mismatch

College of Agricultural Banking, RBI, PUNE

Asset Liability Transformation

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

ALM Information Systems

College of Agricultural Banking, RBI, PUNE

ALM Information Systems

College of Agricultural Banking, RBI, PUNE

ALM Support Group

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

UCBs, generally, are not exposed to forex risk

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

Liquidity vs. Earnings

College of Agricultural Banking, RBI, PUNE

Assessing Liquidity Position

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

Liquidity Risk - Measurement

College of Agricultural Banking, RBI, PUNE

Liquidity Risk - Measurement

Growth in Core Deposits to growth in assets

College of Agricultural Banking, RBI, PUNE

Liquidity Risk Measurement

Loan Losses to Net Loans Loans to core deposits

College of Agricultural Banking, RBI, PUNE

Liquidity Risk Measurement

College of Agricultural Banking, RBI, PUNE

Liquid Assets to Total Assets

College of Agricultural Banking, RBI, PUNE

Liquid Assets to Total Deposits

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

Loans to Core Deposits

College of Agricultural Banking, RBI, PUNE

College of Agricultural Banking, RBI, PUNE

Cash Flow Approach

Regulatory Limit of 20% on outflows in first two time buckets

College of Agricultural Banking, RBI, PUNE

RBI Guidelines on Liquidity Risk

College of Agricultural Banking, RBI, PUNE