Professional Documents
Culture Documents
Fund Management
Jyoti Kumar Pandey
Deputy General Manager
&
Member of Faculty
College of Agricultural Banking, Pune
• Credit Risk
• Market Risk
Liquidity Risk
Interest Rate Risk
• Operational Risk
• 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
• ALM Organisation
Structure and responsibilities
Level of top management involvement
• ALM Process
• Risk Parameters
• Risk Identification
• Risk Measurement
• Risk Management
• Risk Policies and Procedures, prudential limits
and auditing, reporting and review
• Scope is
Liquidity Risk Management
Interest Rate Risk Management
Trading (Price) risk Management
Funding and Capital Management
Profit Planning and business Projections
•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
• 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
• Liquidity Ratios
Volatile Liability Dependence Ratio
Volatile Liabilities minus Temporary Investments to Earning
Assets net of Temporary Investments
Shows the extent to which bank’s 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
• 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
• Loans to Assets
This ratio indicates the percentage of illiquid assets to
total assets
A rise in this ratio would indicate lower liquidity
• 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
A. Outflows
2. Demand Deposits (Current & Volatile and Core Deposits. Savings (10%) and Current (15%) are withdrawable on
Savings) 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
3. Term Deposits 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)
4. CDs Respective maturity buckets
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
iii. Provisions other than for loan loss Respective time bands. Items not representing cash payables (Guarantees fees
and dep. On investments received in advance etc.) may be placed in over 5 years time band
6. Export Refinance – Availed Respective Time bands of underlying assets
B. Inflows
2. Balance with RBI / PSU banks / Excess balance over required CRR / SLR under Day 1 bucket. The statutory balances
SCBs and DCCBs etc. distributed in different time bands corresponding to the maturity profile of DTL with 14
days time lag
3.Balances with other banks
i. Current Account Non-withdrawable portion on stipulation of minimum balance in 1-3 years band and
ii. Money at Call & Short Notice remaining balance in Day 1 bucket band.
Respective residual maturity bands
4. Investments
i. Approved Securities Respective Residual time bands except amount required to be reinvested for maintaining
SLR / CRR
i. PSU Bonds, CDs and CPs, Units Residual maturity. Investment classified as NPAs in 3-5 years band (substandard) and
of UTI (Close ended) etc. over 5 years (doubtful)
ii. Equities of All India FIs etc.
Listed shares in 2 – 7 days bucket with haircut of 50 %. Other shares in over 5 years
iii. Units of mutual funds bucket
Day 1 bucket
iv. Securities in trading books
Day 1 bucket, 2-7days, 8-14 days, 15-28 days and 29 – 90 days according to
defeasance period
v. Investment in subsidiaries
Over 5 years bucket
8. Other Assets
i. Intangible assets Intangible assets and assets not representing cash flows may be shown in over 5 years
bucket
9. Contingent liabilities - Assets created out of developments may be shown under respective maturity bucket on
LCs / Guarantees (outflows) the basis of probable date of recovery
A. Outflows
2. Demand Deposits (Current & Volatile and Core Deposits. Savings (10%) and Current (15%) are withdrawable on
Savings) 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
3. Term Deposits 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)
4. CDs Respective Residual Time Bands
5. Other Liabilities
ii. Branch Adjustments Net credit balance in 1-14 days time band
iii. Provisions other than for loan loss Respective time bands. Items not representing cash payables (Guarantees fees
and dep. On investments received in advance etc.) may be placed in over 5 years time band
B. Inflows
2. Balance with RBI / PSU banks / Excess balance over required CRR / SLR under 1-14 days band. The statutory balances
SCBs and DCCBs etc. distributed in different time bands corresponding to the maturity profile of DTL with 28
days time lag
3.Balances with other banks
i. Current Account Non-withdrawable portion on stipulation of minimum balance in 14-3 year band and
ii. Money at Call & Short Notice remaining balance in 1-14 days band.
Respective residual maturity bands
4. Investments
i. Approved Securities Respective Residual time bands except amount required to be reinvested for
maintaining SLR / CRR
i. PSU Bonds, CDs and CPs, Residual maturity. Investment classified as NPAs in 3-5 years band (substandard) and
Units of UTI (Close ended) etc. over 5 years (doubtful)
ii. Equities of All India FIs etc.
Over 5 year band
iii. Securities in trading books
1-14, 15-28 and 29-90 days time bands
8. Other Assets
i. Branch Adjustments Net debit balance in 1-14 days band. Intangible assets and assets not representing
ii. Leased Assets cash receivables in 5 years time band
Interim cash flows under residual maturity time bands
Contingent liabilities - Under residual maturity time bands within 12 months based on behavioral and
i. Unavailed portion of Cash seasonal patterns
Credit / Overdraft / Demand
Loan component of working
capital
ii. Export Refinance – Unavailed 1-14 days band
(inflow)
INFLOWS
Refinance 60
Mismatch(Inflows-Outflows) (-)496
A. Liabilities
3. Savings Bank Deposits Sensitive to the extent of interest paying (core) portion. Include in 3-6 months time
band. Non interest part in non-sensitive band
4. Term Deposits and CDs Sensitive. In different time bands based on residual term of maturity
5. Borrowings – Fixed Sensitive. In different time bands based on residual term of maturity
6. Borrowings – Floating Sensitive. Distributed to appropriate time bands that refers to resetting dates
7. Borrowings – Zero Coupon Sensitive. In different time bands based on respective maturity band
11. Repos / Bill Rediscounted Sensitive. Reprices on maturity and should be distributed to respective maturity bands
B. Assets
2. Balance with RBI Interest portion in 3-6 months time band. Balance is non sensitive
9. Other Assets
i. Inter-Office Adjustments i. Non Sensitive
ii. Leased Assets ii. Sensitive on cash flows. Distributed in respective maturity bands corresponding
iii. Others to cash flow dates
iii. Non Sensitive
10. Reverse Repos, Swaps, Bills Sensitive on maturity
Rediscounted
11. Other products (Interest
Rate)
i. Swaps i. Sensitive. Should be distributed under different bands with reference to
ii. Other maturity
ii. Should be suitably classified as and when introduced
• Tier I UCBs
Prepare 2 Statements
Statement of Structural Liquidity (quarterly)
Statement of Short Term Dynamic Liquidity (quarterly)
To be put up to the Board as on last Friday of December
2008
For reporting through OSS separate communication to
follow