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 Liquidity Risk

Interest Rate Risk
Measurement Exchange Risk
Equity Price Risk
Management 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 Structural Interest Rate

1 Capital Perpetual (Over 5 years) Non-sensitive

2 Reserves Perpetual (Over 5 years) Non-sensitive
3 Deposits
I) Current Deposits Minimum Core; Core & Volatile Non-Sensitive
Interest paid portion sensitive.
II) Savings Minimum Core; Core & Volatile
Non-interest paid portion non-sensitive.
III) Term Deposits Residual Maturity as per ALMAN(Overdue Residual Maturity (Overdue Deposits 1-14
Deposits in 1-14 Days Bucket) Days Bucket)
IV) CDs Residual Maturity Sensitive to Maturity
4 Borrowings
I) Call & Short Notice Residual Maturity Sensitive to Maturity
II) Inter Bank Term Loan Residual Maturity Sensitive to Maturity
III) Refinance Residual Maturity Sensitive to Maturity
IV) Other Subordinated Debt Residual Maturity/ Option Sensitive to Maturity
5 Other Liabilities & Provisions
I) Bills Payable 20%:80% Core & Volatile portion. Non-sensitive
II) Inter office Adjustment 1-14 Days Non-sensitive
III)Provisions As per maturity of underlying asset/liability Non-sensitive

IV) Others 20%:80% Non-sensitive

6 Off-Balance Sheet Items
I) Line of Credit Expected Date of Disbursment i.e.1-14 days
II) Unavailed CC/OD Proportionately upto 1 year
Proportionately upto 90 days for LC and
III) LC/Guarantee
upto 1 year for Guarantee
IV) Repos 1-14 Days
7 Bills Rediscounted As per Residual Maturity
8 Swaps As per Residual Maturity Sensitive to Maturity
9 Interest payable As per payable date
10 Others As per Residual Maturity or 20%:80%
 Classification in to Buckets Cont.)
S.No. Assets Structural Interest Rate

1 Cash 1-14 Days Non-sensitive

2 Balance with RBI As per Residual Maturity of NDTL Non-sensitive
3 Balance with Other Banks
I) Current Accounts 20%:80% Non-sensitive
II) Money at Call & Short
1-14 Days Sensitive to Maturity
Notice
III) Term Deposits As per Residual Maturity As per Residual Maturity
As per Residual Maturity (Shares & MF-
4 Investments As per Residual Maturity
non-sensitive)
5 Advances
I)BP/BD As per Residual Maturity As per Residual Maturity
II)CC/OD Minimum Core; Core & Volatile Change in BPLR.
III)Term Loan As per Residual Maturity Fixed Rate maturity; Floating Rate-BPLR.
Sub-standard(3-5 years); Doubtful/ Sub-standard(3-5 years); Doubtful/
6 NPAs
loss.(Over 5 years) loss.(Over 5 years)
7 Fixed Assets Over 5 years Non-sensitive
8 Other Assets

I)Inter-Office Adjustment 1-14 Days Non-sensitive

II)Leased Assets Over 5 years Sensitive to Cash Flow

III) Others As per Residual Maturity/20%:80% Non-sensitive
9 Reverse Repo Residual Maturity 1-14 Days 1-14 Days
10 Swaps Residual Maturity Residual Maturity
11 IRS Residual Maturity
12 Interest Receivable Receivable Date
13 Export Credit Refinance 1-14 Days
 ALM-Functions(Cont.)
Tolerance Limits for SLR & IRS (BOB)
Structural Negative Gap Interest Rate Sensitivity
S.No. Time Bucket
Limit % ( Negative Gap)

1 1 Day to 14 Days 15%

2 15 Days to 28 Days 20% 20% of the Total Assets
3 29 Days to 90 Days 40% 20% of the Cumulative Assets
4 91 Days to 6 Months 60% 20% of the Cumulative Assets
5 6 Months to 12 Months 60% 20% of the Cumulative Assets
6 1 year to 3 years 45% 15% of the Cumulative Assets
7 3 years to 5 years 40% 2.5% of the Cumulative Assets
8 Over 5 years 20% 2.5% of the Cumulative Assets
9 TOTAL 20%
 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

S.No.
Items Deductions

1 Reserves I) Satutory Reserves in Foreign Currency.

II) Forex Revaluation Reserves

2 Current Deposits EEFC Deposits

3 Term Deposits FCNR(B) & RFC
4 Advances 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

Increase in Liabilities i.e. Deposits & Borrowings

Inflow
Decrease in Assets i.e. Advances & Investments
Decrease in Liabilities i.e. Deposits & Borrowings
Outflow
Increase in Assets i.e. Advances & Investments

Recovery Department, ASCROM, Treasury, COD.

Sources Deposit growth to be estimated based on trend &
efforts
Additional Disclosure in Annual Report
Schedule-18 Notes on Accounts

Maturity Pattern of Assets and Liabilities

S.No. Assets/Liabilities Maturity Pattern
1 Deposits Domestic & Overseas, All Currencies
2 Advances Domestic & Overseas, All Currencies
3 Investments Domestic & Overseas, All Currencies
4 Borrowings Domestic & Overseas, All Currencies
5 Foreign Currency Assets Domestic & Overseas, FC Only
6 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 • Assets yielding less
higher than than 5%, cash, NPA,
CRR
• Savings deposits • Assets yielding 5% -
higher than 8%

• Time deposits • Assets yielding over

10% higher than
Thank you…