3. • Enables the bank to make consistent investment, portfolio and
business decisions across its trading units and merchant units base
on risk-adjusted return and capital or an equivalent measure.
• It also facilitates better risk management and ensures that the risk
taken on various instruments is in line with the risk appetite of the
bank
Main Function of Risk manager in RMD, Union Bank of India is to:
• Prepare a consolidated activity report every day, which is submitted
to the heads of risk, head of treasury and IBD by covering:
• An overview of the FOREX, money market and fixed income securities
• Details of the trade undertaken and profit/loss in both domestic and
FOREX market
• Details of the limit breaches and exception reports
• Report on value and risk calculate for the FOREX, equity, and G-sec
• Details on CRR and SLR required and maintained.
• Counterparty exposure (money market), Intraday liquidity
• Duration and pv01 of portfolios (HTM, AFS & HFT)
• Value at Risk (HFT and AFS): Trading book g-sec/ Equity Forex
MID OFFICE
A good risk management policy builds
a sound framework for;
Feedback &
Improvement
Risk
Assessmen
t & Identify
Risk
Ranking
Compliance
Assessment
& Review
Action
Plan
DEFESEANCE STUDY
Defeasance study is done at UBI on a daily basis to check the
trader’s efficiency on the basis of the frequency of trading. It
helps analyze portfolio churning that is, how often the trader
moves his portfolio (sells/purchases equity and government
securities held in the HFT portfolio of the bank). The output is
obtained in days
4. MARKET RISK
• RMD is responsible for the critical functions of
independent risk monitoring, analysis, and reporting. It
monitors and reports stop loss limits, limit breaches and
summaries of bank’s aggregate exposures on a daily,
monthly and quarterly basis.
LIMIT MONITORING
MARKET
RISKInterest rate risk
In Bonds, IR
swaps, Forward
rate agreements
General Market
Risk
Yield Curve Risk
Credit Spread
Risk
FOREX Risk
Position Risk
-Daylight
Limit
-Overnight
Limit
GAP/Mismatc
h Risk
-AGL
-IGL
Equity price
Risk
Commodity
Risk
Option Risk
HTM
AFS
HFT
MTM on a daily basis, Monitoring 90-day hp,
Calculate MD, PV01 at security &portfolio level
MTM on a quarterly basis, Calculate MD,
PV01 at security &portfolio level
MTM on a periodical basis, Calculate MD, PV01
at security &portfolio level
BANKING BOOKS & TRAING BOOKS
Open Position limits
Daylight: Daylight open positions are exposures that
are opened in the course of the trading day and will
invariably be closed (squared) before the close of the
day.
NOOP: Overnight positions are positions carried over
from one trading day to the next. If the bank
chooses not to close positions at the close of
trading, it has an overnight exposure. It is monitored
on a real-time basis.
Stop Loss limits: It acts as a safety valve if something
starts to go wrong with a trade or a position. The
benefit of a stop-limit order is that the trader has
precise control over when the order should be filled.
5. • Estimate the expected cash flows.
• Determine the appropriate interest rate or interest rates that should be used to discount the cash flows.
• Calculate the present value of the expected cash flows.
FIXED INCOME VALUATION
Date CF Time PVCF Time*PVCF
07-09-19 9.9 1 9.27661 9.276611
07-09-20 109.95 2 103.027 206.05322
Sum 112.304 215.32983
Duration 1.91
MD 1.738
PV01 1.73
YIELD ANALYSIS
25 Bps 50 Bps 100 Bps
Yield Price of
Bond Yield
Price of
Bond
Yield Price of
Bond
10.15 99.62 10.4 99.18 10.9 98.32
If the yield of the bond
increases by 25 bps,
the price of the bond
reduces to 99.62. If
yield increases by 50
bps and 100 bps then
the price changes from
100.05 to 99.18 and
98.32 resp.
Stress Analysis
Security IGB 9.9 07/09/2020
Book value 13,37,175
Market value 13, 50,675
Profit 13500
25 Bps
Profit -5805
Impact 7695
50 Bps
Profit -11745
Impact 1755
100 Bps
Profit -23355
Impact 9855
M Duration 1.73
6. SDL ( State development loans): Valuation of SDL is
based on the yields published by FIMMDA for respective
tenors after adding 25 bps over YTM.
Corporate Bonds: To value corporate bonds involving
credit risk, FIMMDA fortnightly spread matrix is used
over and above the respective YTM for that particular
tenor
Equities: The quoted equity shares are valued at lower of
the close price in NationalStock Exchange (NSE) or
Bombay Stock Exchange (BSE).
Mutual Funds: The Mutual
Fund portfolio is valued at
respective NAVs
Preference Shares: The
valuation of preference
shares is done by using the
respective YTM curve and
adding the relevant risk
spread of the issuer for the
particular tenor.
Venture capital
Funds:Venture capital
Funds are valued at
respective Net Asset Values
(NAV).
Security Receipts:
Security Receipts are
valued as per RBI
guidelines at respective
Net Asset Value (NAV).
Forex transactions:
The transactions in foreign
exchange are valued by
using respective LIBOR
curve and the relevant spot
rates are in terms of rupee
equivalent.
VALUATION OF OTHER SECURITIES
7. Union Bank of India is
also exposed to
country risk as it has
its branches
worldwide in many
countries.
The report is
computed on a
weekly basis to
measure, monitor and
control the level of
exposure in foreign
countries. RBI has set
guidelines for setting
exposure limits so
that banks can make
provisions for the
same.
Country-wise
Exposure Report
Sovereign Risk
Transfer/Convertibility Risk
Contagion Risk
COUNTRY
RISK
OFF MARKET DEALS/ MERCHANTING
UBI acts as an intermediary or merchant banker in
transacting merchanting trade between the buyer of one
country and seller of another foreign country. Bank provides
forward rates or quotations in foreign currency and has set
a limit of 40 paise as a difference between the rate to be
applied and the rate given by the merchant desk. To check
whether proper rates are provided in the competitive
market, rate scanning is done by Mid Office three times in
day mainly at 12.30 PM, 2.30 PM and 5.15 PM to ensure
that the rates given to customers do not exceed the limit
which would lead to losses. Bloomberg
Reuters
