The document provides an overview of the key components of a bank's balance sheet, including assets and liabilities. It discusses the various line items under assets (such as cash, investments, advances) and liabilities (such as capital, reserves, deposits, borrowings). It also summarizes the components of a bank's profit and loss statement and provides details on liquidity management, asset liability management and interest rate risk management. The document is intended as a presentation on managing a bank's assets, liabilities, liquidity and interest rate risk.
This presentations chalks out in detail information about ALM in Indian Bank. It starts with the basics of Balance sheet; applicability of ALM in real life; Evolution and then starts with main topics of ALM like structured statement; Liquidity risk, its management; currency risk and finally ends with Interest Risk management.
Links to Video’s in the ppt
Balance Sheet
http://www.investopedia.com/terms/b/balancesheet.asp
NII/NIM
http://www.investopedia.com/terms/n/netinterestmargin.asp
www.abhijeetdeshmukh.com
This presentations chalks out in detail information about ALM in Indian Bank. It starts with the basics of Balance sheet; applicability of ALM in real life; Evolution and then starts with main topics of ALM like structured statement; Liquidity risk, its management; currency risk and finally ends with Interest Risk management.
Links to Video’s in the ppt
Balance Sheet
http://www.investopedia.com/terms/b/balancesheet.asp
NII/NIM
http://www.investopedia.com/terms/n/netinterestmargin.asp
www.abhijeetdeshmukh.com
Liquidity Risk is normally a crucial issue in a banking crisis, however, during the 2007-2010 period, Liquidity has not been as difficult for us as we may have thought. There are many reasons for this, but number one is the fact that today’s community bankers simply have a better understanding of the various techniques for raising both retail deposits and wholesale funds. What does make this crisis a bit different is the relative pricing efficiencies in the wholesale or non-core funding arena these days and our session will focus on how bankers can avoid those difficult examiner discussions about the use of FHLB Advances and Brokered Deposits. It’s all about process and we will provide guidance on what needs to be in your ALCO Policy as it relates to wholesale funding. We will also explore the April 2010 Liquidity and Funds Management Guidance to ensure your bank is up to speed on those requirements. Finally, we will provide specific guidance on both Ratio Analysis and creating your Contingency Funding Plan and will review a sample CFP.
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
Basel norms were introduced by Basel Committee to have a standardized prudential norms for capital adequacy
The prudential norms defined components of capital, assigned risk weights to different types of assets and stipulated the minimum Capital Adequacy to aggregate Risk weighted Assets (CRAR)
The minimum standard of capital to be kept with commercial banks was fixed 8% of RWA under Basel 1 & Basel 2 norms which was increased to 9% of RWA under Basel 3
Capital Adequacy Ratio-
Capital adequacy ratio is the ratio of the banks capital to its risk-weighted assets
The capital adequacy of banks is assessed based on the following three aspect –
Composition of capital
Composition of risk-weighted assets
Assigning risk-weights
Basel 1
Came into effect in the year 1988
Focused majorly on credit risk
Minimum capital requirement was set 8% to be achieved by the end of 1992 and it applied to all G10 countries
However later on several non-G10 countries also adopted the same
Objectives of Basel 1 accord were : To strengthen the soundness and stability of banking system and to have high degree of consistency across the banks
Basel 2
Came into effect in the year 2006
Focused on all sort of credit risk, market risk and operational risk
Minimum capital requirement set remained same as in Basel 1 at 8%
Provided for better risk management practices and advised bank on using internal systems for assessment of risks
Supervisors were advised to take suitable approaches for efficiency of bank
Basel 3
Banks are required to maintain a minimum of Pillar 1 Capital to Risk weighted Assets Ratio of 9% on a continuous basis.
For assessment of capital charge for credit risk banks have to mandatory obtain credit rating from credit rating agencies approved by RBI.
NPA management procedures implemented through classification of loan assets as standard, sub-standard, doubtful and loss assets.
Thank You For Watching
Subscribe to DevTech Finance
A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets.
Liquidity Risk is normally a crucial issue in a banking crisis, however, during the 2007-2010 period, Liquidity has not been as difficult for us as we may have thought. There are many reasons for this, but number one is the fact that today’s community bankers simply have a better understanding of the various techniques for raising both retail deposits and wholesale funds. What does make this crisis a bit different is the relative pricing efficiencies in the wholesale or non-core funding arena these days and our session will focus on how bankers can avoid those difficult examiner discussions about the use of FHLB Advances and Brokered Deposits. It’s all about process and we will provide guidance on what needs to be in your ALCO Policy as it relates to wholesale funding. We will also explore the April 2010 Liquidity and Funds Management Guidance to ensure your bank is up to speed on those requirements. Finally, we will provide specific guidance on both Ratio Analysis and creating your Contingency Funding Plan and will review a sample CFP.
This presentation is the one stop point to learn about Basel Norms in the Banking
This is the most comprehensive presentation on Risk Management in Banks and Basel Norms. It presents in details the evolution of Basel Norms right form Pre Basel area till implementation of Basel III in 2019 along with factors and reason for shifting of Basel I to II and finally to III.
Links to Video's in the presentation
Risk Management in Banks
https://www.youtube.com/watch?v=fZ5_V4RW5pE
Tier 1 Capital
http://www.investopedia.com/terms/t/tier1capital.asp
Tier 2 Capital
http://www.investopedia.com/terms/t/tier2capital.asp
Basel I
http://www.investopedia.com/terms/b/basel_i.asp
Capital Adequacy Ratio
http://www.investopedia.com/terms/c/capitaladequacyratio.asp
Basel II
http://www.investopedia.com/video/play/what-basel-ii/?header_alt=c
Basel III
http://www.investopedia.com/terms/b/basell-iii.asp
RBI Governor - Raghuram G Rajan on the importance if Basel III regulations
https://youtu.be/EN27ZRe_28A
Basel norms were introduced by Basel Committee to have a standardized prudential norms for capital adequacy
The prudential norms defined components of capital, assigned risk weights to different types of assets and stipulated the minimum Capital Adequacy to aggregate Risk weighted Assets (CRAR)
The minimum standard of capital to be kept with commercial banks was fixed 8% of RWA under Basel 1 & Basel 2 norms which was increased to 9% of RWA under Basel 3
Capital Adequacy Ratio-
Capital adequacy ratio is the ratio of the banks capital to its risk-weighted assets
The capital adequacy of banks is assessed based on the following three aspect –
Composition of capital
Composition of risk-weighted assets
Assigning risk-weights
Basel 1
Came into effect in the year 1988
Focused majorly on credit risk
Minimum capital requirement was set 8% to be achieved by the end of 1992 and it applied to all G10 countries
However later on several non-G10 countries also adopted the same
Objectives of Basel 1 accord were : To strengthen the soundness and stability of banking system and to have high degree of consistency across the banks
Basel 2
Came into effect in the year 2006
Focused on all sort of credit risk, market risk and operational risk
Minimum capital requirement set remained same as in Basel 1 at 8%
Provided for better risk management practices and advised bank on using internal systems for assessment of risks
Supervisors were advised to take suitable approaches for efficiency of bank
Basel 3
Banks are required to maintain a minimum of Pillar 1 Capital to Risk weighted Assets Ratio of 9% on a continuous basis.
For assessment of capital charge for credit risk banks have to mandatory obtain credit rating from credit rating agencies approved by RBI.
NPA management procedures implemented through classification of loan assets as standard, sub-standard, doubtful and loss assets.
Thank You For Watching
Subscribe to DevTech Finance
A set of international banking regulations put forth by the Basel Committee on Bank Supervision, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. Banks that operate internationally are required to maintain a minimum amount (8%) of capital based on a percent of risk-weighted assets.
(1) Diversified Funding: Problems with Steering Towards Long-Term Stable Funding; (2) Analysing the Best Internal Mechanism for Managing new Liquidity Requirements
Liquidity Risk Management: Comparative analysis on Indian and ASEAN bankspeterkapanee
Risk in the banking sector in simple terms means unpredictability, these risks are uncertainties which may result in adverse outcome in relation to planned objective or expectations of the financial institutions. In the financial world, risk can be defined as “any event or possibility of an event which can impair corporate earnings or cash flow over short, medium or long-term horizon” .
Capital adequacy requirements impose at least a minimum capital participation by bank owners,
usually expressed as a fraction of certain assets of the bank.
This PPT is useful for SYBMS Finance Specialization students
CLASS: SYBMS (FINANCE)
SUB:- BASICS OF FINANCIAL SERVICES
CHP:- 4 Development Banks &
Commercial Banks
Financial statements are written records that convey the business activities and the financial performance of a company.
Financial statements are often audited by government agencies, accountants, firms, etc. to ensure accuracy and for tax, financing, or investing purposes.
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
Antifertility, Toxicity studies as per OECD guidelines
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
Instructions for Submissions thorugh G- Classroom.pptxJheel Barad
This presentation provides a briefing on how to upload submissions and documents in Google Classroom. It was prepared as part of an orientation for new Sainik School in-service teacher trainees. As a training officer, my goal is to ensure that you are comfortable and proficient with this essential tool for managing assignments and fostering student engagement.
The French Revolution, which began in 1789, was a period of radical social and political upheaval in France. It marked the decline of absolute monarchies, the rise of secular and democratic republics, and the eventual rise of Napoleon Bonaparte. This revolutionary period is crucial in understanding the transition from feudalism to modernity in Europe.
For more information, visit-www.vavaclasses.com
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
2. Components of a
Bank Balance sheet
Liabilities Assets
1. Capital
2. Reserve & Surplus
3. Deposits
4. Borrowings
5. Other Liabilities
1. Cash & Balances with
RBI
2. Bal. With Banks &
Money at Call and
Short Notices
3. Investments
4. Advances
5. Fixed Assets
6. Other Assets
Contingent Liabilities
3. Components of Liabilities
1.Capital:
Capital represents owner’s
contribution/stake in the bank.
- It serves as a cushion for depositors and
creditors.
- It is considered to be a long term sources
for the bank.
4. Components of Liabilities
2. Reserves & Surplus
Components under this head includes:
I. Statutory Reserves
II. Capital Reserves
III. Investment Fluctuation Reserve
IV. Revenue and Other Reserves
V. Balance in Profit and Loss Account
5. Components of Liabilities
3. Deposits
This is the main source of bank’s funds. The deposits are
classified as deposits payable on ‘demand’ and ‘time’. They
are reflected in balance sheet as under:
I. Demand Deposits
II. Savings Bank Deposits
III. Term Deposits
6. Components of Liabilities
4. Borrowings
(Borrowings include Refinance / Borrowings from RBI,
Inter-bank & other institutions)
I. Borrowings in India
i) Reserve Bank of India
ii) Other Banks
iii) Other Institutions & Agencies
II. Borrowings outside India
7. Components of Liabilities
5. Other Liabilities & Provisions
It is grouped as under:
I. Bills Payable
II. Inter Office Adjustments (Net)
III. Interest Accrued
IV. Unsecured Redeemable Bonds
(Subordinated Debt for Tier-II Capital)
V. Others(including provisions)
8. Components of Assets
1.Cash & Bank Balances with RBI
I. Cash in hand
(including foreign currency notes)
II. Balances with Reserve Bank of India
In Current Accounts
In Other Accounts
9. Components of Assets
2. BALANCES WITH BANKS AND MONEY AT
CALL & SHORT NOTICE
I. In India
i) Balances with Banks
a) In Current Accounts
b) In Other Deposit Accounts
ii) Money at Call and Short Notice
a) With Banks
b) With Other Institutions
II. Outside India
a) In Current Accounts
b) In Other Deposit Accounts
c) Money at Call & Short Notice
10. Components of Assets
3. Investments
A major asset item in the bank’s balance sheet.
Reflected under 6 buckets as under:
I. Investments in India in : *
i) Government Securities
ii) Other approved Securities
iii) Shares
iv) Debentures and Bonds
v) Subsidiaries and Sponsored Institutions
vi) Others (UTI Shares , Commercial Papers, COD &
Mutual Fund Units etc.)
II. Investments outside India in **
Subsidiaries and/or Associates abroad
11. Components of Assets
4. Advances
The most important assets for a bank.
A. i) Bills Purchased and Discounted
ii) Cash Credits, Overdrafts & Loans
repayable on demand
iii) Term Loans
B. Particulars of Advances :
i) Secured by tangible assets
(including advances against Book Debts)
ii) Covered by Bank/ Government Guarantees
iii) Unsecured
12. Components of Assets
5. Fixed Asset
I. Premises
II. Other Fixed Assets (Including furniture and fixtures)
6. Other Assets
I. Interest accrued
II. Tax paid in advance/tax deducted at source
(Net of Provisions)
III. Stationery and Stamps
IV. Non-banking assets acquired in satisfaction of claims
V. Deferred Tax Asset (Net)
VI. Others
13. Contingent Liability
Bank’s obligations under LCs, Guarantees, Acceptances on
behalf of constituents and Bills accepted by the bank are
reflected under this heads.
14. Banks Profit & Loss Account
A bank’s profit & Loss Account has the following
components:
I. Income:This includes Interest Income and Other
Income.
II. Expenses:This includes Interest Expended, Operating
Expenses and Provisions & contingencies.
15. Components of Income
1. INTEREST EARNED
I. Interest/Discount on Advances / Bills
II. Income on Investments
III. Interest on balances with Reserve Bank
of India and other inter-bank funds
IV. Others
16. Components of Income
2. OTHER INCOME
I. Commission, Exchange and Brokerage
II. Profit on sale of Investments (Net)
III. Profit/(Loss) on Revaluation of Investments
IV. Profit on sale of land, buildings and other
assets (Net)
V. Profit on exchange transactions (Net)
VI. Income earned by way of dividends etc. from
subsidiaries and Associates abroad/in India
VII. Miscellaneous Income
17. Components of Expenses
1. INTEREST EXPENDED
I. Interest on Deposits
II. Interest on Reserve Bank of India / Inter-Bank
borrowings
III. Others
18. Components of Expenses
2. OPERATING EXPENSES
I. Payments to and Provisions for employees
II. Rent, Taxes and Lighting
III. Printing and Stationery
IV. Advertisement and Publicity
V. Depreciation on Bank's property
VI. Directors' Fees, Allowances and Expenses
VII. Auditors' Fees and Expenses (including Branch Auditors)
VIII.Law Charges
IX. Postages, Telegrams, Telephones etc.
X. Repairs and Maintenance
XI. Insurance
XII. Other Expenditure
19. Assets Liability Management
It is a dynamic process of Planning,
Organizing & Controlling of Assets
& Liabilities- their volumes, mixes,
maturities, yields and costs in order
to maintain liquidity and NII.
21. Purpose & Objective of ALM
An effective Asset Liability Management Technique
aims to manage the volume, mix, maturity, rate
sensitivity, quality and liquidity of assets and
liabilities as a whole so as to attain a predetermined
acceptable risk/reward ration.
It is aimed to stabilize short-term profits, long-term
earnings and long-term substance of the bank. The
parameters for stabilizing ALM system are:
1. Net Interest Income (NII)
2. Net Interest Margin (NIM)
3. Economic Equity Ratio
22. RBI DIRECTIVES
• Issued draft guidelines on 10th
Sept’98.
• Final guidelines issued on 10th
Feb’99 for
implementation of ALM w.e.f. 01.04.99.
• To begin with 60% of asset &liabilities will be covered;
100% from 01.04.2000.
• Initially Gap Analysis to be applied in the first stage of
implementation.
• Disclosure to Balance Sheet on maturity pattern on
Deposits, Borrowings, Investment & Advances w.e.f.
31.03.01
23. Liquidity Management
Bank’s liquidity management is the process of generating
funds to meet contractual or relationship obligations at
reasonable prices at all times.
New loan demands, existing commitments, and deposit
withdrawals are the basic contractual or relationship
obligations that a bank must meet.
24. Adequacy of liquidity position for a
bank
Analysis of following factors throw light on a
bank’s adequacy of liquidity position:
a. Historical Funding requirement
b. Current liquidity position
c. Anticipated future funding needs
d. Sources of funds
e. Options for reducing funding needs
f. Present and anticipated asset quality
g. Present and future earning capacity and
h. Present and planned capital position
25. Funding Avenues
To satisfy funding needs, a bank must perform one or a
combination of the following:
a. Dispose off liquid assets
b. Increase short term borrowings
c. Decrease holding of less liquid assets
d. Increase liability of a term nature
e. Increase Capital funds
26. Types of Liquidity Risk
• Liquidity Exposure can stem from both internally and
externally.
• External liquidity risks can be geographic, systemic or
instrument specific.
• Internal liquidity risk relates largely to perceptions of an
institution in its various markets: local, regional, national
or international
27. Other categories of liquidity risk
• Funding Risk
- Need to replace net outflows due to unanticipated
withdrawals/non-renewal
• Time Risk
- Need to compensate for non-receipt of expected
inflows of funds
• Call Risk
- Crystallization of contingent liability
28. Statement of Structural Liquidity
All Assets & Liabilities to be reported as per
their maturity profile into 8 maturity Buckets:
i. 1 to 14 days
ii. 15 to 28 days
iii. 29 days and up to 3 months
iv. Over 3 months 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
29. STATEMENT OF
STRUCTURAL LIQUIDITY
• Places all cash inflows and outflows in the
maturity ladder as per residual maturity
• Maturing Liability: cash outflow
• Maturing Assets : Cash Inflow
• Classified in to 8 time buckets
• Mismatches in the first two buckets not to
exceed 20% of outflows
• Shows the structure as of a particular date
• Banks can fix higher tolerance level for other
maturity buckets.
30. ADDRESSING THE MISMATCHES
• Mismatches can be positive or negative
• Positive Mismatch: M.A.>M.L. and Negative
Mismatch M.L.>M.A.
• In case of +ve mismatch, excess liquidity can be
deployed in money market instruments, creating
new assets & investment swaps etc.
• For –ve mismatch,it can be financed from
market borrowings (Call/Term), Bills
rediscounting, Repos & deployment of foreign
currency converted into rupee.
31. STRATEGIES…
•To meet the mismatch in any maturity
bucket, the bank has to look into
taking deposit and invest it suitably
so as to mature in time bucket with
negative mismatch.
•The bank can raise fresh deposits of
Rs 300 crore over 5 years maturities
and invest it in securities of 1-29 days
of Rs 200 crores and rest matching
with other out flows.
32. Maturity Pattern of Select Assets & Liabilities of A Bank
Liability/Assets Rupees
(In Cr)
In Percentage
I. Deposits
a. Up to 1 year
b. Over 1 yr to 3 yrs
c. Over 3 yrs to 5 yrs
d. Over 5 years
15200
8000
6700
230
270
100
52.63
44.08
1.51
1.78
II. Borrowings
a. Up to 1 year
b. Over 1 yr to 3 yrs
c. Over 3 yrs to 5 yrs
d. Over 5 years
450
180
00
150
120
100
40.00
0.00
33.33
26.67
III. Loans & Advances
a. Up to 1 year
b. Over 1 yr to 3 yrs
c. Over 3 yrs to 5 yrs
d. Over 5 years
8800
3400
3000
400
2000
100
38.64
34.09
4.55
22.72
Iv. Investment
a. Up to 1 year
b. Over 1 yr to 3 yrs
c. Over 3 yrs to 5 yrs
d. Over 5 years
5800
1300
300
900
3300
100
22.41
5.17
15.52
56.90
33. STATEMENT OF
INTEREST RATE SENSITIVITY
• Generated by grouping RSA,RSL & OFF-Balance sheet items
in to various (8)time buckets.
RSA:
• MONEY AT CALL
• ADVANCES ( BPLR LINKED )
• INVESTMENT
RSL
• DEPOSITS EXCLUDING CD
• BORROWINGS
35. SUCCESS OF ALM IN BANKS :
PRE - CONDITIONS
1.Awareness for ALM in the Bank staff at all
levels–supportive Management & dedicated
Teams.
2.Method of reporting data from Branches/ other
Departments. (Strong MIS).
3.Computerization-Full computerization,
networking.
4.Insight into the banking operations, economic
forecasting, computerization, investment,
credit.
5. Linking up ALM to future Risk Management
Strategies.
36. Interest Rate Risk Management
• Interest Rate risk is the exposure of a bank’s financial
conditions to adverse movements of interest rates.
• Though this is normal part of banking business, excessive
interest rate risk can pose a significant threat to a bank’s
earnings and capital base.
• Changes in interest rates also affect the underlying value
of the bank’s assets, liabilities and off-balance-sheet item.
37. Interest Rate Risk
• Interest rate risk refers to volatility in Net Interest Income
(NII) or variations in Net Interest Margin(NIM).
• Therefore, an effective risk management process that
maintains interest rate risk within prudent levels is
essential to safety and soundness of the bank.
38. Sources of Interest Rate Risk
• Interest rate risk mainly arises from:
• Gap Risk
• Basis Risk
• Net Interest Position Risk
• Embedded Option Risk
• Yield Curve Risk
• Price Risk
• Reinvestment Risk
39. Measurement of Interest Rate Risk
• Gap Analysis- Simple maturity/re-pricing
Schedules can be used to generate simple
indicators of interest rate risk sensitivity of both
earnings and economic value to changing interest
rates.
- If a negative gap occurs (RSA<RSL) in given time
band, an increase in market interest rates could
cause a decline in NII.
- conversely, a positive gap (RSA>RSL) in a given
time band, an decrease in market interest rates
could cause a decline in NII.
40. Measurement of Interest Rate Risk
• Duration Analysis: Duration is a measure of the
percentage change in the economic value of a position
that occur given a small change in level of interest rate.