Personal website of R.Kannan

Personal Website of R.Kannan
Students Corner - Capital Structure & Asset-Liability
Management in Indian Banks

APPENDIX -I

Appendix -1 - Asset - Liability Management (ALM) System in banks - Guidelines

Maturity Profile - Liquidity - Outflows

Heads of Accounts	Classification into time buckets
1. Capital, Reserves and Surplus	Over 5 years bucket.
2. Demand Deposits (Current and Savings Bank Deposits)	Savings Bank and Current Deposits may be classified into volatile and core portions. Savings Bank (10%) and Current (15%) Deposits are generally withdrawable on demand. This portion may be treated as volatile. While volatile portion can be placed in the first time bucket i.e., 1-14 days, the core portion may be placed in over 1- 3 years bucket. The above classification of Savings Bank and Current Deposits is only a benchmark. Banks which are better equipped to estimate the behavioural pattern, roll-in and roll-out, embedded options, etc. on the basis of past data/empirical studies could classify them in the appropriate buckets, i.e. behavioural maturity instead of contractual maturity, subject to the approval of the Board/ALCO.
3. Term Deposits	Respective maturity buckets. Banks which are better equipped to estimate the behavioural pattern, roll-in and roll-out, embedded options, etc. on the basis of past data/empirical studies could classify the retail deposits in the appropriate buckets on the basis of behavioural maturity rather than residual maturity. However, the wholesale deposits should be shown under respective maturity buckets.
4. Certificates of Deposit, Borrowings and Bonds (including Sub-ordinated Debt)	Respective maturity buckets. Where call/put options are built into the issue structure of any instrument/s, the call/put date/s should be reckoned as the maturity date/s and the amount should be shown in the respective time buckets.
5. Other Liabilities and Provisions
i) Bills Payable	The core component which could reasonably be estimated on the basis of past data and behavioural pattern may be shown under over 1-3 years time bucket. The balance amount may be placed in 1-14 days bucket.
ii) Inter-office Adjustment	The net credit balance may be shown in 1-14 days bucket.
iii) Provisions other than for loan loss and depreciation in investments.	Respective buckets depending on the purpose
iv) Other Liabilities	Respective maturity buckets. Items not representing cash payables (i.e. income received in advance, etc.) may be placed in over 5 years bucket.
6. Export Refinance - Availed	Respective maturity buckets of underlying assets.

Maturity Profile - Liquidity - Inflows

Heads of Accounts	Classification into time buckets
1. Cash	1-14 days bucket.
2. Balances with RBI	While the excess balance over the required CRR/SLR may be shown under 1-14 days bucket, the Statutory Balances may be distributed amongst various time buckets corresponding to the maturity profile of DTL with a time-lag of 14 days.
3. Balances with other Bank
i) Current Account	Non-withdrawable portion on account of stipulations of minimum balances may be shown under over 1-3 years bucket and the remaining balances may be shown under 1-14 days bucket.
ii) Money at Call and Short Notice, Term Deposits and other placements	Respective maturity buckets
4. Investments (Net of provisions)#
i) Approved securities	Respective maturity buckets excluding the amount required to be reinvested to maintain SLR corresponding to the DTL profile in various time buckets.
ii) Corporate debentures and bonds, PSU bonds, CDs and CPs, Redeemable preference shares, Units of Mutual Funds (close ended), etc.	Respective maturity buckets. Investments classified as NPAs should be shown under over 3-5 years bucket (sub-standard) or over 5 years bucket (doubtful).
iii) Shares/Units of Mutual Funds (open ended)	Over 5 years bucket.
iv) Investments in Subsidiaries/Joint Ventures	Over 5 years bucket.
v) Securities in the Trading Book	1-14 days, 15-28 days and 29-90 days according to defeasance periods.
5 Advances (Performing)
i) Bills Purchased and Discounted (including bills under DUPN)	Respective maturity buckets
ii) Cash Credit / Overdraft (including TOD) and Demand Loan component of Working Capital.	Banks should undertake a study of behavioural and seasonal pattern of availments based on outstandings and the core and volatile portion should be identified. While the volatile portion could be shown in the near-term maturity buckets, the core portion may be shown under over 1-3 years bucket.
iii) Term Loans	Interim cash flows may be shown under respective maturity buckets.
6. NPAs (Net of provisions, interest suspense and claims received from ECGC/DICGC )
i) Sub-standard	Over 3-5 years bucket.
ii) Doubtful and Loss	Over 5 years bucket
7. Fixed Assets.	Over 5 years bucket.
8. Other Assets
i) Inter-office Adjustment	The net debit balance may be shown in 1-14 days bucket. Intangible assets and assets not representing cash receivables may be shown in over 5 years bucket.
ii) Leased Assets	Interim cash flows may be shown under respective maturity buckets.
C. Contingent Liabilities / Lines of Credit committed / available and other Inflows / Outflows
1. (i) Lines of Credit committed to/ from Institutions	1-14 days bucket.
ii) Unavailed portion of Cash Credit/ Overdraft / Demand loan component of Working Capital limits (outflow)	Banks should undertake a study of the behavioural and seasonal pattern of potential availments in the accounts and the amounts so arrived at may be shown under relevant maturity buckets upto 12 months
iii) Export Refinance - Unavailed (inflow)	1-14 days bucket.
2. Letters of Credit / Guarantees (outflow)	Devolvement of Letters of Credit/Guarantees, initially entails cash outflows. Thus, historical trend analysis ought to be conducted on the devolvements and the amounts so arrived at in respect of outstanding Letters of Credit / Guarantees (net of margins) should be distributed amongst various time buckets. The assets created out of devolvements may be shown under respective maturity buckets on the basis of probable recovery dates.
3. Repos / Bills Rediscounted (DUPN) / Swaps INR / USD, maturing forex forward contracts etc. (outflow / inflow)	Respective maturity buckets.
4. Interest payable / receivable (outflow / inflow) - Accrued interest which are appearing in the books on the reporting day	Respective maturity buckets.

Note:

Liability on account of event cash flows i.e. short fall in CRR balance on reporting Fridays, wage settlement, capital expenditure, etc. which are known to the banks and any other contingency may be shown under respective maturity buckets.
All overdue liabilities may be placed in the 1-14 days bucket.
Interest and instalments from advances and investments, which are overdue for less than one month may be placed in over 3-6 months, bucket. Further, interest and instalments due (before classification as NPAs) may be placed in over 6-12 months bucket without the grace period of one month if the earlier receivables remain uncollected.

D. Financing of Gap :

In case the negative gap exceeds the prudential limit of 20% of outflows, (1-14 days and 15-28 days) the bank may show by way of a foot note as to how it proposes to finance the gap to bring the mismatch within the prescribed limits. The gap can be financed from market borrowings (call / term), Bills Rediscounting, Repos and deployment of foreign currency resources after conversion into rupees (unswapped foreign currency funds ), etc.

[# Provisions may be netted from the gross investments provided provisions are held security-wise. Otherwise provisions should be shown in over 5 years bucket]

- - - : ( Appendix-2 ) : - - -

Previous Top Next

[..Page Last Updated on 25.10.2004..]<>[Chkd-Apvd]