2013-02-13 RBI Presentation Liquidity ratios
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Transcript 2013-02-13 RBI Presentation Liquidity ratios
Basel III - Liquidity ratios
February 13, 2013
Views or opinions in this presentation are solely
those of the presenter and do not necessarily
represent those of ICICI Bank Limited
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Background
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Basel Committee of Banking Supervision (BCBS) had
proposed two liquidity ratios in December 2009
Liquidity coverage ratio (LCR)
High quality liquid assets available to meet net cash
outflows for a 30 day time horizon under stress scenario
Net stable funding ratio (NSFR)
Requires minimum stable funding over a 1 year horizon
based on liquidity risk factors assigned to assets and offbalance sheet liquidity exposure
Quantitative Impact Study (QIS) to analyse impact of liquidity
ratios started from March 2011
Liquidity coverage ratio (LCR)
Definition:
Stock of high quality liquid assets
Net cash outflows over a 30 day period
Minimum level of 60% to be maintained by 2015 with a 10%
increase every year till 100% in 2019
Both systemic shocks and institution specific stress
considered to arrive at net cash outflows
Liquid assets
Net cash outflows
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Net stable funding ratio (NSFR)
Definition
Available amount of stable funding
Required amount of stable funding
Minimum level of 100% to be maintained by 2018
To lead to structural change in liquidity risk profiles
towards longer term stable funding
Available stable funding
Required stable funding
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Key challenges
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Treatment of CRR/SLR as a part of liquid asset
Significant portion of CRR/SLR not allowed to be
considered as liquid assets
Customer term deposits have premature withdrawal
Due to premature withdrawal option, higher outflows are
considered in LCR computation and lower stable
funding factor in NSFR computation
Lower proportion of insured deposits
Insured deposits forms small portion of the total deposit
base, leading to higher outflows in the LCR computation
RBI - Liquidity Guidelines
Issued on November 7, 2012
Governance of liquidity risk
management
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Board should decide the strategy, policies & procedures
to manage liquidity risk
Understand the nature of liquidity risk of the bank,
including branches, subsidiaries & associates
Liquidity risk management policy to cover material
subsidiaries, JVs & associates
Management of liquidity risk (1/2)
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Banks should have sound process to identify, measure,
monitor & mitigate liquidity risk
Extend liquidity gap limits currently applicable for
domestic-INR gaps to overseas operations (country-wise)
Liquidity gap statement for overseas branches to be
prepared daily
Recommended to be extended to consolidated domestic
operations (INR & FC) & consolidated Bank operations
Management of liquidity risk (2/2)
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Short-term dynamic liquidity gap statement to be extended
to overseas branch operations (jurisdiction wise and
overall)
Assumptions used in cash flow projections should be
transparent to the Board/Risk Committee and reviewed
periodically
Set of illustrative liquidity ratios provided for domestic
operations and also for major currencies viz. USD, GBP,
EUR and JPY.
Ratios are only illustrative and banks can also use other
measures/ratios
Overseas operations of Indian bank’s
branches & subsidiaries
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Banks should provide detailed procedures & guidelines for
their overseas branches / subsidiaries to manage their
operational liquidity on an ongoing basis
Monitor two ratios for overseas operations
(consolidated & separately for currencies >10% of
consolidated overseas balance sheet)
Long & medium term resources/long & medium term
assets
Long term resources to long term assets ratios
Stress testing
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Conduct stress tests on various short term & protracted
bank specific & market-wide stress scenarios
Individually & in combination
Stress test results should assist bank’s contingent funding
planning and form strategy to deal liquidity stress situation
Risk tolerance may also be expressed in terms of minimum
survival horizons
Contingency funding plan (CFP)
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Banks to formulate CFP to respond to severe disruptions,
which might affect the bank’s ability to fund some or all of its
activities in a timely manner and at a reasonable cost
Contingency plans must be tested regularly to ensure their
effectiveness and operational feasibility
To be reviewed by the Board at least on an annual basis
Collateral position management
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Maintain sufficient collateral for expected & unexpected
borrowings,
increased
margin
requirements,
and
pledging/delivery of additional intra-day collateral in case of
operational/liquidity disruption
Have systems & procedures in place to assess/compute
collateral requirements, pledged assets & unencumbered
assets
Intra-day liquidity position management
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Banks to monitor intra-day liquidity requirements
Have policies, procedures and systems to support intra-day
liquidity risk management in all financial markets and
currencies in which it has significant flows
Develop and adopt an intra-day liquidity strategy to monitor
and measure expected daily gross liquidity flows
Thank you
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