Basel III - Liquidity ratios February 13, 2013 - PowerPoint PPT Presentation

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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. Background. Basel Committee of Banking Supervision (BCBS) had proposed two liquidity ratios in December 2009

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Basel III - Liquidity ratios February 13, 2013

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Basel iii liquidity ratios february 13 2013

Basel III - Liquidity ratiosFebruary 13, 2013

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



  • 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 off-balance sheet liquidity exposure

  • Quantitative Impact Study (QIS) to analyse impact of liquidity ratios started from March 2011

Liquidity coverage ratio lcr

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

Net stable funding ratio nsfr

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

Key challenges

Key challenges

  • 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

RBI - Liquidity Guidelines

Issued on November 7, 2012

Governance of liquidity risk management

Governance of liquidity risk management

  • 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

Management of liquidity risk (1/2)

  • 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

Management of liquidity risk (2/2)

  • 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

Overseas operations of Indian bank’s branches & subsidiaries

  • 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

Stress testing

  • 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

Contingency funding plan (CFP)

  • 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

Collateral position management

  • 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

Intra-day liquidity position management

  • 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

Basel iii liquidity ratios february 13 2013

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