Basel III - Liquidity ratios February 13, 2013

1. Basel III - Liquidity ratiosFebruary 13, 2013

2. Views or opinions in this presentation are solely those of the presenter and do not necessarily represent those of ICICI Bank Limited

3. Background • 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

4. 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

5. 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

6. 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

7. RBI - Liquidity Guidelines Issued on November 7, 2012

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. Thank you