8/6/2019 MOBFI ppt

1/21

` HDFC Bank was incorporated in August 1994,` Currently has nationwide network of 2000 Branches and 5,998 ATM's in 996

Indian towns and cities.` Current MD- Aditya Puri` HDFC was amongst the first to receive an 'in principle' approval from the

Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bankwas incorporated in August 1994 in the name of 'HDFC Bank Limited', withits registered office in Mumbai, India. HDFC Bank commenced operationsas a Scheduled Commercial Bank in January 1995.

` Net Profit for 2010-11 was Rs 3926 crores

8/6/2019 MOBFI ppt

2/21

` Citibank, a major international bank, is the consumer banking armof financial services giant Citigroup. Citibank was founded in 1812 as theCity Bank of New York, later First National City Bank of New York. As of March 2010, Citigroup is the third largest bank holding company inthe United States by total assets, after Bank of America and JP MorganChase.

` Citibank has retail banking operations in more than 100 countries andterritories around the world. More than half of its 1,400 offices are in theUnited States

` CEO Vikram Pandit` As a result of the global financial crisis of 20082009 and huge losses in

the value of its subprime mortgage assets, Citibank was rescued by the

U.S. government under plans agreed for Citigroup.` Net Profit for 2010-11 was Rs 1424 crores

8/6/2019 MOBFI ppt

3/21

BUSINESSES

WHOLE SALEBANKING

SERVICES

RETAIL BANKINGSERVICES TREASURY

8/6/2019 MOBFI ppt

4/21

Products:` Retail banking` Investment banking` Commercial banking` Insurance and finance`

Private banking` Asset management` Mortgages

8/6/2019 MOBFI ppt

5/21

HDFC BANK developed and implemented comprehensive policies andprocedures to :

RISK

IDENTIFY

ASSESS

MONITOR

MANAGE

8/6/2019 MOBFI ppt

6/21

They identify and manage this risk through

TARGET MARKET DEFINITIONS

CREDIT APPROVAL PROCESS

POST DISBURSEMENT MONITORING

REMEDIAL MGMT. PROCEDURES

8/6/2019 MOBFI ppt

7/21

8/6/2019 MOBFI ppt

8/21

` For their wholesale banking products, they seek to target the leaders in

each of the segments that they operate in.` they consider credit risk of a counter-party comprehensively, and thus, their

credit policies and procedures apply to not only credit exposures but alsocredit substitutes and contingent exposures.

` The Policies/Programs generally address such areas as:1. target markets,2. portfolio mix,3. prudential exposure ceilings,4. concentration limits,5. price and non-price terms,6. structure of limits,7. approval authorities,8. exception reporting system,9. prudential accounting and provisioning norms.

8/6/2019 MOBFI ppt

9/21

` Each credit is evaluated by the business units against the credit standardsprescribed in the Credit Policies of the Bank. They are then subjected to agreater degree of risk analysis based on product type and customer profileby credit risk specialists in the Credit & Market Risk Department.

` The Bank has in place a process of grading each borrower according to itsfinancial health and the performance of its business, and each borrower isassigned a rating on a scale of 1 to 10

` Based on an adequately comprehensive risk assessment, credit exposurelimits are set on individual counterparties.

` To ensure adequate diversification of risk, concentration limits have beenset up in terms of:

` a) Bo rr ow er / business gr o up

` b) I ndustry ` c) Risk grading

8/6/2019 MOBFI ppt

10/21

` While they primarily make their credit decisions on a cash flow basis, they

also obtain security for a significant portion of credit facilities extended bythe Bank as a second potential remedy.

` They have a process for regular monitoring of all accounts at several levels.These include periodic calls to the customer, plant visits, credit reviews andmonitoring of secondary data. These are designed to detect any earlywarning signals of deterioration in credit quality so that we can take timely

corrective action.

8/6/2019 MOBFI ppt

11/21

` There are product programs for each of these products, which define thetarget markets, credit philosophy, process, detailed underwriting criteria for evaluating individual credits, exception reporting systems and individualloan exposure caps.

` The Retail Credit Risk team manages Credit Risk in retail assets and hasthe following constituents:

CENTRAL RISK UNIT

RETAIL UNDERWRITINGS

RISK INTELLIGENCE & CONTROL

RETAIL COLLECTIONS UNIT

8/6/2019 MOBFI ppt

12/21

` The Risk M o nit o ring C o mmittee of the BODs approves market riskpolicies and procedures and reviews market risk limits of various operatinglevels. The board of directors has delegated the responsibility for ongoingbalance sheet market risk management to the Asset Liability C o mmittee .

` ALC chaired by the MD and includes the heads of the business groups,meets every alternate week and more often when conditions require. The

ALC reviews the product pricing for deposits and assets as well as thematurity profile and mix of their assets and liabilities.

` It articulates the interest rate view and decides on future business strategywith respect to interest rates.

` It reviews and sets funding policy and also reviews developments in themarkets and the economy and their impact on the balance sheet andbusiness.

` Finally, it ensures adherence to ALM market risk limits and decides on theinter-segment transfer pricing policy.

8/6/2019 MOBFI ppt

13/21

` The Market Risk Department specifies the risk valuation methodology of

various treasury products, formulates procedures for portfolio risk valuation,assesses market risk factors and recommends various market risk controlsfor various treasury desks. The treasury mid-office is responsible for reporting market risks arising form the treasury desks.

` The inancial C o ntr o l Department is responsible for collecting data,preparing regulatory and analytical reports and monitoring whether the

interest rate and other policies and limits established by the Asset LiabilityCommittee are being observed.

` Their T reasury Gr o up also assists in implementing asset liability strategyand in providing information to the Asset Liability Committee.

8/6/2019 MOBFI ppt

14/21

` They fund core customer assets, consisting of loans and credit substitutes,

with core customer liabilities, consisting principally of deposits.` They also borrow in the inter-bank market and use such borrowings

principally for funding certain short-term assets and for managing short-term maturity mismatches. Most of their liabilities and assets are short andmedium term.

` They maintain a substantial portfolio of liquid, high-quality Indian

government securities.` They prepare regular maturity gap analyses to review their liquidity position,

and must submit a monthly analysis to the RBI.` They measure their exposure to fluctuations in interest rates primarily by

way of a gap analysis.` They classify all rate sensitive assets and liabilities into various time period

categories according to contracted residual maturities or anticipatedrepricing dates, whichever is earlier. The difference in the amount of assetsand liabilities maturing or being repriced in any time period category givesthem an indication of the extent to which they are exposed to the risk of potential changes in the margins on new or repriced assets and liabilities.

8/6/2019 MOBFI ppt

15/21

` Their ALC addresses the two principal aspects of their asset liabilitymanagement program as follows:

` First, the ALC monitors the liquidity gap and, at the corporate level,recommends appropriate financing or asset deployment strategiesdepending on whether the gap is a net asset position or a net liabilityposition, respectively. Operationally, in the short-term, their Treasury Groupimplements these recommendations through transactions in the money

market.` Second, the Asset Liability Committee monitors our interest rate gap and, at

the corporate level, recommends repricing of our asset or liability portfolios.Operationally, in the short-term, our Treasury Group implements theserecommendations by entering into transactions in the money market andinterest rate swaps market.

8/6/2019 MOBFI ppt

16/21

` The purpose of liquidity management is to ensure sufficient cash flow tomeet all financial commitments and to capitalize on opportunities for business expansion. This includes our ability to meet deposit withdrawalseither on demand or at contractual maturity, to repay borrowings as theymature and to make new loans and investments as opportunities arise.

` Liquidity is managed on a daily basis by the Treasury Group under thedirection of the Asset Liability Committee. The Treasury Group isresponsible for ensuring that we have adequate liquidity, ensuring that our funding mix is appropriate so as to avoid maturity mismatches and priceand reinvestment rate risk in case of a maturity gap, and monitoring localmarkets for the adequacy of funding liquidity.

8/6/2019 MOBFI ppt

17/21

` Their Treasury Group is responsible for implementing the price riskmanagement process within the limits approved by BOD. They measure

price risk through a three-stage pr o cess :

` They manage price risk principally by establishing limits for their moneymarket activities, foreign exchange activities, interest rate and equities andderivatives activities. In addition, certain limits are also prescribed by theRBI.

FIRST

to estimate the sensitivity of the value of a position to changesin market factors to which their business is exposed.

SECOND estimate the volatility of market factors.

THIRDthey aggregate portfolio risk.

8/6/2019 MOBFI ppt

18/21

` They monitor and manage their exchange rate risk through a variety of

limits on their foreign exchange activities.` The RBI also limits the extent to which they can deviate from a near

square position at the end of the day (where sales and purchases of eachcurrency are matched).

` Their own policies set limits on maximum open positions in any currencyduring the course of the day as well as on overnight positions.

` They also have gap limits that address the matching of forward positions invarious maturities and for different currencies.

` In addition, the RBI approves the aggregate gap limit for them. This limit isapplied to all currencies.

` They also have stop-loss limits that require their traders to realize andrestrict losses. They evaluate their risk on foreign exchange positions on adaily basis using a value-at-risk model.

8/6/2019 MOBFI ppt

19/21

` They impose position limits on their trading portfolio of marketable

securities. These limits, which vary by tenor, restrict the holding of marketable securities of all kinds depending on their expectations about theyield curve. They also impose trading limits such as, value-at-risk and stop-loss limits.

` Their derivatives risk is managed by the fact that they do not enter into or maintain unmatched positions with respect to non-rupee-based derivatives.

Their proprietary derivatives trading is primarily limited to rupee-basedinterest rate swaps and rupee currency options. They impose trading limits,such as value-at-risk and stop-loss limits.

` The day-to-day monitoring and reporting of market risk and counterpartyrisk limits is carried out independently by the treasury mid-officedepartment. The treasury mid-office department is independent of the

treasury department and has a reporting line to the head of credit andmarket risk.

8/6/2019 MOBFI ppt

20/21

` Some of the key principles ingrained in the Banks business operationstowards effective operational risk management cover:

a) inter-alia,b) segregation of functions,c) strong management team with vast experience in diverse fields,d) well defined processes,e) standard operating manuals and job cards,

f) transaction verification and authorization systems,g) distributed processing,h) staff training and an effective internal audit process.` As part of the Banks overall Operational Risk Management, there is a clear

line of reporting at every function which facilitates reporting, monitoring andcontrol of operational risk events.

` Further, reporting and measurement is also achieved through various MISattached with each operational process which are generated and monitoredregularly. Losses and issues relating to operational risk are promptlyreviewed and gaps, if any, are suitably addressed.

8/6/2019 MOBFI ppt

21/21