ICICI Bank 2008 Annual Report Download - page 57

Towards a better life
Off Balance Sheet Items, Commitments and Contingencies
The table below sets forth, for the periods indicated, the principal components of contingent liabilities.
Rs. in billion, except percentages
March 31,
2007
March 31,
2008 % change
Claims against the bank, not acknowledged as debts 39.12 40.31 3.0
Liability for partly paid investments 0.17 0.13 (23.5)
Notional principal amount of outstanding forward exchange contracts 1,331.56 3,071.71 130.7
Guarantees given on behalf of constituents 292.12 412.81 41.3
Acceptances, endorsements & other obligations 186.71 250.99 34.4
Notional principal amount of currency swaps 325.26 477.04 46.7
Notional principal amount of interest rate swaps and currency options13,346.92 7,067.96 111.2
Other items for which bank is contingently liable 107.74 192.54 78.7
Total 5,629.60 11,513.49 104.5
1. Excludes notional amount of options sold amounting to Rs. 597.33 billion (March 31, 2007: Rs. 444.22 billion).
Contingent liabilities increased by 104.5% or Rs. 5,883.89 billion to Rs. 11,513.49 billion at year-end fiscal 2008
from Rs. 5,629.60 billion at year-end fiscal 2007 primarily due to a 130.7% increase in notional principal amount
of outstanding forward exchange contracts and a 111.2% increase in notional principal amount of interest rate
swaps and currency options.
The Bank enters into foreign exchange forwards, options, swaps and other derivative products to enable customers
to transfer, modify or reduce their foreign exchange and interest rate risk and to manage its own interest rate
and foreign exchange positions. The Bank manages its foreign exchange and interest rate risk with reference
to limits set by RBI and/ or internally. An interest rate swap does not entail exchange of notional principal and
the cash flow arises on account of the difference between interest rate pay and receive legs of the swaps which
is generally much smaller than the notional principal of the swap. With respect to the transactions entered into
with customers, the Bank generally enters into off-setting transactions in the inter-bank market. This results in
generation of a higher number of outstanding transactions, and hence a large value of gross notional principal
of the portfolio, while the net market risk is low. For example, if a transaction entered into with a customer is
covered by an exactly opposite transaction entered into with another counter-party, the net market risk of the
two transactions will be zero whereas the notional principal which is reflected as a contingent liability will be sum
of both the transactions.
Claims against the Bank, not acknowledged as debts represents demands made by the Government of India’s
tax authorities in excess of the provisions made in our accounts, in respect of income tax, interest tax, wealth tax
and sales tax matters. Based on consultation with counsel and favorable decisions in our own or other cases, the
management believes that the liability is not likely to actually arise. Other items for which the Bank is contingently
liable includes primarily the securitisation, syndication and repurchase obligations.
As a part of our project financing and commercial banking activities, we have issued guarantees to enhance the
credit standing of our customers. These generally represent irrevocable assurances that we will make payments
in the event that the customer fails to fulfill its financial or performance obligations. Financial guarantees are
obligations to pay a third party beneficiary where a customer fails to make payment towards a specified financial
obligation. Performance guarantees are obligations to pay a third party beneficiary where a customer fails to
perform a non-financial contractual obligation. The guarantees are generally for a period not exceeding 10 years.
The credit risks associated with these products, as well as the operating risks, are similar to those relating to
other types of financial instruments. We generally have collateral available to reimburse potential losses on the
Annual Report 2007-2008 55
ICICI BANK_(Fin_Matter 1-64).ind55 55ICICI BANK_(Fin_Matter 1-64).ind55 55 6/20/08 5:03:14 PM6/20/08 5:03:14 PM