ICICI Bank 2010 Annual Report Download - page 121

F41
34. Derivatives
ICICI Bank is a major participant in the financial derivatives market. The Bank deals in derivatives for balance sheet management
and market making purposes whereby the Bank offers derivative products to its customers, enabling them to hedge their
risks.
Dealing in derivatives is carried out by identified groups in the treasury of the Bank based on the purpose of the transaction.
Derivative transactions are entered into by the treasury front office. Treasury middle office conducts an independent check of
the transactions entered into by the front office and also undertakes activities such as confirmation, settlement, accounting,
risk monitoring and reporting and ensures compliance with various internal and regulatory guidelines.
The market making and the proprietary trading activities in derivatives are governed by the investment policy of the Bank,
which lays down the position limits, stop loss limits as well as other risk limits. The Risk Management Group lays down
the methodology for computation and monitoring of risk. The Risk Committee of the Board (RCB) reviews the Bank’s risk
management policy in relation to various risks (portfolio, liquidity, interest rate, off-balance sheet and operational risks),
investment policies and compliance issues in relation there to. The RCB comprises independent directors and the Managing
Director and CEO.
Risk monitoring of the derivatives portfolio including credit derivatives is done on a daily basis. The Bank generally measures
and monitors risk using Value at Risk (VAR) approach and the relevant greeks for options. Risk reporting on derivatives forms
an integral part of the management information system and the marked to market position and the VAR of the derivatives
portfolio, including credit derivatives is reported on a daily basis.
The use of derivatives for hedging purposes is governed by the hedge policy approved by Asset Liability Management
Committee (ALCO). Subject to prevailing RBI guidelines, the Bank deals in derivatives for hedging fixed rate, floating rate
or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For
hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. The
effectiveness is assessed at the time of inception of the hedge and periodically thereafter.
Hedge derivative transactions are accounted for pursuant to the principles of hedge accounting. Derivatives for market
making purpose are marked to market and the resulting gain/loss is recorded in the profit and loss account. The premium
on option contracts is accounted for as per Foreign Exchange Dealers Association of India (FEDAI). Derivative transactions
are covered under International Swap Dealers Association (ISDA) master agreements with the respective counter parties.
The exposure on account of derivative transactions is marked against the credit limits approved for the respective counter-
parties.
The following tables set forth, for the period indicated, details of derivative positions.
Rupees in million
Sr.
No. Particulars
At March 31, 2010
Currency
derivatives1 Interest rate
derivatives2
1. Derivatives (Notional principal amount)
a) For hedging ................................................................................................. 23,432.8 235,286.1
b) For trading ................................................................................................... 1,136,020.6 3,145,275.0
2. Marked to market positions3
a) Asset (+) ..................................................................................................... 13,891.8 1,459.8
b) Liability (–) ...................................................................................................
3. Credit exposure4 ................................................................................................ 115,703.5 91,886.0
4. Likely impact of one percentage change in interest rate (100*PV01)5
a) On hedging derivatives6 .............................................................................. 58.2 7,288.5
b) On trading derivatives ................................................................................. 1,380.6 1,646.7
5. Maximum and minimum of 100*PV01 observed during the year
a) On hedging6
Maximum .................................................................................................... (54.6) (6,835.8)
Minimum ..................................................................................................... (323.9) (9,071.7)
b) On trading
Maximum .................................................................................................... (1,358.8) 2,322.6
Minimum ..................................................................................................... (2,121.7) 1,282.0
1. Options and cross currency interest rate swaps and currency futures are included in currency derivatives.
2. Foreign currency interest rate swaps, forward rate agreements and swaptions are included in interest rate derivatives.
3. For trading portfolio including accrued interest. Represents net positions.
4. Includes accrued interest.
5. Amounts given are absolute values on a net basis, excluding options.
6. The swap contracts entered for hedging purpose would have an opposite and offsetting impact with the underlying on-balance sheet
items.
schedules
forming part of the Accounts (Contd.)