Interest Rate Hedging Products of SBI

8/8/2019 Interest Rate Hedging Products of SBI

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JOFIJOHNKUTTY



` Established in 1806 at Calcutta as Bank of Calcutta and later redesigned as the Bank of Bengal in 1809

` Bank of Madras, Bank of Bombay and bank of Bengal amalgamated to for m Imperial bank of India on

January 27, 1921` It was nationalised on 1955 and was renamed as

State Bank of India

` It is the oldest bank of Indian sub-continent

`

Largest branch network in India with 16000 branches` Over 8500 ATM¶s

` WEBSITE: statebankof india.com



It has the following six Associate Banks

` 1. State Bank of Bikaner and Jaipur (SBBJ)

` 2. State Bank of Hyderabad (SBH)` 3. State Bank of Indore (SBIr )

` 4. State Bank of Mysore (SBM)

` 5. State Bank of Patiala (SBP)

` 6. State Bank of Travancore (SBT)



` Other than basic ser vices SBI pr ovides treasury

ser vices like foreign exchange and risk

management

` 7 RTMU units in the country` It an inter mediary which connects customers with

treasury

` It pr ovides ser vice only to existing customers

` Clients are rated by Credit Department(SB1 toSB16)

` There are about 150 clients currently



` Derivatives and Forex

` It is into forex trading and pr oviding structured

pr oducts

` It tracks the position of the customers and the economy and advise based the prevailing

conditions

` Clients are rated by Credit Department State Bank

Advance Rate (SBAR) (credit rating of sbi range f r om SB1 to SB16)



` An interest rate derivative is a derivative where

the underlying asset is the right to pay or receive a

notional amount of money at a given interest rate.

` The interest rate derivatives market is the largest derivatives market in the world.

` 80% of the world's top 500 companies used

interest rate derivatives to contr ol their cash f lows.



` An interest rate swap is a derivative in which one party

exchanges a stream of interest payments for another

party's stream of cash f lows.

` Interest rate swaps can be used by hedgers to

manage their f ixed or f loating assets and liabilities.

` They can also be used by speculators to replicate

unf unded bond exposures to pr of it f r om changes in

interest rates.

` Interest rate swaps are very popular and highly liquid

instruments.





` ISDA Master Agreement which would contain the µnon-economic¶ ter ms²such as representations and warranties, events of def ault, and ter mination events

` Counter parties are f ree to negotiate only the µeconomic¶ ter ms²that is, rate or price, notional amount, maturity, collateral, and so on.

` ISDA Master Agreement include pr ovisions that

f acilitate payment netting and close-out netting.



` creates a credit relationship between the

counter parties, the ter ms of which need to be

negotiated and documented

` swaps are traded in the market and might involve repeated interaction between two counter parties;

renegotiation of credit ter ms for each transaction

would be costly and would act as a drag on

trading activity



` SBI discloses all types of risks associated with

derivatives to its customers and get their conf ir mation

regarding the same.

` Customer must acknowledge and accept that there

can be no guarantee of pr of its or no exception f r om

losses while executing contracts

` Customer should therefore caref ully and consider

whether such trading is suitable for him/her in the light

of f inancial condition.

` customer should undertake transactions only if

customer understands the nature of the contractual

relationship into which he/she is entering and the

extent of exposure to risk



` Securities Contracts (Regulation) Act, 1956 (Sc(r )

A)

` Securities And Exchange Board Of India Act,

1992` Taxation Of Derivative Transaction In Securities

` RBI Guidelines

Documents

Interest Rate Hedging Products of SBI