The Hindu Business Line : High levels of derivative exposure

How do the derivative exposures of our banks measure against their net worth? The exposures range between 9 and 120 times of net worth. At the very top is ABN AMRO Bank.

With a total liability of Rs 1,62,334 crore towards outstanding forward and derivative contracts, and a net worth of Rs 1,347 crore, the bank's Indian branches account for a derivative exposure of 12,052 per cent.

At the second spot, on the relative scale, is Standard Chartered Bank, with 7,897 per cent exposure, or roughly 80 times, which is about two-thirds of ABN AMRO's. All the Indian banks in Table 1 appear conservative, in comparison, at sub-3,000 per cent levels. These are as per data at the end of March 2005 drawn from banks' disclosures under contingent liabilities, and analysed by Global Data Services of India Ltd (GDSIL), Pune.

For the banks in Table 2, data source has been the disclosure towards `liability on account of outstanding forward exchange contracts'. Whether this reported figure also includes the amount outstanding on derivative contracts is doubtful, opines GDSIL. However, using additional details given under `disclosures on risk exposures in derivatives' in the notes to accounts, one may derive the amount outstanding on derivative contracts.

In this set, we find that ING Vysya Bank Ltd has the maximum exposure, at 3,389 per cent of net worth. Canara Bank, State Bank of India, Allahabad Bank and Punjab National Bank are in sub-700 per cent category, as evidence perhaps of extreme caution.

It may be useful to study the earnings of different banks from derivative exposure, to see if high levels of risk-taking were suitably rewarded in the form of high returns.

D. M.

More Stories on : Accountancy | Derivatives Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The sugar policy muddle

Need for speed on the reform road

Fear of prosecution

Move on CFO

High levels of derivative exposure

Chocolate teacakes or `unjust enrichment'

Smoke 'n mirrors

These Special Uneconomic Zones

The man who made Hitler wait

"Judicial deal"

Save oil