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Financial instruments | 12 Months Ended
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Mar. 31, 2020
Financial instruments | 24. Financial instruments Foreign exchange and derivative contracts The Bank enters into forward exchange contracts, currency options, forward rate agreements, currency swaps and rupee interest rate swaps with inter-bank participants on its own account and for customers. These transactions enable customers to transfer, modify or reduce their foreign exchange and interest rate risks. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest in one currency against another currency and exchange of principal amount at maturity based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating rate interest cash flows. A forward rate agreement gives the buyer the ability to determine the underlying rate of interest for a specified period commencing on a specified future date (the settlement date) when the settlement amount is determined being the difference between the contracted rate and the market rate on the settlement date. Currency options give the buyer the right, but not an obligation, to buy or sell specified amounts of currency at agreed rates of exchange on or before a specified future date. The market and credit risk associated with these products, as well as the operating risks, are similar to those relating to other types of financial instruments. Market risk is the exposure created by movements in interest rates and exchange rates during the tenure of the transaction. The extent of market risk affecting such transactions depends on the type and nature of the transaction, the value of the transaction and the extent to which the transaction is uncovered. Credit risk is the exposure to loss in the event of default by counterparties. The extent of loss on account of a counterparty default will depend on the replacement value of the contract at the ongoing market rates. The Bank uses its pricing models to determine fair values of its derivative financial instruments. The Bank records credit risk valuation adjustments on derivative financial instruments in order to reflect the credit quality of the counterparties and its own credit quality. The Bank calculates valuation adjustments on derivatives based on observable market credit risk spreads. The following table presents the aggregate notional principal amounts of the Bank’s outstanding forward exchange and other derivative contracts as of March 31, 2019 and March 31, 2020, together with the fair values on each reporting date.
|  | As of March 31, 2019 |
|  | Notional |  |  | Gross Assets |  |  | Gross Liabilities |  |  | Net Fair Value |
Interest rate derivatives |  | Rs. | 3,159,867.1 |  |  | Rs. | 27,932.0 |  |  | Rs. | 27,102.8 |  |  | Rs. | 829.2 |
Forward rate agreements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Currency options |  |  | 282,096.9 |  |  |  | 2,326.1 |  |  |  | 2,617.2 |  |  |  | (291.1 | )
Currency swaps |  |  | 197,044.2 |  |  |  | 5,841.0 |  |  |  | 4,070.7 |  |  |  | 1,770.3 |
Forward exchange contracts |  |  | 5,561,859.5 |  |  |  | 96,425.0 |  |  |  | 94,658.3 |  |  |  | 1,766.7 |
Total |  | Rs. | 9,200,867.7 |  |  | Rs. | 132,524.1 |  |  | Rs. | 128,449.0 |  |  | Rs. | 4,075.1 |
|  | As of March 31, 2020 |
|  | Notional |  |  | Gross Assets |  |  | Gross Liabilities |  |  | Net Fair Value |  |  | Notional |  |  | Net Fair Value |
|  | (In millions) |
Interest rate derivatives |  | Rs. | 3,644,495.8 |  |  | Rs. | 49,876.8 |  |  | Rs. | 51,976.9 |  |  | Rs. | (2,100.1 | ) |  | US$ | 48,341.9 |  |  | US$ | (27.9 | )
Forward rate agreements |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Currency options |  |  | 304,252.4 |  |  |  | 3,034.4 |  |  |  | 4,342.0 |  |  |  | (1,307.6 | ) |  |  | 4,035.7 |  |  |  | (17.3 | )
Currency swaps |  |  | 202,725.6 |  |  |  | 12,396.0 |  |  |  | 6,592.1 |  |  |  | 5,803.9 |  |  |  | 2,689.0 |  |  |  | 77.0 |
Forward exchange contracts |  |  | 6,079,195.0 |  |  |  | 125,230.4 |  |  |  | 121,872.0 |  |  |  | 3,358.4 |  |  |  | 80,636.6 |  |  |  | 44.6 |
Total |  | Rs. | 10,230,668.8 |  |  | Rs. | 190,537.6 |  |  | Rs. | 184,783.0 |  |  | Rs. | 5,754.6 |  |  | US$ | 135,703.2 |  |  | US$ | 76.4 |
The Bank has not designated the above contracts as accounting hedges and accordingly the contracts are recorded at fair value on the balance sheet with changes in fair value recorded in net income. The gross assets and the gross liabilities are recorded in ‘other assets’ and ‘accrued expenses and other liabilities’, respectively. The following table summarizes certain information related to derivative amounts recognized in income:
|  | Non-interest revenue, net – Derivatives for the years ended March 31, |
|  | 2018 |  |  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Interest rate derivatives |  | Rs. | 1,027.5 |  |  | Rs. | 736.4 |  |  | Rs. | (2,572.2 | ) |  | US$ | (34.1 | )
Forward rate agreements |  |  | 0.5 |  |  |  | 0.1 |  |  |  | — |  |  |  | — |
Currency options |  |  | (15.0 | ) |  |  | (262.5 | ) |  |  | 585.5 |  |  |  | 7.7 |
Currency swaps |  |  | (1,706.9 | ) |  |  | 1,045.0 |  |  |  | 3,465.5 |  |  |  | 46.0 |
Forward exchange contracts |  |  | 7,436.5 |  |  |  | 10,890.1 |  |  |  | 2,071.2 |  |  |  | 27.5 |
Total gains/(losses) |  | Rs. | 6,742.6 |  |  | Rs. | 12,409.1 |  |  | Rs. | 3,550.0 |  |  | US$ | 47.1 |
Offsetting The following table shows the impact of netting arrangements on derivative financial instruments, repurchase and reverse repurchase agreements that are subject to enforceable master netting arrangements or similar agreements, but are not offset in accordance with ASC 210-20-45 and ASC 815-10-45. The Bank enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Bank’s foreign exchange and derivative contract counterparties. These master netting agreements, give the Bank, in the event of default by the counterparty, the right to liquidate collaterals held or placed and to offset receivables and payables with the same counterparty. In the table below the Bank has presented the gross derivative assets and liabilities adjusted for the effects of master netting agreements and collaterals received or pledged. Transactions with counterparties for Securities sold under agreements to repurchase (“repos”) and securities purchased under agreements to resell (“reverse repos”) are settled through the Clearing Corporation of India Limited (“CCIL”), a centralized clearing house. Collaterals received or pledged comprise of highly liquid investments. For undertaking the above transactions, power of attorney is executed by the Bank and the counterparties in favor of CCIL to liquidate the securities pledged in the event of default.
|  | As of March 31, 2019 |
|  | Amounts subject to enforceable netting arrangements |  |  |  |
|  | Effects of offsetting on balance sheet |  |  | Related amounts not offset |  |  |  |
|  | Gross Amounts |  |  | Amounts offset |  |  | Net amounts reported in the balance sheet |  |  | Financial instruments |  |  | Financial collateral (1) |  |  | Net amount |
|  | (In millions) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets |  | Rs. | 132,524.1 |  |  |  | Rs. — |  |  | Rs. | 132,524.1 |  |  | Rs. | 104,025.7 |  |  | Rs. | 2,651.7 |  |  |  | Rs. 25,846.7 |
Securities purchased under agreements to resell |  |  | 76,213.5 |  |  |  | — |  |  |  | 76,213.5 |  |  |  | — |  |  |  | 76,213.5 |  |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | Rs. | 128,449.0 |  |  |  | Rs. — |  |  | Rs. | 128,449.0 |  |  | Rs. | 104,025.7 |  |  | Rs. | 3,098.1 |  |  |  | Rs. 21,325.2 |
Securities sold under repurchase agreements |  |  | 174,000.0 |  |  |  | — |  |  |  | 174,000.0 |  |  |  | — |  |  |  | 174,000.0 |  |  |  | — |
(1) | Comprised of securities and cash collaterals. These amounts are limited to the asset/liability balance, and accordingly, do not include excess collateral received/pledged.
|  | As of March 31, 2020 |
|  | Amounts subject to enforceable netting arrangements |  |  |  |  |  |  |
|  | Effects of offsetting on balance sheet |  |  | Related amounts not offset |  |  |  |  |  |  |
|  | Gross Amounts |  |  | Amounts offset |  |  | Net amounts reported in the balance sheet |  |  | Financial instruments |  |  | Financial collateral (1) |  |  | Net amount |  |  |  |
|  | (In millions) |
Financial assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets |  | Rs. | 190,537.6 |  |  |  | Rs. — |  |  | Rs. | 190,537.6 |  |  |  | Rs. 147,844.5 |  |  | Rs. | 8,326.7 |  |  |  | Rs. 34,366.4 |  |  | US$ | 455.8 |
Securities purchased under agreements to resell |  |  | 250,000.0 |  |  |  | — |  |  |  | 250,000.0 |  |  |  | — |  |  |  | 250,000.0 |  |  |  | — |  |  |  | — |
Financial liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Derivative liabilities |  | Rs. | 184,783.0 |  |  |  | Rs. — |  |  | Rs. | 184,783.0 |  |  |  | Rs. 147,844.5 |  |  | Rs. | 6,706.7 |  |  |  | Rs. 30,231.8 |  |  | US$ | 401.0 |
Securities sold under repurchase agreements |  |  | 507,982.0 |  |  |  | — |  |  |  | 507,982.0 |  |  |  | — |  |  |  | 507,982.0 |  |  |  | — |  |  |  | — |
Long Term debt |  |  | 17,260.0 |  |  |  | — |  |  |  | 17,260.0 |  |  |  | — |  |  |  | 17,260.0 |  |  |  | — |  |  |  | — |
(1) | Comprised of securities and cash collaterals. These amounts are limited to the asset/liability balance, and accordingly, do not include excess collateral received/pledged.
Guarantees As a part of its commercial banking activities, the Bank has issued guarantees and documentary credits, such as letters of credit, to enhance the credit standing of its customers. These generally represent irrevocable assurances that the Bank 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 tenure of the guarantees issued or renewed by the Bank is normally in line with requirements on case-by-case basis as may be assessed by the Bank. The remaining tenure of guarantees presently issued by the Bank and currently outstanding ranges from 1 day to 25.6 years. The credit risk associated with these products, as well as the operating risks, is similar to those relating to other types of financial instruments. In accordance with FASB ASC 460-10 the Bank has recognized a liability of Rs. 3,544.4 million and Rs. 4,191.9 million as of March 31, 2019 and March 31, 2020, respectively, in respect of guarantees issued or modified. Based on historical trends, in accordance with FASB ASC 450, the Bank has recognized a liability of Rs. 2,589.5 million and Rs. 3,011.9 million as of March 31, 2019 and March 31, 2020, respectively. Details of guarantees and documentary credits outstanding are set out below:
|  | As of March 31, |
|  | 2019 |  |  | 2020 |  |  | 2020 |
|  | (In millions) |
Nominal values: |  |  |  |  |  |  |  |  |  |  |  |
Bank guarantees: |  |  |  |  |  |  |  |  |  |  |  |
Financial guarantees |  | Rs. | 254,075.9 |  |  | Rs. | 263,758.0 |  |  | US$ | 3,498.6 |
Performance guarantees |  |  | 285,748.4 |  |  |  | 330,164.6 |  |  |  | 4,379.4 |
Documentary credits |  |  | 475,617.8 |  |  |  | 440,232.7 |  |  |  | 5,839.4 |
Total |  | Rs. | 1,015,442.1 |  |  | Rs. | 1,034,155.3 |  |  | US$ | 13,717.4 |
Estimated fair values: |  |  |  |  |  |  |  |  |  |  |  |
Guarantees |  | Rs. | (3,544.4 | ) |  | Rs. | (4,191.9 | ) |  | US$ | (55.6 | )
Documentary credits |  |  | (501.7 | ) |  |  | (488.8 | ) |  |  | (6.5 | )
Total |  | Rs. | (4,046.1 | ) |  | Rs. | (4,680.7 | ) |  | US$ | (62.1 | )
As part of its risk management activities, the Bank continuously monitors the creditworthiness of customers as well as guarantee exposures. If a customer fails to perform a specified obligation, a beneficiary may draw upon the guarantee by presenting documents in compliance with the guarantee. In that event, the Bank makes payment on account of the defaulting customer to the beneficiary up to the full notional amount of the guarantee. The customer is obligated to reimburse the Bank for any such payment. If the customer fails to pay, the Bank liquidates any collateral held and sets off accounts; if insufficient collateral is held, the Bank recognizes a loss. Margins in the form of cash and fixed deposit available to the Bank to reimburse losses realized under guarantees amounted to Rs. 99.5 billion and Rs. 130.5 billion as of March 31, 2019 and March 31, 2020, respectively. Other property or security may also be available to the Bank to cover losses under these guarantees. Undrawn commitments The Bank has outstanding undrawn commitments to provide loans and financing to customers. These commitments aggregated to Rs. 452.9 billion and Rs. 539.8 billion (US$ 7.2 billion) as of March 31, 2019 and March 31, 2020, respectively. Among other things, the making of a loan is subject to a review of the creditworthiness of the customer at the time the customer seeks to borrow, at which time the Bank has the unilateral right to decline to make the loan. If the Bank were to make such loans, the interest rates would be dependent on the lending rates in effect when the loans were disbursed. Further, the Bank has unconditional cancellable commitments aggregating to Rs. 3,150.9 billion and Rs. 3,806.2 billion (US$ 50.5 billion) as of March 31, 2019 and March 31, 2020, respectively.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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