Periodic and Cumulative Repricing-Gap Calculations - Article

Introduction

Traditional Gap Analysis measures how differences in the repricing timing of a bank’s assets and liabilities can affect Net Interest Income (NII) when market interest rates change.

The process has three basic stages:

1. place Rate-Sensitive Assets (RSA), Rate-Sensitive Liabilities (RSL) and relevant off-balance-sheet positions into the correct time buckets;

2. calculate the Periodic Repricing Gap for each bucket; and

3. calculate the Cumulative Repricing Gap across successive buckets.

Under the RBI Commercial Banks – Asset Liability Management Directions, 2025, the earnings perspective of Interest Rate Risk is measured through Traditional Gap Analysis. Rate-sensitive positions are bucketed according to residual maturity or next repricing period, whichever is earlier, and Earnings at Risk is assessed over a horizon that is usually one year.

The 2026 IIBF BFM syllabus includes Interest Rate Risk Management under Module D, covering sources, effects and measurement techniques.

Learning Objectives

After studying this topic, you should be able to:

• calculate the Periodic Gap for each interest-rate time bucket;

• calculate cumulative RSA, RSL and repricing gap;

• interpret positive and negative gap positions;

• understand how rate movements affect NII directionally;

• distinguish cumulative repricing gap from cumulative liquidity mismatch; and

• avoid common CAIIB numerical errors involving bucketing and gap signs.

Start with Correct Bucketing

Gap calculations are meaningful only when the underlying positions are placed in the correct time bucket.

RBI requires the Gap Report to group:

• Rate-Sensitive Assets;

• Rate-Sensitive Liabilities; and

• rate-sensitive off-balance-sheet positions

according to residual maturity or next repricing period, whichever is earlier. Principal repayments expected within the horizon, including interim instalments, are also rate sensitive.

Therefore:

Correct Bucketing → Correct RSA/RSL Totals → Correct Gap

A calculation can be mathematically perfect and still be wrong if an exposure has been placed in the wrong bucket.

Current RBI Interest-Rate Time Buckets

The current Interest Rate Sensitivity Statement uses the following 11 buckets:

RBI requires banks to prepare the Interest Rate Sensitivity Statement under TGA and DGA and submit it monthly.

Rate-Sensitive Assets

RSA are assets whose yield can become sensitive to market rates within the relevant period because they:

• mature;

• reprice;

• receive principal repayment; or

• contain another interest-sensitive cash-flow event.

Examples include:

• floating-rate loans reaching a reset date;

• fixed-rate loans maturing;

• maturing investments;

• money-market placements;

• loan instalments; and

• rate-sensitive derivative positions.

Rate-Sensitive Liabilities

RSL are liabilities whose funding cost can change within the relevant period because they:

• mature;

• reprice; or

• reach another contractual interest-reset point.

Examples include:

• maturing fixed-rate deposits;

• floating-rate borrowings;

• Certificates of Deposit;

• market borrowings; and

• relevant derivative positions.

Periodic Repricing Gap

The Periodic Gap measures the difference between RSA and RSL in one particular time bucket.

Periodic Gap = RSA − RSL

This identifies whether the bank is asset-sensitive or liability-sensitive within that bucket.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

Positive Periodic Gap

If:

RSA > RSL

the Periodic Gap is positive.

More assets than liabilities reprice during that period.

The bank is asset-sensitive for that bucket.

Negative Periodic Gap

If:

RSA < RSL

the Periodic Gap is negative.

More liabilities than assets reprice.

The bank is liability-sensitive for that bucket.

Zero Periodic Gap

If RSA equals RSL, the notional repricing gap is zero.

However, this does not necessarily eliminate Interest Rate Risk because the bank may still have:

• different repricing dates within the bucket;

• basis risk;

• yield-curve risk;

• behavioural optionality; or

• different degrees of rate pass-through.

Cumulative RSA and RSL

Periodic gaps show exposure in individual buckets.

To understand the bank’s running repricing position, RSA and RSL can also be accumulated across successive buckets.

Cumulative RSA = Sum of RSA from the First Bucket to the Selected Bucket

This measures all rate-sensitive assets up to the chosen repricing horizon.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

Similarly:

Cumulative RSL = Sum of RSL from the First Bucket to the Selected Bucket

This measures all rate-sensitive liabilities up to that horizon.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

Cumulative Repricing Gap

The Cumulative Gap combines the effects of all Periodic Gaps up to the relevant horizon.

Cumulative Gap = Cumulative RSA − Cumulative RSL

This identifies the bank’s net repricing position up to the selected time bucket.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

It can also be expressed as:

Cumulative Gap = Sum of Periodic Gaps up to the Selected Bucket

This provides the same running gap when Periodic Gaps have already been calculated.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

Periodic Gap vs Cumulative Gap

This difference is crucial in numerical problems.

Why the Signs Can Differ

A positive Periodic Gap does not necessarily mean the Cumulative Gap is positive.

Suppose earlier buckets contain a large negative gap.

A later bucket may have:

RSA > RSL

and therefore a positive Periodic Gap.

But the positive amount may be insufficient to offset the previous negative exposure.

The Cumulative Gap can therefore remain negative.

The opposite is also possible.

A bank may have a negative Periodic Gap in the current bucket while an earlier accumulated positive gap keeps the Cumulative Gap positive.

Therefore:

Current Periodic Gap ≠ Cumulative Repricing Position

Effect of a Positive Gap on NII

A positive gap means more assets than liabilities are due to reprice during the relevant period.

If market interest rates rise, assuming broadly similar rate transmission:

• more asset yields reprice upward;

• fewer liability costs reprice upward; and

• NII generally tends to increase.

If interest rates fall:

• more asset yields decline; and

• NII generally tends to decrease.

Therefore:

Positive Gap → Generally Benefits from Rising Rates

This is a directional relationship, not a guaranteed outcome.

Effect of a Negative Gap on NII

A negative gap means more liabilities than assets reprice.

When rates rise:

• funding costs may increase on a larger amount;

• fewer assets reprice upward; and

• NII generally tends to decline.

When rates fall:

• funding costs may fall faster; and

• NII may improve.

Therefore:

Negative Gap → Generally Benefits from Falling Rates

Simplified NII Sensitivity

A basic gap-analysis relationship commonly used to understand earnings sensitivity is:

Change in NII ≈ Repricing Gap × Change in Interest Rate

This provides a simplified directional estimate of the earnings effect of a rate change.

Refer to the Formula Section for a detailed explanation, variables, and solved examples.

However, real bank NII can differ from this simple estimate because:

• assets and liabilities may reprice at different points inside the bucket;

• rate movements may not be equal across benchmarks;

• deposit rates may be sticky;

• lending-rate transmission may be incomplete;

• embedded options may be exercised; and

• management may alter positions during the period.

RBI therefore requires banks to compute Earnings at Risk (EaR) under different interest-rate scenarios rather than relying only on a single static gap.

Periodic Gap and NII Direction Table

“Generally” is important because basis and option risks can alter the outcome.

Gap Ratio

For internal analysis, a bank may also relate the size of a gap to an appropriate balance-sheet measure such as:

• total assets;

• earning assets;

• NII; or

• another internally approved risk base.

The current RBI Directions require the Board/RMC to approve appropriate internal limits on:

• Earnings at Risk; and

• volatility in MVE,

and the framework also refers to limits on individual gaps. RBI does not prescribe the 5%-10%-15%-20% liquidity mismatch limits for interest-rate repricing gaps.

This distinction is highly important for CAIIB.

Repricing Gap Is Not Liquidity Gap

Students frequently confuse these two calculations.

Interest-Rate Gap

Measures:

RSA − RSL

Purpose:

Effect of changing rates on earnings

Liquidity Gap

Measures:

Cash Inflows − Cash Outflows

Purpose:

Ability to meet funding obligations

The same instrument can therefore be placed differently in the two statements.

RBI’s current 5%-10%-15%-20% limits apply to net cumulative negative liquidity mismatches in the SLS for Next Day, 2–7 days, 8–14 days and 15–30 days. They should not be applied to the IRS repricing-gap calculation.

Off-Balance-Sheet Positions

Traditional Gap Analysis is not restricted to visible assets and liabilities.

RBI requires rate-sensitive OBS positions to be included in the gap framework.

Examples may include:

• interest-rate swaps;

• Forward Rate Agreements;

• futures;

• options; and

• other interest-rate derivatives.

A derivative can alter the effective gap.

For example, a hedge may transform the economic behaviour of a fixed-rate exposure into a floating-rate position.

Ignoring the OBS position could therefore produce an incorrect gap.

Behavioural Items

Some instruments cannot be placed accurately using contractual dates alone.

RBI specifically requires behavioural studies for items without fixed maturity or with embedded optionality, including:

• savings bank deposits;

• current account deposits; and

• mortgage loans.

These studies should be based on at least three years of data and reviewed at least annually.

This matters because customer behaviour can shift RSA or RSL between buckets and materially alter:

• Periodic Gaps;

• Cumulative Gaps; and

• Earnings at Risk.

Practical Calculation Framework

For a CAIIB numerical, follow this sequence.

Step 1: Identify All Rate-Sensitive Positions

Separate:

• RSA;

• RSL; and

• relevant OBS items.

Step 2: Determine Repricing or Maturity Date

Use the earlier applicable date under RBI’s TGA methodology.

Step 3: Place Each Item into the Correct IRS Bucket

Do not use SLS liquidity buckets.

Step 4: Total RSA in Each Bucket

Add all Rate-Sensitive Assets for that bucket.

Step 5: Total RSL in Each Bucket

Add all Rate-Sensitive Liabilities.

Step 6: Calculate Periodic Gap

Use:

RSA − RSL

for each bucket.

Step 7: Carry Forward the Position

Add successive Periodic Gaps to determine the Cumulative Gap.

Step 8: Identify Gap Direction

Determine whether the bank is:

• asset-sensitive; or

• liability-sensitive

over the relevant horizon.

Step 9: Apply the Rate Scenario

Assess whether rates:

• rise;

• fall; or

• move differently across benchmarks.

Step 10: Interpret the NII Impact

Do not stop after calculating the gap. Explain what the sign means for earnings.

CAIIB Exam Focus

1. Gap = RSA − RSL

Do not reverse the subtraction.

2. Positive Gap Means Asset-Sensitive

RSA exceeds RSL.

3. Negative Gap Means Liability-Sensitive

RSL exceeds RSA.

4. Cumulative Gap Is a Running Total

Include all earlier Periodic Gaps.

5. Positive Periodic Gap Can Coexist with Negative Cumulative Gap

Earlier negative gaps may still dominate.

6. Rising Rates Generally Help a Positive Gap

More assets reprice upward than liabilities.

7. Rising Rates Generally Hurt a Negative Gap

More liabilities reprice upward than assets.

8. Bucketing Comes before Calculation

Use residual maturity or next repricing date, whichever is earlier.

9. TGA Usually Focuses on a One-Year Earnings Horizon

RBI uses TGA to assess NII sensitivity and EaR over a horizon usually of one year.

10. Do Not Import Liquidity Limits into IRR Calculations

The SLS and IRS statements serve different purposes.

Common Exam Traps

Trap 1: Calculating RSL − RSA

This reverses the sign and leads to the wrong interpretation.

Trap 2: Treating Periodic Gap as Cumulative Gap

The former covers one bucket; the latter includes all earlier buckets.

Trap 3: Forgetting an Earlier Negative Gap

A later positive gap does not automatically make the cumulative position positive.

Trap 4: Assuming Positive Gap Is Always Favourable

It can reduce earnings when interest rates fall.

Trap 5: Assuming Negative Gap Is Always Unfavourable

It can benefit earnings when rates fall.

Trap 6: Using Original Maturity

TGA uses residual maturity or next repricing period, whichever is earlier.

Trap 7: Ignoring OBS Positions

Interest-rate derivatives can materially change the effective RSA/RSL position.

Trap 8: Assuming Zero Gap Means Zero IRR

Basis, yield-curve and option risks may remain.

Trap 9: Applying 5%-10%-15%-20% to Repricing Gaps

Those are short-term liquidity mismatch limits, not interest-rate-gap limits.

Trap 10: Calculating the Gap without Interpreting Rate Direction

A complete case requires both the gap sign and the effect of the assumed interest-rate movement.

Memory Technique

Remember:

A − L = G

• A = Rate-Sensitive Assets

• L = Rate-Sensitive Liabilities

• G = Gap

Then:

Previous Cumulative Gap + Current Gap = New Cumulative Gap

For direction:

Positive + Rise → Earnings generally Rise

Negative + Rise → Earnings generally Fall

The complete sequence is:

Bucket → RSA → RSL → Periodic Gap → Cumulative Gap → Rate Direction → NII Effect