Rate-Sensitive Assets and Liabilities by Time Bucket - Article

Introduction

Interest-rate risk does not depend only on whether a bank has more assets than liabilities.

The important question is:

When will the interest rates on those assets and liabilities change?

A bank may have a five-year loan, but its rate may reset after three months. Similarly, a three-year deposit may carry a fixed rate until maturity.

For Interest Rate Risk measurement, these two items behave very differently.

Under RBI’s current Commercial Banks – Asset Liability Management Directions, 2025, banks use Traditional Gap Analysis (TGA) to measure the sensitivity of Net Interest Income to changes in interest rates. Rate-Sensitive Assets (RSA), Rate-Sensitive Liabilities (RSL) and relevant off-balance-sheet positions are grouped into time buckets according to residual maturity or the next repricing period, whichever is earlier.

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

Learning Objectives

After studying this topic, you should be able to:

• identify whether an asset or liability is interest-rate sensitive;

• place RSA and RSL into the correct RBI time bucket;

• distinguish residual maturity from the next repricing date;

• understand fixed-rate, floating-rate and behavioural bucketing;

• interpret positive and negative interest-rate gaps; and

• avoid confusing liquidity-maturity buckets with interest-rate-sensitivity buckets.

What Is a Rate-Sensitive Asset?

A Rate-Sensitive Asset is an asset whose interest income can be affected within the relevant period because the asset:

• matures;

• reprices;

• has a contractual rate reset;

• generates a principal repayment; or

• otherwise becomes sensitive to prevailing rates within that period.

RBI specifically includes investments, advances and other assets that mature or reprice within the relevant timeframe. Principal repayments of loans, including interim instalments, are also rate sensitive when expected within the horizon.

Typical RSAs can include:

• floating-rate loans approaching their reset date;

• fixed-rate loans approaching maturity;

• loan instalments falling due;

• maturing Government securities;

• money-market placements;

• floating-rate investments; and

• rate-sensitive off-balance-sheet positions.

What Is a Rate-Sensitive Liability?

A Rate-Sensitive Liability is a liability whose interest cost can change within the relevant period because it:

• matures;

• is repriced;

• has a contractual reset; or

• is otherwise exposed to a rate change during that period.

Typical RSLs can include:

• maturing term deposits;

• floating-rate borrowings;

• Certificates of Deposit;

• market borrowings;

• deposits approaching a repricing event; and

• relevant interest-sensitive OBS positions.

Current RBI Interest-Rate-Sensitivity Time Buckets

Under the current RBI framework, the Interest Rate Sensitivity Statement uses 11 buckets:

These buckets apply to the Interest Rate Sensitivity Statement used under TGA and DGA. RBI requires banks to prepare the IRS Statement monthly.

Residual Maturity vs Next Repricing Date

This is the central concept of the topic.

Residual Maturity

Residual maturity means the time remaining until the instrument finally matures or the relevant cash flow becomes due.

Next Repricing Date

The repricing date is the next date on which the contractual interest rate can change.

RBI requires the Gap Report to group rate-sensitive items according to residual maturity or next repricing period, whichever is earlier.

Case 1: Long-Term Floating-Rate Loan

A corporate loan has:

• residual maturity of four years; but

• the interest rate resets after two months.

For interest-rate sensitivity, the loan should not be treated simply as a four-year exposure.

Its rate can change after two months.

Therefore, the relevant interest-rate-sensitive position falls within the bucket containing that next repricing date.

Case 2: Fixed-Rate Loan

A fixed-rate loan has:

• residual maturity of two years; and

• no contractual repricing before maturity.

The loan remains locked at its existing rate.

Its relevant rate-sensitivity classification is therefore linked to its residual maturity, subject to applicable cash-flow and behavioural treatment.

The difference is:

Floating Rate → Usually driven by next reset

Fixed Rate → Usually driven by maturity/cash-flow date

Original Maturity Is Not the Correct Test

Suppose a five-year fixed-rate deposit was accepted four years and eleven months ago and matures in 20 days.

Its original maturity was five years.

Its residual maturity is only 20 days.

For the current IRS statement, it belongs according to the remaining period, not its original five-year tenor.

This is a common CAIIB trap.

Floating-Rate Assets

Floating-rate assets change their rate periodically according to a contractual benchmark or reset mechanism.

Examples can include loans linked to:

• an external benchmark;

• another permitted lending benchmark; or

• another contractual floating reference rate.

Suppose a loan has:

• final maturity after seven years; but

• repricing every three months.

The final maturity is not the primary TGA date.

The loan becomes rate-sensitive each time its rate resets.

RBI specifically states that assets and liabilities repriced at predetermined intervals are rate sensitive at the time of repricing.

Fixed-Rate Assets

A fixed-rate asset does not reprice simply because market rates change.

Its contractual income stays fixed until:

• maturity;

• a permitted contractual reset;

• exercise of an embedded option; or

• another event affecting its cash flow.

Therefore, fixed-rate positions can remain in longer RSA buckets even when market rates move immediately.

This creates an important risk:

The bank may be unable to increase income from the fixed-rate asset even though its funding costs reprice upward.

Loan Instalments and Principal Repayments

A loan does not have to be treated as one single amount falling only at final maturity.

RBI states that principal repayments expected within the time horizon, including interim instalments and the final principal payment, are rate-sensitive cash flows.

Therefore, an amortising loan can distribute exposure across different time periods.

Case 3: Amortising Loan

A term loan has a final maturity after five years but contractual principal instalments arise periodically.

The learner should not automatically put the entire balance into only the over 3–5-year bucket.

Applicable cash flows and repricing characteristics need to be considered according to the regulatory bucketing methodology.

Fixed-Rate Liabilities

Consider a fixed-rate term deposit.

If the contractual interest rate remains unchanged until maturity, the liability generally becomes sensitive when it reaches the relevant maturity/repricing point.

If market rates rise before maturity:

• the bank continues paying the old contractual rate;

• but replacement funding available today may cost more.

When the deposit matures, refinancing can occur at the new market rate.

That is why the maturity date matters for the bank’s future interest expense.

Floating-Rate Liabilities

A floating-rate borrowing may have a long final maturity but reset frequently.

For example:

• maturity after three years;

• rate reset after one month.

Its interest cost can change after one month.

Therefore, for TGA, the next repricing period becomes more important than the final three-year maturity.

Non-Maturity Deposits and Behavioural Bucketing

Some liabilities do not have a simple fixed maturity.

Examples include:

• current accounts; and

• savings bank deposits.

A contractual approach alone may not reflect their real interest-rate behaviour.

RBI therefore requires banks to conduct behavioural studies for RSA and RSL items without fixed maturity or with embedded optionality, specifically mentioning:

• savings bank deposits;

• current account deposits; and

• mortgage loans.

These studies must:

• use an appropriate documented framework;

• be applied consistently;

• be reviewed at least annually;

• be revised, if necessary, in the first quarter of the financial year; and

• use at least three years of data.

Why Behavioural Analysis Matters

A current-account balance may technically be withdrawable immediately.

However, a stable portion may remain with the bank for a long time.

Similarly, a long-term mortgage may be prepaid before contractual maturity.

The bank therefore needs realistic behavioural assumptions rather than mechanically relying on legal maturity alone.

Rate-Sensitive Off-Balance-Sheet Positions

Interest-rate exposure is not limited to loans, investments and deposits.

Relevant off-balance-sheet products can include:

• interest-rate swaps;

• Forward Rate Agreements;

• futures;

• options; and

• other derivatives.

RBI requires rate-sensitive OBS positions to be incorporated into TGA and DGA along with balance-sheet RSA and RSL.

This is important because a derivative may deliberately alter the bank’s effective repricing position.

For example, an interest-rate swap can convert the economic behaviour of an exposure from:

• fixed to floating; or

• floating to fixed.

Ignoring the derivative could therefore give a misleading gap.

Calculating the Interest-Rate Gap

After positions are assigned to the correct bucket, the bank compares RSA and RSL.

Interest Rate Gap = RSA − RSL

This shows whether more assets or more liabilities reprice within the selected time bucket.

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

Positive Gap

RSA > RSL

More assets than liabilities reprice.

The bank is asset-sensitive in that bucket.

Negative Gap

RSA < RSL

More liabilities than assets reprice.

The bank is liability-sensitive in that bucket.

Zero Gap

RSA and RSL are equal in amount.

However, a zero broad bucket gap does not necessarily remove all IRR because there can still be:

• different repricing dates within the bucket;

• different benchmarks;

• embedded options;

• yield-curve risk; and

• behavioural differences.

Case 4: Positive Short-Term Gap

Assume the bank has a large volume of floating-rate loans repricing in the next three months, while a smaller volume of liabilities reprices during the same period.

The relevant bucket has:

RSA > RSL

If market rates rise and other factors remain similar:

• asset yields can increase on a larger base;

• liability costs increase on a smaller base; and

• NII generally tends to improve.

If rates fall, the same positive gap can work against the bank because asset income can decline more rapidly.

Therefore:

Positive gap is not inherently “good.”

Its effect depends on the direction of rates.

Case 5: Negative Short-Term Gap

Now suppose a bank funds long-term fixed-rate loans with short-term deposits.

The deposits reprice or mature within three months, while the loan rates remain fixed for several years.

The short-term bucket shows:

RSL > RSA

If interest rates rise:

• deposit and funding costs can increase;

• loan income remains largely unchanged;

• NII can fall.

The bank is therefore vulnerable to rising rates from the earnings perspective.

If rates fall, liability costs may decline faster and NII may benefit.

Case 6: Same Maturity, Different Repricing

A loan and a borrowing both mature after five years.

At first sight, they appear matched.

But:

• the loan reprices every six months; and

• the borrowing carries a fixed rate until maturity.

The two exposures should not simply be placed together because their final maturities are identical.

The loan becomes interest-rate sensitive much earlier due to its repricing schedule.

This is precisely why RBI uses residual maturity or next repricing period, whichever is earlier.

Case 7: Same Time Bucket but Different Benchmark

Suppose both an asset and liability reprice after two months.

Their amounts are identical.

The gap may appear close to zero.

However:

• the asset follows Benchmark A;

• the liability follows Benchmark B.

If the two benchmarks move differently, the bank can still suffer a change in spread.

This is basis risk.

Therefore:

Matched RSA and RSL amounts do not automatically mean zero interest-rate risk.

TGA mainly captures repricing mismatch. Other IRR sources must also be considered.

Case 8: Mortgage Prepayment

A bank has long-term fixed-rate housing loans placed in longer time buckets.

Market rates decline sharply.

Customers begin prepaying and refinancing their loans.

Expected cash flows now arrive earlier than assumed.

This changes:

• the effective maturity of the assets;

• future interest income;

• reinvestment requirements; and

• interest-rate exposure.

RBI specifically requires behavioural studies for mortgage loans and other instruments with embedded optionality.

The lesson is:

Contractual maturity can be overridden by realistic behavioural sensitivity.

Interest-Rate Buckets vs Liquidity Buckets

This distinction is extremely important.

Interest Rate Sensitivity Statement

Asks:

When will this item mature or reprice for interest-rate-risk purposes?

Current first bucket:

1–28 days

Structural Liquidity Statement

Asks:

When is cash expected to flow in or out for liquidity purposes?

Its current short-term buckets include:

• Next Day;

• 2–7 days;

• 8–14 days; and

• 15–30 days.

The two reports may therefore place the same product differently because they answer different risk questions.

Currency-Wise Rate Sensitivity

RBI also requires banks to consider interest-rate risk by currency.

TGA and DGA must be applied separately where either assets or liabilities in a currency are 5% or more of the bank’s global assets or global liabilities. Other residual currencies are computed separately on an aggregate basis.

This matters because:

• rupee interest rates;

• dollar interest rates; and

• rates in other currencies

can move differently.

A bank may therefore have a positive rupee gap and a negative gap in another significant currency.

Practical Case-Study Framework

When CAIIB gives a list of assets and liabilities, use this sequence.

Step 1: Identify the Instrument

Is it:

• asset;

• liability; or

• OBS position?

Step 2: Determine Whether It Is Rate Sensitive

Will it:

• mature;

• reprice;

• generate relevant principal cash flow; or

• experience another rate-sensitive event?

Step 3: Find Residual Maturity

Do not use original maturity.

Step 4: Find Next Repricing Date

For floating-rate items, this may be much earlier than final maturity.

Step 5: Use the Earlier Relevant Date

Apply the RBI TGA rule.

Step 6: Check for Behavioural Optionality

For products such as:

• savings accounts;

• current accounts; and

• mortgage loans,

check whether behavioural treatment is required.

Step 7: Put the Item into the Correct IRS Bucket

Use the current 11-bucket structure.

Step 8: Total RSA and RSL Separately

Do not net individual items before they are classified correctly.

Step 9: Determine the Gap

Identify whether the bucket is:

• asset-sensitive;

• liability-sensitive; or

• broadly matched.

Step 10: Apply the Interest-Rate Scenario

Ask whether rates:

• rise;

• fall; or

• move differently across benchmarks.

Then interpret the likely NII effect.

CAIIB Exam Focus

1. Use Repricing or Residual Maturity, Whichever Is Earlier

This is the key TGA bucketing rule.

2. Know the Current IRS Buckets

The first two are:

• 1–28 days

• 29 days to 3 months

not the SLS buckets.

3. Floating-Rate Long-Term Loan Can Be Short-Term RSA

Its next repricing date can determine its bucket.

4. Fixed-Rate Instrument Normally Waits until Relevant Maturity

Unless an option or other repricing feature changes its sensitivity.

5. Principal Repayments Can Be Rate Sensitive

Do not look only at interest-reset dates.

6. Positive Gap Means RSA > RSL

Generally favourable when rates rise and unfavourable when rates fall.

7. Negative Gap Means RSL > RSA

Generally unfavourable when rates rise and favourable when rates fall.

8. Behavioural Assumptions Matter

CASA balances and mortgages cannot always be classified correctly using contractual maturity alone.

9. Zero Gap Does Not Mean Zero IRR

Basis risk, option risk and yield-curve risk can remain.

10. TGA Measures Earnings Sensitivity

Its principal focus is the effect of rate movements on NII, usually over a one-year horizon.

Common Exam Traps

Trap 1: “Use Original Maturity to Select the Bucket”

Wrong. Use residual maturity or next repricing period as applicable.

Trap 2: “A Seven-Year Floating Loan Goes into the 5–7-Year Bucket”

Not necessarily. If it reprices in three months, its rate sensitivity arises much earlier.

Trap 3: “A Fixed-Rate Deposit Reprices Whenever Market Rates Change”

Wrong. Market rates can change without changing its contractual fixed rate.

Trap 4: “Only Interest Payments Matter in RSA”

Wrong. RBI also treats expected principal repayments within the horizon as rate sensitive.

Trap 5: “RSA > RSL Is Always Good”

Wrong. A positive gap tends to benefit from rising rates but can hurt earnings when rates fall.

Trap 6: “RSA = RSL Means Interest-Rate Risk Is Zero”

Wrong. Benchmark, timing and option differences may remain.

Trap 7: “Savings Deposits Must Be Placed Only by Contractual Terms”

Wrong. RBI requires behavioural studies for non-maturity deposits.

Trap 8: “IRS and SLS Use the Same Time Buckets”

Wrong. They measure different risks and use different bucket structures.

Trap 9: “SLS Mismatch Limits Apply to the Interest-Rate Gap”

Wrong. The 5%-10%-15%-20% limits are liquidity mismatch limits, not TGA interest-rate-gap limits.

Trap 10: “Off-Balance-Sheet Positions Can Be Ignored”

Wrong. RBI requires relevant rate-sensitive OBS positions to be included in the IRR framework.

Memory Technique

Remember:

M – R – B – G

• M = Maturity

• R = Repricing

• B = Bucket

• G = Gap

Use the earlier relevant Maturity/Repricing date, put the item in the correct Bucket, and then calculate the Gap.

For gap direction:

P-Rise | N-Fall

• Positive gap → generally benefits when rates Rise

• Negative gap → generally benefits when rates Fall