7.1.1.8 Run-Off

In a Run-off assumption, the bank assumes that a certain percentage of deposits/liabilities will be withdrawn by their customers before the scheduled maturity of the deposit. This business assumption would result in an additional outflow in an earlier time bucket and a reduction in the contractual cash outflow in the original time bucket. The assumption can also be applied to assets as well, where the impact on cash flows will be opposite to that specified for deposits above.

The cash flow movement happens from forward bucket/s to the previous bucket/s since cash flows which were expected to be withdrawn at a future date are getting withdrawn as on date.

See Defining a New Business Assumption for information on the steps involved in specifying this assumption.

The following steps are involved in applying the delay in cash flow timing assumption to cash flows:

1. Identify the original time bucket and calculate the cash outflow occurring in it due to the assumption.
2. Identify the corresponding revised time buckets and the cash inflow occurring in it, including penalties, if any.
3. If time-specific or critical obligation, record the delay and indicate a breach. Cash flow assignment is done in the following manner:

   Figure 7-7 Formula for cash flow assignment

   
   

   

   
   

   An illustration is as follows:

   Table 7-9 Cash Flow Movement - Run-off

   Business Assumption Definition
   Legal Entity	Customer	From Bucket	To Bucket	Assumption Unit	Run- off	Assignment Method	Assumption Category	Based On
   Legal Entity 1	Customer 2	6- 6Days	3- 3Days	Percentage	10%	Equal	Cash Flow Movement: Run - off	Cash Flows

   Table 7-10 Cash Flow Movement - Run-off

   Cash flow Assignment
   To Bucket	Contractual Cash Flow(From Bucket)	Contractual Cash Flow(To Bucket)	Run-off	Revised Cash flow(From Bucket)	Revised Cash flow (To Bucket)
   Overnight	20000	10000	500		10500
   			[=(20000*10%)/4]		[=(10000+500)]
   1-1 Day		11000	500		11500
   			[=(20000*10%)/4]	1800018000 [(20000-20000*10%)]	[=(11000+500)]
   				[(20000-
   2-2 Days		22000	500	20000*10%)]	22500
   			[=(20000*10%)/4]		[=(22000+500)]
   3-3 Days		12000	500		12500
   			[=(20000*10%)/4]		[=(12000+500)]