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    Treasury Management in Banks - CAIIB

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    AparnaBhatt
    The treasury department of a bank has four main responsibilities: 1. Ensuring assets match liabilities (ALM) 2. Predicting the sensitivity of non-interest income to external shocks 3. Managing the bank's liquidity 4. Maintaining statutory requirements like SLR and CRR The treasury department invests the bank's surplus funds across various markets and securities to generate profits while meeting regulatory requirements.

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    Treasury Management in Banks - CAIIB

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    The treasury department of a bank has four main responsibilities: 1. Ensuring assets match liabilities (ALM) 2. Predicting the sensitivity of non-interest income to external shocks 3. Managing the bank's liquidity 4. Maintaining statutory requirements like SLR and CRR The treasury department invests the bank's surplus funds across various markets and securities to generate profits while meeting regulatory requirements.

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    The treasury department of a bank has four main responsibilities: 1. Ensuring assets match liabilities (ALM) 2. Predicting the sensitivity of non-interest income to external shocks 3. Managing the bank's liquidity 4. Maintaining statutory requirements like SLR and CRR The treasury department invests the bank's surplus funds across various markets and securities to generate profits while meeting regulatory requirements.

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    © All Rights Reserved
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    Download as pdf or txt
    96 views157 pages

    Treasury Management in Banks - CAIIB

    Uploaded by

    AparnaBhatt
    The treasury department of a bank has four main responsibilities: 1. Ensuring assets match liabilities (ALM) 2. Predicting the sensitivity of non-interest income to external shocks 3. Managing the bank's liquidity 4. Maintaining statutory requirements like SLR and CRR The treasury department invests the bank's surplus funds across various markets and securities to generate profits while meeting regulatory requirements.

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    Treasury Management in Banks – CAIIB

    The primary function of the treasury department of any bank is to ensure that its assets match liabilities
    in every possible way (ALM).
    1. It is also the job of the treasury department to predict exactly how sensitive this non-interest
    income is to external shocks like changes in the interest rate.
    2. To Manage liquidity of the Bank
    3. To maintain statutory requirements like SLR ( Section 24 of BR act) CRR ( Section 42 of RBI act)
    4. To invest surplus funds of the Bank to enhance profits

    A Bank getting Rs.100 funds by way of deposits from the customers, deposits minimum 18% of funds
    on SLR securities and 3% on CRR to meet statutory requirements and the remaining funds are
    deployed in loans and advances and get invested in Non-SLR securities.

    The Treasury Department invests in markets as under:


    A treasury has got three desks
    1. Front Desk- Responsible for Treasury related deals
    2. Mid Desk – Risk Management and Procedural Guidelines
    3. Back Office – Takes care of delivery of funds and settlements
    SLR
    Securities

    Investments in Cash Management Bills


    (CMB)issued by RBI maturity less than 91 days and
    Reverse Repo investments with RBI and Cash with
    RBI over and above CRR also qualify as SLR
    securities
    Market
    Coupon Rate and Yield Rate-Difference

    100
    000
    By buying the bond at the market rate Rs.1200, the investor gets
    Rs.100 interest cash flows ( Interest is on Face Value)

    Current yield rate is 100/1200*100= 8.33%


    Liabilities not to be included for DTL/NDTL computation. The under-noted liabilities will not form part of
    liabilities for the purpose of CRR and SLR:

    i. Paid up capital, reserves, any credit balance in the Profit & Loss Account of the bank
    ii. Amount of any loan taken from the RBI and the amount of refinance taken from Exim Bank,
    NHB, NABARD, SIDBI
    iii. Net income tax provision
    iv. Amount received from DICGC, ECGC by invoking the guarantee
    v. Amount received from insurance company on ad-hoc settlement of claims pending judgement
    of the Court
    vi. Amount received from the Court Receiver
    vii. The liabilities arising on account of utilization of limits under Bankers’ Acceptance Facility
    viii. District Rural Development Agency (DRDA) subsidy of ₹10,000/- kept in Subsidy Reserve Fund
    account in the name of Self Help Groups

    Exempted from CRR

    a. Credit balances in ACU (US$) Accounts ,


    b. Demand and Time Liabilities in respect of their Offshore Banking Units (OBU)
    c. Eligible amount of incremental FCNR (B) and NRE deposits of maturities of three years and
    above from the base date of July 26, 2013, and outstanding as on March 7, 2014, till their
    maturities/pre-mature withdrawals,

    MARGINAL STANDING FACILTY ( An update)


     The RBI, as a temporary measure, had increased the borrowing limit of
    scheduled banks under the marginal standing facility (MSF) scheme from 2
    per cent to 3 per cent of their Net Demand and Time Liabilities (NDTL) or
    deposits from March 27, 2020.
     Marginal Standing Facility is an overnight liquidity support provided by RBI
    to commercial banks with a higher interest rate over the repo rate currently
    25points over Repo Rate
     MSF can be used by a bank after it exhausts its eligible security holdings for
    borrowing under other options like the LAF repo.
     Usually, when banks need short term loans from the RBI, they pledge their
    security holdings that are above the SLR holdings with the RBI to get one day
    loans under repo.
     Under MSF, a bank can borrow one-day loans form the RBI, even if it
    doesn’t have any eligible securities excess of its SLR requirement (maintains
    only the SLR).
     The MSF was introduced by the RBI in its monetary policy for 2011-12.
    40 years
    Answer: 4 – Yield rate will be less than coupon rate
    Answer 1: The yield rate will be more than coupon Rate
    1 year tenor
    112

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