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CMA Final · Risk Management in Banking and Insurance · Interest Rate Risk Management

A bank's one-year time bucket in its repricing gap statement shows rate sensitive assets (RSA) of ₹850 crore and rate sensitive liabilities (RSL) of ₹600 crore. If interest rates rise uniformly by 1.5% (150 basis points) on all items in this bucket, the expected change in net interest income for the year is:

Net interest income rises by ₹3.75 crore. The positive repricing gap is ₹850 crore minus ₹600 crore, which is ₹250 crore, and a 1.5% rate rise multiplied by this gap gives ₹3.75 crore. A positive gap benefits when rates rise.

  1. AIncrease of ₹3.75 croreCorrect
  2. BDecrease of ₹3.75 crore
  3. CIncrease of ₹12.75 crore
  4. DIncrease of ₹9.00 crore

Explanation

Gap = 850 - 600 = ₹250 crore (positive). Change in NII = Gap x change in rate = 250 x 1.5% = ₹3.75 crore increase. Option ₹12.75 crore applies the rise to RSA alone, ignoring the funding cost on RSL. Option ₹9.00 crore applies it to RSL alone, ignoring the asset side.

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