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CMA Final · Risk Management in Banking and Insurance · Liquidity Risk Management

A bank's structural liquidity statement shows, for the 1-day to 28-day time buckets, total outflows of Rs 600 crore and total inflows of Rs 480 crore, so the cumulative mismatch is Rs 120 crore negative. Under RBI's usual prudential approach, the negative mismatch in the 1-28 day bucket is generally to be limited to what percentage of cumulative outflows, and does this bank comply?

The prescribed limit is 20% of outflows, and the bank complies. The negative mismatch of Rs 120 crore divided by outflows of Rs 600 crore equals exactly 20%, which sits at the permitted ceiling, so the position is within the norm.

  1. A20% of outflows; it complies as 20% equals the limitCorrect
  2. B15% of outflows; it does not comply
  3. C25% of outflows; it complies
  4. D10% of outflows; it does not comply

Explanation

The usual RBI norm limits the negative gap in the 1-day, 2-7 day, 8-14 day and 15-28 day buckets to 20% of outflows in each bucket. Here 120/600 = 20%, which is exactly at the limit, so the bank complies. A 15% limit would be wrongly applied in option B.

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