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CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords

Kaveri Bank has Rs 400 crore of high quality liquid assets (HQLA) and expects total net cash outflows of Rs 320 crore over the next 30 days under a stress scenario. What is its Liquidity Coverage Ratio (LCR), and is it compliant with a minimum requirement of 100%?

The LCR is 125% and the bank is compliant. LCR equals high quality liquid assets divided by net cash outflows over 30 days of stress, so 400 divided by 320 gives 1.25. This exceeds the 100% minimum requirement.

  1. A80%; not compliant
  2. B125%; compliantCorrect
  3. C125%; not compliant
  4. D100%; compliant

Explanation

LCR = HQLA / net cash outflows over 30 days = 400/320 = 1.25, i.e. 125%. This is above the 100% minimum, so the bank complies. The 80% figure comes from inverting the ratio (320/400), which is the wrong way round.

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