CMA Final · Risk Management in Banking and Insurance · Liquidity Risk Management
Under the Basel III Liquidity Coverage Ratio, Bank Nilgiri holds high quality liquid assets of Rs 450 crore. Its total expected cash outflows over the next 30 days under stress are Rs 600 crore and expected cash inflows are Rs 200 crore (inflows are within the permitted cap). What is its LCR?
LCR is 112.5%. Net cash outflows over 30 days are Rs 600 crore minus Rs 200 crore inflows, i.e. Rs 400 crore, and dividing HQLA of Rs 450 crore by this gives 1.125. Using gross outflows would wrongly give 75%.
- A75%
- B225%
- C112.5%Correct
- D60%
Explanation
Net cash outflows = 600 - 200 = Rs 400 crore. LCR = 450/400 = 112.5%. Check: 400 x 1.125 = 450. Using gross outflows gives 75%, ignoring the inflow offset; this is the main error.
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