Sudindra V R
XYZ is a commercial bank operating with 05 branches in Karnataka, it was started in the year 2017. The bank is concentrating majorly on personal finance, industrial loan, agriculture assistance and some part of consumer loan. XYZ’s popular product is “XYZ priority savings account” and “XYZ future term deposit”, which pays good interest, compared to competitors, this is one of their customer acquisition strategy.
The following are the details of deposit accepted for the last 2 months:
Months 1 | Months 2 | |
Branch 1 | ||
Fixed deposit | 10,000 | 15,000 |
Savings | 3,500 | 4,500 |
Branch 2 | ||
Fixed deposit | 5,000 | 25,000 |
Savings | 500 | 1,000 |
Branch 3 | ||
Fixed deposit | 30,000 | 45,000 |
Savings | 1,00,000 | 50,000 |
Branch 4 | ||
Fixed deposit | 10,000 | 5,000 |
Savings | 17,000 | 10,000 |
Branch 5 | ||
Fixed deposit | 20,000 | 25,000 |
Savings | 25,000 | 35,000 |
The following are the loans and advances demanded by the customer at the end of each month:
Months 1 | Months 2 | |
All Branches | ||
Agriculture Loan | 2,00,000 | 1,00,000 |
Industrial loan | 3,00,000 | 2,00,000 |
Education loan | 50,000 | 1,00,000 |
Other loans | 75,000 | 50,000 |
Loan to invest in stock market for 1 month | 5,00,000 | 2,00,000 |
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The bank presently having discounted commercial bill of Rs. 1,00,000 which matures at the end of 3rd month, Cash reserve with RBI – Rs. 15,000 and Government security: Rs. 80,000 at the end of 1st month and continue to maintain as per requirement.
Discuss the possible central banking compliances that has to be maintained by XYZ bank:
Assume: Bank rate is 6%, CRR/SLR 4% & 20% respectively, Repo rate and reverse repo rate at 6% & 5.5% respectively, RBI guidelines for lending loans: Primary (Agriculture and Industrial loan) – 50%, Secondary (Education and other secondary purpose loans) – 30%, others (other than primary and secondary loan) – 20%.
Other Assumptions: no fixed deposits will be withdrawable for next 3 months, savings account average withdrawable 20%, no usage of new deposit for the purpose of CRR/SLR requirement.
Possible solution:
MONTH 1
CRR/SLR | |||
AMOUNT | EXISTING | REMARKS | |
Total Deposit for the month | 221000 | ||
Savings withdrawable (20%) | 29200 | ||
Amount available post withdrawable | 191800 | ||
CRR with RBI (4%) | 7672 | 15000 | Existing CRR with RBI |
Amount available after CRR | 184128 | 7328 | Excess CRR maintained |
SLR (20%) | 36826 | 80000 | Existing Govt Securities |
Amount available for Lending | 147302 | 43174 | Excess SLR maintained |
As per RBI directive for lending | PRIMARY | SECONDARY | OTHER | ||
Amount available for lending | 73650 | 44191 | 29461 | ||
Amount requested for | 500000 | 50000 | 75000 | ||
Notes:
· From the above calculation the CRR has to be maintained by XYZ bank at Rs. 7,672 whereas the existing CRR with RBI Rs.15,000, which meets the requirement, and no fresh reserve with RBI need to be maintained.
· The excess CRR amount can be used for short term lending to RBI or any other bank to gain income from excess reserve.
· XYZ bank need to maintain the SLR in the form of government securities. Existing government securities worth of Rs. 80,000 available, whereas as per new deposit at the end of month, SLR requirement amounts to Rs. 36826. Excess government securities of Rs. 43,174 can be used for open market operations.
· Although RBI directed XYZ bank to lend Rs. 73,650 bank is having discretion to lend more amount to Agriculture and Industrial purpose ie. Primary purpose.
· RBI directs all commercial banks not to lend loan amount to speculative purpose i.e. stock market investment for short period.
MONTH 2
CRR/SLR | |||
AMOUNT | EXISTING | REMARKS | |
Total Deposit for the month | 215500 | ||
Savings withdrawable (20%) | 20100 | ||
Amount available post withdrawable | 195400 | ||
CRR with RBI (4%) | 7816 | 7328 | Existing CRR with RBI |
Amount available after CRR | 187584 | -488 | Deficit CRR |
SLR (20%) | 37517 | 43174 | Existing Govt Securities |
Amount available for Lending | 150067 | 5657 | Excess SLR maintained |
As per RBI directive for lending | PRIMARY | SECONDARY | OTHER | ||
Amount available for lending | 73034 | 45020 | 30013 | ||
Amount requested for | 300000 | 100000 | 50000 | ||
Notes:
· From the above calculation the CRR to maintain by XYZ bank – Rs. 7,816 whereas the existing CRR with RBI Rs.7,328, which not meets the requirement, and XYZ bank can borrow the money from other banks or borrow money from RBI against the rediscounting of commercial bills or borrow from RBI against excess government security held by them.
· Existing government securities worth of Rs. 43,174 available, whereas as per new deposit at the end of month SLR requirement amounts to Rs. 37,517. Excess government securities Rs. 5,657 can be used for open market operations.
· Although RBI directed XYZ bank to lend Rs. 73,034 bank is having discretion to lend more amount to Agriculture and Industrial purpose.
· RBI directs all commercial banks not to lend loan amount to speculative purpose i.e. stock market investment for short period.