NMIMS APRIL 2020 ASSIGNMENT - TREASURY MANAGEMENT IN BANKING

TREASURY MANAGEMENT IN BANKING

1. Explain yield curves with the help of India GOI bond yield curve. Explain the relationship between the bond prices, yield and duration.

2. Explain duration GAP analysis in banks. Calculate the duration Gap of the following excerpts from the balance sheet of a bank. Also calculate the impact on the equity of the bank in the different interest rates scenarios.

Balance Sheet for Hypothetical Bank

Particulars

Assets

Duration

Particulars

Liabilities

Duration

Current Assets

• 500
• 5 years

Current Liabilities

• 400
• 6 Years

Fixed Assets

• 400

Other Liab.

• 300

Equity

• 200
• 900
• 900

Scenarios for Impact analysis:

1. Interest rates increased by 1%

2. Interest rates decreased by 1%

3. Case Study:

PMC Bank, which has lately been in the news for fraudulently extending loans to Housing Development & Infrastructure Ltd HDIL, imperiling deposits of numerous customers, is just the latest in a series of cooperative banks that have been placed under restrictions by the RBI. As of March 2019, 26 urban cooperative banks UCBs were placed under directions of the central bank for putting depositors at risk, thanks to mismanagement or fraud. PMC Managing Director Joy Thomas has admitted to hoodwinking the auditors, bank&rsquos board and the RBI for many years by concealing the default on loans to the tune of Rs. 6,500 crore taken by real estate firm Housing Development and Infrastructure Ltd HDIL.

This means operations are restricted deposits are stuck lead to chaos among depositors for their hard earned deposits.

a. What are the various risk faced by the banks Elaborate on how risk management norms Basel norms for e.g. being provided by RBI can help to avoid such situations.

b. What are the reasons that such default happened in PMC bank Do you think this can be avoided if proper risk management has been implemented by the bank or RBI.