Treasury management DEC 2025

Description

Treasury Management in Banking

Dec 2025 Examination

 

 

Q1. India is experiencing a rise in external debt and a decline in foreign exchange reserves held by the RBI, while interest rates and inflation are falling—indicating a likely appreciation of the Indian Rupee (INR). These macroeconomic conditions pose significant currency risk for both the central bank and corporate entities.

In the context of the above scenario Apply your knowledge of currency risk management to: Explain how the Reserve Bank of India (RBI) can apply internal and external techniques to manage the Balance of Payments (BoP) under these circumstances and Suggest, justify appropriate internal and external strategies that corporates can use to manage currency risk associated with External Commercial Borrowings (ECBs) and import payments in light of a strengthening INR. (10 Marks)

Ans 1.

Introduction

India’s external sector dynamics often test the Reserve Bank of India’s (RBI) ability to maintain equilibrium between growth, stability, and competitiveness. In the current context, rising external debt, declining foreign exchange reserves, and falling interest and inflation rates suggest an appreciating Indian Rupee (INR). While currency appreciation can signal macroeconomic strength, it simultaneously threatens export competitiveness, Balance of Payments (BoP) stability, and debt-servicing costs for corporates with foreign borrowings. These

 

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Q2. Critically evaluate the role of the Clearing Corporation of India (CCIL) in the trading and settlement of Forex Spot and Forward Derivatives for bankers and FX-retail corporates. How has CCIL’s intervention impacted the traditional roles of platforms like Thomson Reuters and brokers in India’s forex market? Support your evaluation with relevant examples or data. (10 Marks)

Ans 2.

Introduction

The Clearing Corporation of India Limited (CCIL), established in 2001, has emerged as the cornerstone of India’s financial market infrastructure. Originally designed to provide guaranteed settlement for government securities, CCIL has expanded its operations to include foreign exchange (Forex) and derivative markets, providing critical post-trade services such as clearing, settlement, and risk management. In an increasingly complex FX environment characterized by volatile exchange rates, regulatory reforms, and rising retail participation, CCIL ensures transparency, efficiency, and systemic stability. Its interventions have

 

Q3(A). Explain, with an example, the impact on a bank’s profitability and the lending rates offered to customers when the Repo Rate is decreased and increased, respectively, by the RBI. You are required to construct a real-life or hypothetical scenario to demonstrate how changes in the Repo Rate influence a bank’s profitability and lending decisions. (5 Marks)

Ans 3a.

Introduction

The Repo Rate, determined by the Reserve Bank of India (RBI), is the rate at which commercial banks borrow short-term funds from the central bank against government securities. It serves as the benchmark for overall lending and deposit rates in the economy. Variations in the repo rate directly influence a bank’s cost of funds, profitability, and credit growth. A decrease makes borrowing cheaper, encouraging lending and economic activity, while an

 

Q3(B)The Reserve Bank of India (RBI) employs monetary policy tools such as the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) to manage liquidity and ensure financial stability in the economy.

In context to the given scenario, imagine a scenario where the RBI decides to reduce both CRR and SLR to address sluggish economic growth.

Create a well-structured explanation that highlights the impact of this policy action on the following aspects: Liquidity in the banking system, prevailing market interest rates and Banks’ overall profitability Further, formulate a logical justification, supported by an example, to explain why and under what macroeconomic conditions the RBI would choose to reduce CRR or SLR. (5 Marks)

Ans 3b.

Introduction

The Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) are vital monetary tools that the Reserve Bank of India (RBI) uses to regulate liquidity and credit flow in the banking system. CRR mandates banks to maintain a fixed percentage of deposits as cash with the RBI, while SLR requires them to invest in approved securities. When the RBI reduces CRR and SLR, it releases additional funds into the banking system, stimulating lending,