Module: | MODULE B: RISK MANAGEMENT
Q281: Consider the following statements regarding the components of the Banking Book:
1. Statutory reserves like Cash Reserve Ratio (CRR) balances and Statutory Liquidity Ratio (SLR) securities held under the HTM category, are core components of the banking book.
2. Term loans and working capital advances provided to corporate clients are strictly classified under the trading book to ensure immediate liquidity.
3. The banking book primarily consists of assets and liabilities that are held for generating long-term yield rather than short-term trading profit.
Which of the statements given above is/are correct?
2. Term loans and working capital advances provided to corporate clients are strictly classified under the trading book to ensure immediate liquidity.
3. The banking book primarily consists of assets and liabilities that are held for generating long-term yield rather than short-term trading profit.
Which of the statements given above is/are correct?
✅ Correct Answer: C
The correct answer is C. Statement 1 is correct: Statutory balances and investments like CRR and SLR, particularly those classified under Held to Maturity (HTM), are fundamental components of a bank's Banking Book as they are not meant for daily trading.
Statement 2 is incorrect: Term loans and working capital advances are core traditional banking assets meant to be held until they are paid off.
Therefore, they are always classified under the Banking Book, not the Trading Book.
Statement 3 is correct: The defining characteristic of the Banking Book is its focus on long-term value creation through interest accrual and yield, distinguishing it entirely from the short-term profit motives of the Trading Book.
Statement 2 is incorrect: Term loans and working capital advances are core traditional banking assets meant to be held until they are paid off.
Therefore, they are always classified under the Banking Book, not the Trading Book.
Statement 3 is correct: The defining characteristic of the Banking Book is its focus on long-term value creation through interest accrual and yield, distinguishing it entirely from the short-term profit motives of the Trading Book.