Module: | MODULE B: RISK MANAGEMENT
Q437: Scenario: Delta Bank has prepared its Structural Liquidity Statement for the upcoming fortnight. The data reveals a net cumulative negative mismatch of 18 percent in the 1 to 14 days time bucket, and a 12 percent mismatch in the 15 to 28 days time bucket. Based on Reserve Bank of India guidelines, consider the following statements regarding the correct regulatory actions:
1. The bank is strictly non-compliant in the 1 to 14 days time bucket because the negative mismatch exceeds the 10 percent regulatory tolerance limit.
2. The bank is fully compliant in the 15 to 28 days time bucket because the negative mismatch is well within the 15 percent regulatory tolerance limit.
3. The Asset-Liability Management Committee can legally ignore the 1 to 14 days breach if the overall 90-day liquidity position is positive.
Which of the statements given above is/are correct?
2. The bank is fully compliant in the 15 to 28 days time bucket because the negative mismatch is well within the 15 percent regulatory tolerance limit.
3. The Asset-Liability Management Committee can legally ignore the 1 to 14 days breach if the overall 90-day liquidity position is positive.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: Under Reserve Bank of India (RBI) Structural Liquidity guidelines, the maximum permitted net cumulative negative mismatch for the highly critical "1 to 14 days" time bucket is strictly capped at 10 percent of cumulative cash outflows.
Since Delta Bank hit 18 percent, it is severely non-compliant.
Statement 2 is correct: For the subsequent "15 to 28 days" time bucket, the RBI extends the tolerance limit slightly to 15 percent.
Because Delta Bank's mismatch in this bucket is only 12 percent, it remains fully compliant for this specific period.
Statement 3 is incorrect: The Asset-Liability Management Committee (ALCO) cannot legally ignore a regulatory limit breach in any specific bucket.
Mismatch limits are non-negotiable hard caps.
A positive overall 90-day liquidity position provides no regulatory exemption from penal action for failing the immediate 1 to 14 days bucket compliance.
Since Delta Bank hit 18 percent, it is severely non-compliant.
Statement 2 is correct: For the subsequent "15 to 28 days" time bucket, the RBI extends the tolerance limit slightly to 15 percent.
Because Delta Bank's mismatch in this bucket is only 12 percent, it remains fully compliant for this specific period.
Statement 3 is incorrect: The Asset-Liability Management Committee (ALCO) cannot legally ignore a regulatory limit breach in any specific bucket.
Mismatch limits are non-negotiable hard caps.
A positive overall 90-day liquidity position provides no regulatory exemption from penal action for failing the immediate 1 to 14 days bucket compliance.