Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Management of Financial Institutions - II - Question Paper

*NIM = ==2.85%

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3. (Rs. in crores)

Time period
Advances
Investments (Book value)
Total
Deposits
Borrowings
Total
Gap
Cumulative Gap

1-14 days
1734
118
1852
3174
59
3233
–1381
–1381

15-28 days
572
324
896
1904
Nil
1904
–1008
–2389

29 days-3 months
3383
1073
4456
5326
564
5890
–1434
–3823

3-6 months
4003
535
4538
5915
35
5950
–1412
–5235

6-12 months
2986
594
3580
9764
999
10763
–7183
–12418




The bank has a negative gap in all the time periods. Hence a fall in interest rates, will be profitable for the bank. If the interest rates go up, it will be disadvantageous to the bank. It will affect the profitability of the bank as interest payment for liabilities will be more.

Due to increase in rev. repo rate all short term interest rates upto 1-year is expected to go up by 25bp. change in Profit = -12,418 × 0.0025 = -Rs.31.05cr.

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4. This model indirectly brings low-income households—the clients of an MFI—to access mainstream insurance. With the MFI as the intermediary, the clients have an entity with whom they have close contact and trust built over a period of time. For the insurer too, it is convenient to deal with an intermediary in the form of an organization that represents a large number of clients. The MFI, as the agent, markets the product to its existing clientele through the distribution network it has already established for its other financial services; the insurance company on its part provides the actuarial, financial and claims-processing expertise, as well as the capital needed for initial investments and reserves as needed by legal regulations.

MFIs achieve several benefits by entering the insurance market as an agent for an existing licensed insurer. These benefits include:

• Saving of Costs on tech. Skills: Acting as an agent of an insurer, the MFI will be thus not needed to presume the risk. This will save the MFI from incurring substantial costs of developing actuarial, underwriting, and claims management skills. Training for staff will be limited to sales and marketing.

Earning:   Approval pending.