Financial Services
Analysis and recommendations on the Funds transfer pricing (FTP) framework
20 Apr 2023
Context:A
private sector bank wanted to understand the role of FTP, evaluate its existing
FTP framework, incentivize businesses for sound and sustainable pricing,
charge/ allocate statutory costs in a transparent and fair manner, and identify
policy improvement areas that align with their scale and business profile.
Our approach
- Conducted
a comprehensive analysis of the client’s current FTP framework to identify its
strengths, weaknesses, and opportunities for improvement
- Examined
the transfer pricing (bid/offer rates) of different asset and liability items
to identify the likely causes necessitating a revision of the FTP framework
- Conducted
discussions with key stakeholders from various departments such as treasury,
finance, branch banking, corporate banking, retail assets, etc. to understand
gaps and pain points in the current framework
- Benchmarked
FTP framework used by the client against those of peer and leading banks to
understand the industry-wide best practices
- Incorporated
the incentivization scheme of various products and factors such as LCR
adjustments and PSL requirements into the FTP framework to streamline pricing
structures at the product & customer segment level
- Proposed
appropriate liquidity premiums to be applied for floating rate loans in order
to mitigate potential liquidity risks
- Suggested
and ranked multiple approaches to compute fund transfer price in accordance
with the client’s unique context and growth prospects keeping in consideration
the scalability of computation effort
- Identified
the various capabilities required to ensure the resilience of the FTP framework
- Proposed
a governance framework with provisions for periodic review and audit of
computational methodology
Praxis
value delivered- Relevant
framework adjustments: The new framework successfully aligned with the client’s unique nature and scalability requirements leading to better risk management and decision-making
- Increased
transparency: The transparency of the FTP framework was enhanced by periodically publishing it to all internal stakeholders and conducting regular checks to ensure stakeholder satisfaction
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