Private bank boosted business unit profitability by 18% using a new, transparent FTP framework
20 Apr 2023
2 min read
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
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
- 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