General Knowledge · General Awareness
A large Multi-State Cooperative Bank is facing a temporary liquidity mismatch due to unexpected large withdrawals by several institutional depositors. The bank's treasury manager needs to raise 500 crore rupees for a period of 10 days. The bank has exhausted its Repo limit under the Liquidity Adjustment Facility but holds excess Statutory Liquidity Ratio (SLR) securities worth 600 crore rupees. Simultaneously, the market is experiencing a spike in the Call Money Rate, which is currently trading 15 basis points above the Marginal Standing Facility (MSF) rate. Which action is most financially prudent and legally permissible for the bank?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The bank should issue Certificates of Deposit with a 10-day tenor to the public to raise the 500 crore rupees.
- 2The bank should use the Tri-party Repo (TREPS) platform to borrow against its excess SLR securities, as TREPS rates are generally lower than both the Call Money and MSF rates due to the collateralized nature of the transaction.✓
- 3The bank should utilize the Marginal Standing Facility (MSF) by dipping into its regular SLR quota beyond the permitted limits.
- 4The bank should borrow from the Call Money Market regardless of the rate, as it does not require collateral.
Correct answer
The bank should use the Tri-party Repo (TREPS) platform to borrow against its excess SLR securities, as TREPS rates are generally lower than both the Call Money and MSF rates due to the collateralized nature of the transaction.
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