Banking · Funds Transfer Pricing
Under Funds Transfer Pricing (FTP) mechanisms in banking, when a branch is a net provider of funds to the Head Office (having more deposits than advances), how is the profitability of that branch primarily determined in relation to the Transfer Price?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The Transfer Price is applied only to Statutory Liquidity Ratio (SLR) requirements and not to the surplus liquid funds of the branch.
- 2The branch is charged a penalty for not deploying funds into high-yield advances within its own local geographical area.
- 3The branch receives interest from the Head Office at a rate called the Transfer Price for the surplus funds, which acts as the branch's primary income source.✓
- 4The branch receives interest from the Head Office at a rate lower than its cost of deposits to encourage more lending activities.
Correct answer
The branch receives interest from the Head Office at a rate called the Transfer Price for the surplus funds, which acts as the branch's primary income source.
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