Technical Guide on Internal Audit of Treasury ... - CAalley.com

<strong>Technical</strong> <strong>Guide</strong> on Internal Audit of Treasury Function in Banks
(viii) Inter-Bank Participation Certificate (IBPC)
The objective behind introduction of this instrument is to even out the short
term liquidity within the banking system. This instrument was introduced in
1988 and Scheduled commercial banks were permitted to share a portion of
their eligible loan assets with other banks through issue of IBPC. RBI has
vide Circular “Inter-Bank Participations – Scheduled Commercial Banks”
dated August 4, 2009 has allowed Regional Rural Banks (RRBs) to also
issue IBPCs. The bank sharing its loan portfolio is known as issuing bank,
and the bank which is buying the portion of loan portfolio through IBPC is
known as participating bank. Both issuing and participating bank will have to
execute participation contract. The loan asset which is to be shared with
participating bank must be a standard loan asset and it cannot be more than
40 per cent of the outstanding advance at the time of issue of IBPC. As per
the existing guidelines of the RBI, commercial banks have been permitted to
issue two types of IBPCs which are as under:
(a)
With Risk Sharing Basis
Under risk sharing participation certificate scheme, risk of default of the
borrower is shared by the issuing bank and the participating bank. The
participating bank has no recourse to the issuing bank if there is default by
the borrower for that loan amount which is shared. The IBPC can be issued
for a minimum period of 91 days and a maximum period of 180 days.
(b)
Without Risk Sharing Basis
Under without risk sharing participation certificate scheme, the participating
bank does not share any risk with the issuing bank and, therefore,
participating bank has a right to receive the payment from the issuing bank
even though the borrower has defaulted in its payment. Tenor of IBPC under
this scheme cannot be more than 90 days.
Forex Market
2.3 Customers (exporters and importers) buy and sell their foreign
exchange needs from the treasury in various currencies depending on their
business exposure. Rates are quoted by the dealers depending on the
amounts and delivery period. Dealers trade on these flows from the
customers and try to maximize profits. Besides, customer flows, dealers take
proprietary position in various currencies in Spot and Forward contracts for
trading.
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