Case-1 : Liquidity management-A crucial factor of treasury management

Case Scenario :

(a) 'Farmland' is a developing economy. The financial sector of Farmland is heavily bank-dependent with limited, long term funding sources. Many banks finance medium to long term projects with short term deposits.

(b) Delta Bank Ltd. (DBL) is a private commercial bank in Farmland. During the last few years DBL aggressively lent to long-term corporate projects. The below table shows some key indicators of DBL :

Indicator	2020	2025
Total loans and advances	8,000 crore	13,000 crore
Loan-to-Deposit Ratio (LDR)	72%	92%
Liquidity Coverage Ratio (LCR)	125%	78%
NPL	6%	16%
Deposit growth	12%	3%

Deposit growth

(c) All the banks in Farmland need to maintain mandatory statutory reserve requirement set by the central bank. The central bank recently increased the reserve requirement from 5-5% to 6.5%.

d) In 2024 and 2025, the government borrowing from banks has increased significantly and this incremental borrowing is expected to continue in coming years in Farmland.

Task : As a banking professional analyze the given scenario in the following contexts :

(i) Evaluate DBL's financial condition in the perspective of liquidity management and treasury operation.

(ii) Assess the impact of change in reserve requirement by central bank and incremental government borrowing from banks on liquidity management of DBL.

(iii) Suppose the average provision requirement is 90% of gross NPL amount. Calculate DBL's additional provision requirement in 2025 comparing to 2020.

(iv) Recommend some measures for DBL's treasury management term to avoid or prevent this kind of crisis.