Case Study for Fund Transfer Pricing System (FTPS)

Transcription

1 Case Study for Fund Transfer Pricing System (FTPS) -

2 Background One of India s leading banks was struggling to sustain profitability in highly competitive and very difficult market conditions. The Bank s business depends on the deposits it receives. Bank uses these funds to make loans or investments. Interest payments made on these funds determine the bank's overall net interest margin, which is the largest contributor to bank profits. A key driver of bank profitability is net interest income and margin. Funds transfer pricing helps to calculate the net interest margin on a bank's funds more efficiently. Hence it is one of the most important tools for measuring the profitability of each of a bank's funding sources. As a part of performance measurement and monitoring exercise, Bank computes internal profitability of different business lines such as Commercial Loans, Deposits & Retail Loans and Deposits using different transfer pricing methodologies. Earlier process of computation FTP was Microsoft Excel based manual process with lesser frequency than daily basis. 1 P a g e

3 The Challenge Bank was facing many challenges for computation of Fund Transfer Price using Microsoft Excel. As FTP calculation process was manual, there were chances of human error which decreases process reliability. This also increases cycle time of a process. There was no common data repository in place, thus lacking scalability to forecast and address future needs. Decision makers where not getting quality ftp data to back up their strategic decisions. The bank needed a system which can automate computation of Cost of Funds (COF) and FTP income, on daily basis for contracts of following lines of business including: Commercial Loan Commercial Deposit Retail Loan Retail Deposit 2 P a g e

4 Nucsoft s Solutions Nucsoft provided Fund Transfer Pricing System (FTPS), a comprehensive automated product to collate data, perform predefined standardized computation process, on daily basis and generate reports through a client server based solution. FTPS is a web based application which computes the FTP income after deducting the cost incurred in arranging the funds through treasury. It incorporates both Retail and Commercial lines of businesses, deposits and loan products. FTPS provided a way to Head Office of Bank to compute FTP income value to funds gathered and lent/ invested by Commercial and Retail banking divisions. FTPS comprises of three key modules: Data Integration Collation of Input Data for Commercial & Retail Loans and Deposits Transfer Pricing Computation Engine Computation of Cost of Funds (COF) and FTP Income Reporting Layer Viewing of COF & FTP Income Reports by Products as on a Specific Date 3 P a g e

5 FTPS Implementation Process FTPS Details OS Windows Platform MS.Net Framework 3.5 Browser Internet Explorer 7 & above Implementation Process Requirement Gathering Study of Existing System to Determine the Requirements Design Design FTPS According to the Workflow of the Bank Process Integration & Installation Installation & Configuration of FTPS Testing Testing & Issue Tracking Training User Feedback & Training Rollout Go Live & Support 4 P a g e

6 The Benefits Integration of Fund Transfer Pricing System in bank s business process for calculation of FTP helped bank in following ways: Virtually eliminating human error and creating reliable systems with less cycle time. Create a foundation for data repository related to fund transfer pricing providing scalability to address evolving future needs. Reports are made available to the senior management, business managers with easier and quicker access to information. Create a high Return on Investment - by process time savings, providing dependability and gives the decision makers a quality data to back up their strategic decisions and therefore more time to create value. The entire process is not person dependent and can be performed by back-up resources with proper training. Provides closer monitoring by computation on a daily basis. 5 P a g e