1. International Bank has - Paid up capital of Rs.100 cr, Free Reserves of Rs.300 cr, Provisions and Contingencies Reserves of Rs.300 cr, Perpetual Non-Cumulative Preference Shares of Rs.400 cr, & Subordinated Debt of Rs.300 cr. The risks for credit and Operational Risk are Rs.10000 cr and for Market Risk Rs.4000 cr. Based on the above information, Answer the following questions : 1. What is the amount of Tier-1 capital? a) 900 cr b) 800 cr c) 750 cr d) 610 cr Ans - b
2. Calculate the amount of Tier-2 capital? a) 900 cr b) 800 cr c) 750 cr d) 610 cr Ans - d
3. Calculate the amount of capital fund. a) 800 cr b) 1200 cr c) 1410 cr d) 1620 cr Ans - c
4. What is the capital adequacy ratio of the bank? a) 9% b) 9.65% c) 10.05% d) 10.07% Ans - d
5. What is amount of minimum capital to support credit and operational risk? a) 900 cr b) 950 cr c) 1000 cr d) 1250 cr Ans - a
6. What is the amount of minimum Tier 1 and Tier 2 to support the credit and operational risk? a) 900 cr, 900 cr b) 600 cr, 900 cr c) 450 cr, 450 cr d) 300 cr, 450 cr Ans - c
7. What is the amount of Tier-1 capital fund, to support market risk? a) 450 cr b) 350 cr c) 250 cr d) 185 cr Ans - b
8. What is the amount of Tier-2 capital fund, to support market risk? a) 450 cr b) 350 cr c) 250 cr d) 160 cr Ans - d ................................................................................................................................................
01.What is the amount of Tier-1 capital? Solution : =Paid up capital + free reserves + Perpetual Non Cumulative Preferences Shares ( PNCP) = 100+300+400 = 800
02. Calculate the amount of Tier-2 capital? Solution : Tier 2 capital = Subordinate debt + 45% of Revaluation Reserve (Discount of 55%) + 1.25 % of RWA ( for Contingency Reserve & Provision Whichever is Lower) = 300 + 45% of 300 + 1.25% of 14000 = 300 + 135 + 175 = 610
3. Calculate the amount of capital fund. Solution : Total capital : = Tier 1 + Tier 2 = 800+610 = 1410
4. What is the Capital Adequacy Ratio of the Bank? Solution : Capital Adequacy Ratio = (Tier 1 + Tier 2) / RWA = 800+610/14000 = 1410 / 14000 = 0.10071 = 10.07 %
5. What is amount of minimum capital to support credit and operational risk? Solution : Minimum capital required for Credit & Operational Risk together is : = 9% of 10000 = 10000X9/100 = 900 ................................................................................................................................................ 1. A bank’s G sec portfolio has 100 day VaR at 95% confidence level of 4% based on yield. What is the worst case scenario over 25 days? a. Increase in yield by 0.4% b. Decrease in yield by 0.4% c. Increase in yield by 2% d. Decrease in yield by 2% Ans - c Solution : 100 day VaR is 4 %. So one day Var is, 4 = one day VaR × square root of 100 4 = one day VaR × 10 One day VaR = 0.4 % 25 day VaR = 0.4 × Square root of 25 = 0.4 × 5 = 2 % In worst case scenario yield will always increase. Because this will decrease the market price or value. Answer is increase in yield by 2 % .