Unit - 13b: Numerical - Case Studies- RWA, CRAR, Tier- 1&2
CAIIB-ABM-MOD-B- Numerical-Case Studies - RWA, CRAR, Tier-1&2 CREDIT RISK How to find Risk Weighted Assets? Fixed Assets : 500 Crore Govt. Securities : 5000 crore Standard Assets Retail ---3000 crore HL -------2000 crore Other loans—10000 cr Sub-Standard Assets Secured ----500 crore Unsecured -----150 crore Doubtful (DAI) -----800 crore Solution: Retail----------------3000*75/100 = 2250 crore HL---------------------2000*50/100=1000 crore Other loans---------10000*100/100 = 10000 crore Gsec------------------5000*0/100=0 SS Secured----------500*150/100=750 crore SS Unsecured ------150*100/100=150 crore Doubtful D1 --------800*100/100=800 crore Total RWAs = 2250+1000+750+150+800 = 4950 crore
OPERATIONAL RISK How to find Risk Weighted Assets? Ist year 2nd year Net Profit 120 crore 150 crore Provisions 240 crore 290 crore Staff Expenses 280 crore 320 crore Other Oper. Expenses 160 crore 240 crore Gross Income 800 crore 1000 crore Average Income 1800/2=900 crore Capital Charge 900*15/100=135 crore RWAs (assuming BASEL rate of 8%) Capital Charge/8% = 135*100/8 = 1687.50 crore
Tier-I and Tier II Capital CRAR RWAs --- Credit and Operational Risks = 10000 crore RWAs ----Market Risk =4000 crore Tier –I Capital Paid up Capital--------------------------------------------- 100 crore Free Reserves --------------------------------------------- 300 crore Perpetual non-Cumulative Preference Shares -----400 crore Tier-II Capital Provisions for contingencies ---------------------------200 crore Revaluation Reserve--------------------------------------300 crore Subordinate Debts----------------------------------------300 crore Solution Tier –I Capital = 100+300+400 = 800 crore Tier-II Capital = ( 300*45/100) + 300 + 1.25 % of RWAs (or Rs. 200 crore) =135 + 300 + 175 = 610 crore Total Capital = 800 + 610 = 1410 crore
Minimum Capital Required and Capital to Support Market Risks In the above example: CAR = 1410/14000*100 = 10.07% Minimum Capital Required to support Credit and Operational Risks = 10000*9/100 = 900 crore Minimum Tier –I Capital Required to support Credit and Operational Risks = 900*50=450 crore Minimum Tier –I I Capital Required to support Credit and Operational Risks =900-450=450 crore Amount of Tier –I Capital to support Market Risks = 800-450 = 350 crore Amount of Tier –II Capital to support Market Risks = 610-450 = 160 crore