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SIMILARITIES BETWEEN BASEL I ,II AND III

Example 1 :
Given below is the information of Awesome Bank of India.
Common Equity Tier I Capital 75
Capital Conservation Buffer 25
PNCPS/PDI 30
RWA for credit & operational risk 900
RWA for market risk 100
Tier II capital issued by bank 25


From the information given above find
(i) PNCPS/PDI eligible for inclusion in Tier I capital
(ii) Tier I Capital
(iii) PNCPS/PDI eligible for inclusion in Tier II capital 
(iv) Total capital eligible for CRAR calculation
(v) CRAR of the bank


Explanation :
Total RWA = Rs 1000
(i) As per guidelines, while complying with minimum Tier 1 of 7% of risk weighted assets, a bank cannot admit, Perpetual Non-Cumulative Preference Shares (PNCPS) together with Perpetual Debt Instruments (PDI) in Additional Tier 1 Capital, more than 1.5% of risk weighted assets.
This means if CET-I is 5.5 than PNCPS/PDI which can be taken is 1.5 thus overall making Tier I at 7% .
In the above question RWA is Rs 1000 and CET is 75 i.e. 7.5 % .
So when CET is 5.5 - PNCPS can be 1.5 % of RWAs
When CET is 7.5 PNCPS will be (1.5 * 7.5) / 5.5
                                       =  2.05 % of RWAs
Thus PNCPS which will be included is 2.05 % of 1000
                                        = Rs 20.5

(ii) Tier I Capital is
= CET +Additional Tier I (Here PNCPS/PDI)
= 75 +20.5 = Rs 95.5

(iii) Guidelines for inclusion in Tier II capital for PNCPS/PDI Excess PNCPS and PDI i.e. above Tier I can be reckoned to comply with Tier 2 capital if the latter is less than 2% of RWAs.
We must understand here that required Tier I capital is 7(when CET is 5.5%) and required Tier capital is 9%. Thus eligible Tier II capital is 2 %.
Here CET – I is 5.5 thus eligible tier 2 would be
= 2. * 7.5 5.5
= 2.73 % of RWAs
ie 27.30
Bank has already issued tier II capital of Rs 25 thus PNCPS which can be included in Tier II is 2.30

(iv) Total eligible capital for CRAR
calculation is CET +Additional Tier I + Tier II
= 75 +20.5 + 27.30
= 122.80

(v) Thus CRAR of the bank is = 12.28




Problem ‐ 1 The following Trading and Profit and Loss Account of Fantasy Ltd. for the year 31‐3‐2000 is given below:
Particular    Rs.                             Particular       Rs.
To Opening Stock  
 “ Purchases
 “ Carriage and Freight  
 “ Wages   
“ Gross Profit b/d To Administration expenses         “  Selling and Dist. expenses      “  Non‐operating expenses     “  Financial Expenses        Net Profit c/d   76,250 3,15,250 2,000 5,000 2,00,000 5,98,500 1,01,000 12,000 2,000 7,000 84,000 2,06,000 By Sales   “  Closing stock By Gross Profit b/d   “ Non‐operating incomes:   “ Interest on Securities   “ Dividend on shares   “ Profit on sale of shares 5,00,000 98,500 5,98,500 2,00,000 1,500 3,750 750 2,06,000
Calculate:
1. Gross Profit Ratio        
2. Expenses Ratio     
3. Operating Ratio
4. Net Profit Ratio          
5. Operating (Net) Profit Ratio  
6. Stock Turnover Ratio. 

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