SOLVED CAIIB COMBINED PAPER 35:
1. If Regulatory Authority of the country feels that the Capital held by a bank is not sufficient, it could require the bank to ......
(i) Reduce it's Risk, (ii) Increase it's Capital
a. Only (i)
b. Only (ii)
c. Either (i) or (ii)
d. Both (i) and (ii)
Ans - d
2. ABC Bank has provided the following information relating to its advance portfolio as on Mar 31, 2015:
Total advances Rs.40000 cr. Gross NPA 9% and Net NPA 2%. Based on this information, answer the following questions?
01. Considering that all the standard loan accounts represent general advances, what is the amount of provision for standard loan accounts:
a) Rs.160 cr
b) Rs.151.90 cr
c) Rs.145.60 cr
d) Rs.141.50 cr
02. What is the provision on NPA accounts?
a) Rs.3600 cr
b) Rs.3200 cr
c) Rs.2800 cr
d) Incomplete information. Cannot be calculated.
03. What is the total amount of provisions on total advances, including the standard accounts?
a) Rs:3612.30 cr
b) Rs.2945.60 cr
c) Rs.2840.20 cr
d) Incomplete information. Cannot be calculated.
04. What is the amount of gross NPA ?
a) Rs.4000 cr
b) Rs.3600 cr
c) Rs.3200 cr
d) Rs.2800 cr
05. What is the amount of net NPA?
a) Rs.800 cr
b) Rs.1000 cr
c) Rs.1200 cr
d) Incomplete information.
06. What is the provision coverage ratio for NPA?
a) 70%
b) 74.3%
c) 75.2%
d) 77.8%
07. What is the minimum amount of provisions to be maintained by the bank to meet the provisioning coverage ratio of 70%?
a) Rs.3600 cr
b) Rs.3200 cr
c) Rs.2880 cr
d) Rs.2520 cr
Answers: 1-c 2-c 3-b 4-b 5-a 6-d 7-d
Explanations:
Que-1: Standard account Total = 40000 cr — 9% NPA = 3600 cr. = 40000 — 3600 = 36400 cr. Provision at 0.4% = 36400 x 0.4% = 145.60
cr
Que-2: Provision on NPA = Gross NPA 9% - net NPA 2% = 7% i.e. 40000 x 7% = 2800 cr.
Que-3: Provision on NPA = Gross NPA 9% - net NPA 2% = 7% i.e. 40000 x 7% = 2800 cr. Provision on standard accounts Rs.145.60 cr.
Hence total provision = 2945.60 cr.
Que - 4 : 40000 x 9% = 3600 cr
Que - 5 : 40000 X 2% = 800 cr
Que - 6 : Total provision on NPA / Gross NPA = 2800/3600 = 77.8%
Que - 7 : Gross NPA x 70% = 3600 x 70% = 2520 cr
3. When a bank sanctions a loan to a large borrower, which of the following risks it may face ......
(i) Liquidity, (ii) Market, (iii) Credit
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - b
4. ABC bank suffers loss due to adverse market movement of a security. The security was held beyond the defeasance period. What is the type of the risk that the bank has suffered?
(i) Operational Risk, (ii) Market Liquidation Risk
a. Only (i)
b. Only (ii)
c. Either (i) or (ii)
d. Both (i) and (ii)
Ans - a
5. Volatility will be ...... if Time horizon is more.
a. More
b. Less
c. Equal
d. None of these
Ans - a
6. Systemic risk is the risk of
a. Failure of a bank, which is not adhering to regulations
b. Failure of two banks simultaneously due to bankruptcy of one bank
c. Failure of entire banking system
d. Where a group of banks fail due to contagion effect
Ans - c
7. Which of the following statements is correct?
a. Higher the risk in a business, higher would be return expectation
b. Higher the risk in a business, higher would be capital requirement
c. Higher the risk in a business, higher would be capital requirement and higher would be return expectation
d. None of the statements is correct
Ans - b
8. Financial Risk is defined as
a. Uncertainties resulting in adverse variation of profitability or outright losses
b. Uncertainties that result in outright losses
c. Uncertainties in cash flow
d. Variations in net cash flows
Ans - d
(i) Reduce it's Risk, (ii) Increase it's Capital
a. Only (i)
b. Only (ii)
c. Either (i) or (ii)
d. Both (i) and (ii)
Ans - d
2. ABC Bank has provided the following information relating to its advance portfolio as on Mar 31, 2015:
Total advances Rs.40000 cr. Gross NPA 9% and Net NPA 2%. Based on this information, answer the following questions?
01. Considering that all the standard loan accounts represent general advances, what is the amount of provision for standard loan accounts:
a) Rs.160 cr
b) Rs.151.90 cr
c) Rs.145.60 cr
d) Rs.141.50 cr
02. What is the provision on NPA accounts?
a) Rs.3600 cr
b) Rs.3200 cr
c) Rs.2800 cr
d) Incomplete information. Cannot be calculated.
03. What is the total amount of provisions on total advances, including the standard accounts?
a) Rs:3612.30 cr
b) Rs.2945.60 cr
c) Rs.2840.20 cr
d) Incomplete information. Cannot be calculated.
04. What is the amount of gross NPA ?
a) Rs.4000 cr
b) Rs.3600 cr
c) Rs.3200 cr
d) Rs.2800 cr
05. What is the amount of net NPA?
a) Rs.800 cr
b) Rs.1000 cr
c) Rs.1200 cr
d) Incomplete information.
06. What is the provision coverage ratio for NPA?
a) 70%
b) 74.3%
c) 75.2%
d) 77.8%
07. What is the minimum amount of provisions to be maintained by the bank to meet the provisioning coverage ratio of 70%?
a) Rs.3600 cr
b) Rs.3200 cr
c) Rs.2880 cr
d) Rs.2520 cr
Answers: 1-c 2-c 3-b 4-b 5-a 6-d 7-d
Explanations:
Que-1: Standard account Total = 40000 cr — 9% NPA = 3600 cr. = 40000 — 3600 = 36400 cr. Provision at 0.4% = 36400 x 0.4% = 145.60
cr
Que-2: Provision on NPA = Gross NPA 9% - net NPA 2% = 7% i.e. 40000 x 7% = 2800 cr.
Que-3: Provision on NPA = Gross NPA 9% - net NPA 2% = 7% i.e. 40000 x 7% = 2800 cr. Provision on standard accounts Rs.145.60 cr.
Hence total provision = 2945.60 cr.
Que - 4 : 40000 x 9% = 3600 cr
Que - 5 : 40000 X 2% = 800 cr
Que - 6 : Total provision on NPA / Gross NPA = 2800/3600 = 77.8%
Que - 7 : Gross NPA x 70% = 3600 x 70% = 2520 cr
3. When a bank sanctions a loan to a large borrower, which of the following risks it may face ......
(i) Liquidity, (ii) Market, (iii) Credit
a. Only (i) and (ii)
b. Only (i) and (iii)
c. Only (ii) and (iii)
d. (i), (ii) and (iii)
Ans - b
4. ABC bank suffers loss due to adverse market movement of a security. The security was held beyond the defeasance period. What is the type of the risk that the bank has suffered?
(i) Operational Risk, (ii) Market Liquidation Risk
a. Only (i)
b. Only (ii)
c. Either (i) or (ii)
d. Both (i) and (ii)
Ans - a
5. Volatility will be ...... if Time horizon is more.
a. More
b. Less
c. Equal
d. None of these
Ans - a
6. Systemic risk is the risk of
a. Failure of a bank, which is not adhering to regulations
b. Failure of two banks simultaneously due to bankruptcy of one bank
c. Failure of entire banking system
d. Where a group of banks fail due to contagion effect
Ans - c
7. Which of the following statements is correct?
a. Higher the risk in a business, higher would be return expectation
b. Higher the risk in a business, higher would be capital requirement
c. Higher the risk in a business, higher would be capital requirement and higher would be return expectation
d. None of the statements is correct
Ans - b
8. Financial Risk is defined as
a. Uncertainties resulting in adverse variation of profitability or outright losses
b. Uncertainties that result in outright losses
c. Uncertainties in cash flow
d. Variations in net cash flows
Ans - d