CMA Final · Risk Management in Banking and Insurance · Operational Risk and Off-Balance Sheet Risk
A bank has average annual gross income of Rs 800 crore over the last three years. Under the old Basic Indicator Approach, with alpha of 15%, the operational risk capital charge is:
The capital charge is Rs 120 crore. Under the Basic Indicator Approach it equals 15% of average annual gross income, so 15% of Rs 800 crore gives Rs 120 crore. The other figures come from decimal or division errors.
- ARs 12 crore
- BRs 120 croreCorrect
- CRs 53.3 crore
- DRs 1,200 crore
Explanation
Capital charge = alpha x average positive annual gross income = 15% x 800 = Rs 120 crore. Rs 12 crore results from a decimal slip. Rs 53.3 crore comes from dividing 800 by 15 instead of multiplying.
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