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IAI Actuarial Core Principles · Business Economics · Role, structure and stability of the financial system

A bank has risk-weighted assets of Rs 800 crore and holds capital of Rs 96 crore. The regulator requires a minimum capital ratio of 12% of risk-weighted assets. By how much, in Rs crore, is the bank's capital above the required minimum?

The bank has no surplus. Required capital is 12% of Rs 800 crore, which is Rs 96 crore, exactly what it holds. Its capital ratio is therefore precisely 12%, meaning it meets the minimum with nothing to spare.

  1. ARs 0 croreCorrect
  2. BRs 12 crore
  3. CRs 8 crore
  4. DRs 96 crore
  5. Rs 4 crore

Explanation

Required capital = 12% x 800 = Rs 96 crore. The bank holds Rs 96 crore, so the surplus is zero; its ratio is 96/800 = 12%, exactly at the minimum. A surplus of Rs 12 crore would arise only by wrongly treating 12 as an absolute amount.

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