Skip to content

CMA Final · Strategic Financial Management · Digital Finance

A fintech lender in Bengaluru disburses Rs 10 crore of digital loans. Expected default rate is 4% with a loss given default of 60%. It charges a gross yield of 18% p.a., its cost of funds is 9% p.a. and operating cost is 3% p.a. of loans, all on Rs 10 crore. Treating the default rate as annual, what is its expected annual net profit before tax?

Expected profit is Rs 36,00,000. Income is Rs 1.80 crore, funding cost Rs 0.90 crore and operating cost Rs 0.30 crore, leaving Rs 0.60 crore. Expected credit loss is 4% times 60% of Rs 10 crore, or Rs 0.24 crore, giving Rs 0.36 crore.

  1. ARs 60,00,000Correct
  2. BRs 36,00,000
  3. CRs 84,00,000
  4. DRs 24,00,000

Explanation

Income = 18% x 10 crore = Rs 1.80 crore. Funding cost = Rs 0.90 crore; operating cost = Rs 0.30 crore. Expected credit loss = 4% x 60% x 10 crore = Rs 0.24 crore. Profit = 1.80 - 0.90 - 0.30 - 0.24 = Rs 0.36 crore... recheck: 1.80-1.20 = 0.60; 0.60-0.24 = 0.36 crore = Rs 36,00,000.

Did you get it right without looking?

One question tells you little. A timed set on Digital Finance shows your real accuracy, how long you take and where you lose marks.

Practise Digital FinanceFree diagnostic mock

More Digital Finance questions