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CS Professional · Banking and Insurance - Laws and Practice · Analysis of Financial Statements of Banks

Kaveri Bank has Tier 1 capital of Rs 120 crore and Tier 2 capital of Rs 30 crore. Its risk-weighted assets are Rs 1,250 crore. Applying the RBI minimum CRAR of 9% for Indian scheduled commercial banks (excluding the capital conservation buffer), what is the bank's CRAR and how does it stand against the minimum?

CRAR is 12%, computed as total capital of 150 crore (Tier 1 plus Tier 2) divided by risk-weighted assets of 1,250 crore. This is 3 percentage points above the 9% minimum. Using only Tier 1 would wrongly give 9.6%.

  1. A12.0%, above the minimum by 3 percentage pointsCorrect
  2. B9.6%, above the minimum by 0.6 percentage points
  3. C12.0%, below the minimum
  4. D14.4%, above the minimum by 5.4 percentage points

Explanation

Total capital = 120 + 30 = 150 crore. CRAR = 150/1,250 = 12%. This exceeds 9% by 3 points. Using Tier 1 alone gives 9.6%, which is a wrong numerator. 14.4% is wrong because it uses a smaller base.

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