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

Narmada Bank has total capital funds (Tier 1 plus Tier 2) of Rs 1,260 crore and risk-weighted assets of Rs 10,500 crore. In its Pillar 3 style disclosures the bank reports its capital adequacy ratio. Its Tier 1 capital is Rs 945 crore. Which pair of ratios is correct, and is the total ratio above the 9 per cent regulatory minimum?

CRAR is total capital of Rs 1,260 crore divided by risk-weighted assets of Rs 10,500 crore, which is 12 per cent. Tier 1 ratio is 945 divided by 10,500, which is 9 per cent. The total ratio exceeds the 9 per cent minimum, so the bank complies.

  1. ACRAR 12%; Tier 1 ratio 9%; yes, above 9%Correct
  2. BCRAR 12%; Tier 1 ratio 7.5%; yes, above 9%
  3. CCRAR 10.5%; Tier 1 ratio 9%; yes, above 9%
  4. DCRAR 12%; Tier 1 ratio 9%; no, below 9%

Explanation

CRAR = 1,260/10,500 = 12%. Tier 1 ratio = 945/10,500 = 9%. Since 12% exceeds the 9% minimum, the bank complies. Option B wrongly divides 945 by 12,600; option C uses a wrong CRAR.

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