CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords
Under Basel I, Kaveri Bank holds a Rs 200 crore loan to a corporate borrower (risk weight 100%) and Rs 100 crore of cash and balances (risk weight 0%). Ignoring off-balance sheet items, what is the minimum capital required at 8% of risk-weighted assets?
The minimum capital is Rs 16 crore. Risk-weighted assets are Rs 200 crore, since the corporate loan carries a 100% weight and cash carries 0%. Eight percent of Rs 200 crore gives Rs 16 crore. Applying 8% to total assets of Rs 300 crore would be wrong.
- ARs 24 crore
- BRs 8 crore
- CRs 16 croreCorrect
- DRs 20 crore
Explanation
RWA = 200 x 100% + 100 x 0% = Rs 200 crore. Capital = 8% x 200 = Rs 16 crore. Rs 24 crore wrongly applies 8% to the full Rs 300 crore of assets without weights.
Did you get it right without looking?
One question tells you little. A timed set on Risk Management in Banks and Basel Accords shows your real accuracy, how long you take and where you lose marks.
More Risk Management in Banks and Basel Accords questions
- Kaveri Bank is implementing Basel II. Its Chief Risk Officer explains that, unlike Basel I, the new framework rests on three mutually reinfo…
- A bank lends Rs 40 lakh at simple interest of 10 percent per annum for 9 months. The borrower is expected to default with a probability of 5…
- Under the Basel III leverage ratio, Tier 1 capital is divided by the bank's total exposure measure. Kaveri Bank has Tier 1 capital of Rs 1,8…
- Narmada Bank's CET1 ratio is 7.5% of RWA. Under RBI's Basel III norms, the minimum CET1 is 5.5% and the capital conservation buffer (CCB) is…
- Tarang Bank's stress test shows that its Net Stable Funding Ratio is computed with available stable funding of Rs 900 crore and required sta…
- Ananya Bank's board asks which feature of Basel II allowed it to use its own internal estimates of probability of default to compute credit …