CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords
Under Basel I, Mehta Bank has risk-weighted assets of Rs 500 crore. Applying the Basel I minimum of 8% of risk-weighted assets (ignore RBI's higher requirement), what minimum total capital must the bank hold?
The bank must hold Rs 40 crore. Basel I requires capital of at least 8% of risk-weighted assets, so 8% of Rs 500 crore equals Rs 40 crore. Other figures result from using wrong percentages or dividing by eight instead of multiplying.
- ARs 25 crore
- BRs 40 croreCorrect
- CRs 50 crore
- DRs 62.5 crore
Explanation
Minimum capital = 8% x Rs 500 crore = Rs 40 crore. Rs 25 crore wrongly uses 5%, Rs 50 crore uses 10%, and Rs 62.5 crore divides 500 by 8 instead of multiplying.
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