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CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords

Under RBI's Basel III norms for Indian scheduled commercial banks, the minimum total capital ratio is 9% of RWAs and the Capital Conservation Buffer is 2.5% of RWAs. Mehta Bank has RWAs of Rs 8,000 crore. What is the minimum total capital it must hold to meet the requirement including the buffer, which must be met with CET1?

Mehta Bank must hold Rs 920 crore. The minimum 9% requirement gives Rs 720 crore, and the 2.5% Capital Conservation Buffer adds Rs 200 crore on RWAs of Rs 8,000 crore. The buffer is held in CET1 form, on top of the minimum.

  1. ARs 720 crore total, with no buffer needed
  2. BRs 920 croreCorrect
  3. CRs 1,000 crore
  4. DRs 1,160 crore

Explanation

Minimum total capital = 9% of 8,000 = Rs 720 crore. The buffer is 2.5% of 8,000 = Rs 200 crore, so the total with buffer is Rs 920 crore. Rs 720 crore ignores the buffer; Rs 1,000 crore wrongly uses 12.5%.

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