CMA Final · Risk Management in Banking and Insurance · Credit Risk Management
Under the Basel standardised approach for credit risk, a bank holds a Rs 50 crore unsecured corporate exposure with a risk weight of 150% and must maintain a minimum total capital ratio of 9% of risk-weighted assets. What minimum capital is needed against this exposure?
Minimum capital is Rs 6.75 crore. The exposure is first converted to risk-weighted assets at 150%, giving Rs 75 crore, and then the 9% minimum capital ratio is applied. Applying 9% directly to Rs 50 crore would ignore the higher risk weight.
- ARs 6.75 croreCorrect
- BRs 4.50 crore
- CRs 75 crore
- DRs 7.50 crore
Explanation
RWA = 50 × 150% = Rs 75 crore. Capital = 9% × 75 = Rs 6.75 crore. Rs 4.50 crore applies 9% to the unweighted exposure. Rs 75 crore is just the RWA, not the capital. Rs 7.50 crore uses 10% instead of 9%.
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