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

Under the Basic Indicator Approach of Basel II, Vikram Bank has positive gross income of Rs 400 crore, Rs 500 crore and Rs 600 crore in the last three years. With the alpha factor of 15%, what is the operational risk capital charge?

The charge is Rs 75 crore. Under the Basic Indicator Approach, capital equals 15% of average positive gross income over three years. The average of Rs 400, 500 and 600 crore is Rs 500 crore, and 15% of that is Rs 75 crore.

  1. ARs 90 croreCorrect
  2. BRs 75 crore
  3. CRs 60 crore
  4. DRs 100 crore

Explanation

The charge is 15% of the average positive annual gross income over three years. Average = (400+500+600)/3 = Rs 500 crore. Charge = 15% x 500 = Rs 75 crore. Rs 90 crore would use only the latest year, so check: 15% of 600 = 90, which is wrong; the correct is Rs 75 crore.

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