Skip to content

CS Professional · Banking and Insurance - Laws and Practice · Analysis of Financial Statements of Banks

Under the RBI's Basel III capital framework, a scheduled commercial bank has a minimum CET1 requirement of 5.5% of RWAs and a Capital Conservation Buffer of 2.5%. Narmada Bank has RWAs of Rs 8,000 crore. What is the minimum CET1 capital, in rupees, it must hold to meet the CET1 requirement including the buffer?

Narmada Bank needs Rs 640 crore of CET1. The minimum CET1 of 5.5% plus the 2.5% Capital Conservation Buffer gives 8%, and 8% of Rs 8,000 crore RWAs is Rs 640 crore. Leaving out the buffer would understate the requirement at Rs 440 crore.

  1. ARs 440 crore
  2. BRs 640 croreCorrect
  3. CRs 200 crore
  4. DRs 840 crore

Explanation

Minimum CET1 plus CCB = 5.5% + 2.5% = 8.0%. 8% of Rs 8,000 crore = Rs 640 crore. Rs 440 crore ignores the buffer (5.5%). Rs 200 crore is only the buffer (2.5%). Rs 840 crore wrongly uses 10.5%.

Did you get it right without looking?

One question tells you little. A timed set on Analysis of Financial Statements of Banks shows your real accuracy, how long you take and where you lose marks.

Practise Analysis of Financial Statements of BanksFree diagnostic mock

More Analysis of Financial Statements of Banks questions