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CAIIB-BFM-CASE STUDIES


A bank has computed its Tier I capital - Rs. 1000 Crores.
Tier-II Capital - Rs 1200 Crores.
RWAs for Credit Risk - Rs 15,000 Crores.
Capital charge for market risk - Rs 600 Crores.
Capital charge for operational risk - Rs 400 Crores.

What would be the bank's total RWAs?

a. 18,889 Crores
b. 21,161 Crores
c. 26,111 Crores
d. 26,141 Crores

Ans - c

Solution :
RWAs for Credit Risk = Rs 15,000 Crores
RWAs for Market Risk = Rs 600/.09 = Rs 6,667 Crores
RWAs for Operational Risk = Rs 400/.09 = Rs 4,444 Crores
Total RWAs = 15000+6667+4444 = Rs 26,111 Crores

Tier I Capital = Rs 1,000 Crores
Tier II Capital = Rs 1,200 Crores
Total Capital = Rs 2,000 Crores
Maximum tier II capital that can be taken into account for the purpose of CRAR is 100% of tier I capital. Tier-I CRAR = (Eligible Tier I capital funds) - (Total RWAs) = 1000/26111 = 3.83%.
Total CRAR = (Eligible total capital funds) - (Total RWAs) = 2000/26111 = 7.66%. It may be noted that tier I capital of the bank is less than required level.

.............................................

ABC Bank has provideded following details :

1- Tier 1 Capital = Rs.2000cr

2- Tier 2 Capitalv =Rs.1000cr

3- Risk weighted assets for credit risk = Rs.20000cr

4- Capital charge for market risk = Rs.1000cr

5- Capital charge for operational risk = Rs.600cr

Based on the given information,

1. Calculate the amount of total risk weighted assets, if the CAR is 9%;

Total risk weighted assets = RWA for credit risk + RWA for market risk + RWA for opperational risk

= 20000 + 1000/0.09 + 600 / 0.09 = 20000 + 11112 + 6667 = 37779 cr.

2. Calculate the amount of Tier 1 Capital adequacy ratio of the bank

RWA for credit risk + RWA for market risk + RWA for operational risk = 20000 + 1000 /0.09 + 600 / 0.09 =20000 + 11112 + 6667 = 37779cr.
Tier 1 Capital = 2000

Tier 1 Capital adequacy ratio = Eligible Tier 1/Total RWA = 2000/ 37779 = 5.29%

3. Calculate the total Capital to risk assets ratio;

RWA for credit risk + RWA for market risk + RWA for opperational risk
= 20000 + 1000 /0.09 + 600 / 0.09
=20000 + 11112 + 6667
= 37779cr.

Tier 1 Capital = 2000
Tier 2 Capital = 2400

Total = 4000 (Tier 2 cannot be more than Tier 1. Hence maximum it can be taken is 2000cr).
Total Capital funds = Eligible total capital fund / Total RWA = 4000/ 37779 = 10.59%

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