A bank has computed its Tier I capital  Rs. 1000 Crores.
TierII 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. TierI 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.
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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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