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CAIIB-BFM-CASE STUDIES


ABC Bank has

Paid up capital of Rs 400cr
Free reserves of Rs300cr
Pprovisions and contingencies reserves Rs 200cr
Revaluation reserve of Rs 300cr
Perpetual non-cumulative preference shares of Rs 100cr
Subordinated debt of Rs 300cr.

The risk weighted assets for credit and operational risk are Rs 10000cr and for market risk Rs 4000cr.

Based on the above information,answer the following questions?

1)what is the amount of Tier-1 capital?

Tier-1 = Paid up capital + free Reserves + perpetual non-cumulative preference shares
= 400+300+100cr
= 800cr.

2) Calculate the amount of Tier-2 capital?

Tier-2 = Provisions and contingencies reserves maximum 1.25% of risk weighted assets + revaluation reserve at 55% discount + subordinated debts
= 175+135(300*45%,at 55% discount)+300
= 610

3) Calculate the amount of Total capital fund?

Total capital fund = Tier-1 capital + Tier-2 capital
= 800 + 610
= 1410 cr

4) What is the capital adequacy ratio of the bank?

1410 / 14000 = 10.07 %

5) What is the amount of minimum capital to support credit and operational risk?

10000 * 9% = 900cr

6) What is the amount of minimum Tier 1 and maximum Tier2 to support the credit and operational risk?

Tier 1 = 10000 * 6% = 600 cr
Tier 2 = 900-600= 300cr (Tier 2 capital fund cannot be more than Tier 1).

7) What is the amount of minimum Tier1 and maximum Tier2 to support the credit and operational risk?

Total Tier 1- min Tier 1 for credit and operational risk = 800-600 = 200cr.

8) What is the amount of Tier 2 capital fund, to support market risk?

Total Tier2 - min Tier2 for credit and operational risk = 610-200 = 410cr

 

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