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 Recollected - Dec 2015 ---------------------------- ABC Bank has the following re-pricing assets and liabilities (Rs. in crores): Call Money - 600 Cash Credit Loans - 480 Cash in Hand - 500 Saving Bank - 600 FD - 600 Current Depost - 600 Now, answer the following based on the above information. 1. What is the adjusted gap in re-pricing assets and liabilities? Adjusted gap : = (SB + FD) - (Call money + CC) = (600 + 600) - (600 + 480) = 1200 - 1080 = Rs.120cr (Rs. 120 cr Negative Gap, because assets are less than liabilities) The cash in hand and current account deposits are not subject to re-pricing as these are not interest bearing, hence these have been ignored. 2. What is the change in NII, if interest rate falls by 3% points for all assets and liabilities? There is negative gap (interest bearing liabilities more) of Rs.120cr [(600+600)-(600+480)]. Which means the interest cost declines @2% on this negative gap, which leads to increase in NII. Hence it is Rs.120cr * 3% = Rs. 3.60cr increase in NII 3. What is the change in NII, if interest rate increase by 3% points for all assets and liabilities? There is negative gap (interest bearing liabilities more) of Rs.120cr [(600+600)-(600+480)]. Which means the interest cost increases @3% on this negative gap, which leads to decline in NII. Hence it is Rs.120cr * 3% = Rs. 3.60cr decline in NII 4. What is the change in NII, if interest rate falls on call money by 1%, SB by 0.2%, FD by 1% and CC by 0.6%? Fall in interest income in case of assets = (Call- 600 * 1% = 6.00cr) + (Cash credit- 480 * 0.6% = 2.88) = Rs.8.88cr. Fall in interest expenses in case of liabilities = (SB- 600 * 0.2 = 1.20cr) + (FD- 600 + 1% = 6.00 cr) = 7.20cr Net Decline = 8.88cr - 7.20cr = 1.68cr 5. What is the change in NII, if interest rate increases on call money by 0.5%, SB by 0.1%, FD by 0.8% and CC by 1%? Increase in interest amount in case of assets : = (Call- 600 * 0.5% = 3.00cr) + (Cash credit- 480 * 1% = 4.80) = Rs.7.80cr. Increase in interest amount in case of liabilities : = (SB- 600 * 0.1 = 0.60cr) + (FD- 600 * 0.8% = 4.80cr) = 5.40cr Net improvement = 7.80cr - 5.40cr = 2.40cr ............................................. ABC Bank provides following information: Rs.in crores - 1 st year Net profits - 250 Provisions - 300 Staff expenses - 350 Other operating expenses - 150 Other income - 400 Rs.in crores - 2nd year Net profits - 200 Provisions - 250 Staff expenses - 300 Other operating expenses - 250 Other income - 500 Answer the following questions, based on the above information : 1. What is the amount of capital charge for operational risk, on the basis of 1st year results alone as per Basic indicator approach. Capital charge = Gross income * 15% Gross income = net profit + provisions + staff expenses + other operating expenses = 250 + 300 + 350 + 150 = 1050 cr Capital charge = 1050 * 15% = 157.50 cr 2. What is the amount of capital charge for operational risk, on the basis of 2nd year results alone as per Basic indicator approach. Capital charge = Gross income * 15% Gross income = net profit + provisions + staff expenses + other operating expenses = 200 + 250 + 300 + 250 = 1000 cr Capital charge = 1000 * 15% = 150 cr 3. What is the amount of capital charge for operational risk, on the basis of 1st and 2nd year results as per Basic indicator approach. Capital charge = Gross income * 15% Gross income = net profit + provisions + staff expenses + other operating expenses 1st year = 250 + 300 + 350 + 150 = 1050 cr 2nd year = 200 + 250 + 300 + 250 = 1000 cr Average gross income =(1050 + 1000) / 2 = 2050 / 2 = 1025 cr Capital charge = 1025 * 15% = 153.75 cr 4. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 1st year results alone, as per Basic indicator approach? RWA = Capital charge / 8% = 157.50 / 8% = Rs.1968.75 cr 5. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 2nd year results alone? RWA = Capital charge / 8% = 150 / 8% = Rs.1875 cr 6. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 1st year and 2nd results? RWA = Capital charge / 8% = 153.75 / 8% = Rs.1921.88 cr .............................................

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