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CAIIB-BFM-RECOLLECTED QUESTIONS FROM DEC 2015-3


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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