IMPORTANT CASE STUDIES ON CAPITAL ADEQUACY | PRACTISE FOR CAIIB CASE STUDIES FOR CAIIB BFM PAPERS

CAIIB CASE STUDIES FOR CAIIB BFM PAPERS ON CAPITAL ADEQUACY

The article contains some important case studies on the concept of Capital Adequacy from the applicable syllabus of 2023. It will be beneficial if you solve the given case studies of BFM paper if you want to clear your CAIIB BFM exams 2023. 

Herein, we are providing you case studies on the concept of Capital Adequacy from the applicable CAIIB syllabus for Exams 2023. But before you begin, we would like you to take a look at the Exclusive Study material of BFM Exam 2023 prepared by the subject experts who have years of experience in teaching.

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BFM CASE STUDIES FOR CAIIB EXAM 2023

 

BFM CASE STUDY ON CAPITAL ADEQUACY 1:

 

BAARISH Bank has: 

• Paid-up capital = Rs. 200 crore, 

• Free reserves = Rs. 600 crore, 

• Provisions and contingencies reserves = Rs. 400 crore, 

• Revaluation reserve = Rs. 600 crore, 

• Perpetual non-cumulative preference shares = Rs. 800 crore, 

• Subordinated debt = Rs. 600 cr. 

• Risk weighted assets for credit and operational risk = Rs. 20,000 crore and 
• Risk weighted assets for-market risk = Rs. 8000 crore.

On the basis of above information, select the correct answer:

 

Q-01: What will be the Tier-1 capital amount?

• 1800 crore 

• 1600 crore

• 1500 crore 

• 1220 crore

 

Q-02: What will be the Tier-2 capital amount?

1. 1800 crore 
2. 1600 crore
3. 1500 crore 
4. 1220 crore

 

Q-03: What will be the fund amount?

1. 1790 crore 
2. 2510 crore
3. 2850 crore 
4. 3350 crore

 

Q-04: What will be the capital adequacy ratio of BAARISH bank?

1. 09.00% 
2. 09.65%
3. 10.25% 
4. 10.07%

 

Q-05: What will be the minimum capital amount to support credit and operational risk?

1. 1800 crore 
2. 1900 crore
3. 2000 crore 
4. 2500 crore

 

Q-06: What will be the minimum Tier 1 and Tier 2 amount to support the credit and operational risk?

1. 1800 crore, & 1800 crore 
2. 1200 crore, & 1800 crore
3. 900 crore, & 900 crore 
4. 600 crore, & 900 crore

 

Q-07: What will be the Tier-1 capital fund to support market risk?

1. 900 crore 
2. 700 crore
3. 500 crore 
4. 370 crore

 

Q-08: What will be the amount of Tier-2 capital fund, to support market risk?

1. 900 crore 
2. 700 crore
3. 500 crore 
4. 320 crore

 

Answers of BFM Case study 1:

1- II

2- IV

3- III

4- III

5- I

6- III

7- II

8- IV

 

Explanation of Answers of BFM Case study 1:

 

1: Tier-1 Capital =

= Capital + Free Reserves + Perpetual non-cumulative preference shares 

= 200 + 600 + 800 crore = Rs. 1600 crore.

 

Tier II Capital =

= Provisions and contingencies reserves maximum 1.25% of risk weighted assets + revaluation reserve at 55% discount – sub-ordinated debts 

= 350 + 270 (600 x 45%, at 55% discount) + 600 

= Rs. 1220 crore.

 

2: Tier-1 Capital =

= Capital + Free Reserves + Perpetual non-cumulative preference shares 

= 200 + 600 + 800 crore = Rs. 1600 crore.

 

Tier II Capital =

= Provisions and contingencies reserves maximum 1.25% of risk weighted assets + revaluation reserve at 55% discount – sub-ordinated debts 

= 350 + 270 (600 x 45%, at 55% discount) + 600 

= Rs. 1220 crore.

 

3: Fund Amount = Tier-1 + Tier-2

 

Where Tier-1 = Capital + Free Reserves + Perpetual non-cumulative preference shares = 200 + 600 + 800 crore 

= Rs. 1600 cr.

 

& Tier II Capital = Provisions and contingencies reserves maximum 1.25% of risk weighted assets + revaluation reserve at 55% discount – sub-ordinated debts 

= 350 + 270 (600 x 45%, at 55% discount) + 600  = Rs. 1220 crore.

 

Total capital fund = Rs. 1600 + Rs. 1220 = Rs. 2850 crore

 

4: Rs. 2820 / 28000 = 10.25%

 

5: Rs. 20000 x 9% = Rs. 1800 crore

 

6: Tier 1 = Rs. 20000 x 4.5% = Rs. 900 crore 

Tier 2 = Rs. 20000 x 4.5% = Rs. 900 crore

 

7: Total Tier 1 i.e. Minimum Tier-I for credit & operational risk 

= Rs. 1600 – Rs. 900 

= Rs. 700 crore

 

8: Total Tier 2 i.e. Minimum Tier-II for credit and operational risk 

= Rs. 1220 – Rs. 900 = 

Rs. 320 crore

 

BFM CASE STUDY ON CAPITAL ADEQUACY 2:

 

The financial results of SHAGUN Bank as on 31st March, 2020 provide the following information: 

• Interest earned = Rs. 28000 crore, 

• Other non-interest income = Rs. 4700 crore, 

• Profit on sale of fixed assets = Rs. 350 crore, 

• Income on sale of 3rd party products = Rs. 250 crore, 

• Interest paid = Rs. 17800 crore, 

• Operating expenses = Rs 8800 crore, 

• Provisions = Rs. 1100 crore.

 

On the basis of above information, select the correct answer:

 

Q-01: What will be the operating profit?

1. Rs. 5600 crore 
2. Rs. 5800 crore
3. Rs. 6200 crore 
4. Rs. 6700 crore

 

Q-02: What will be the gross income as per Basic Indicator Approach for operational risk?

1. Rs. 5600 crore 
2. Rs. 5800 crore
3. Rs. 6200 crore 
4. Rs. 6700 crore

 

Q-03: What will be the capital charge for operational risk as per basic indicator approach?

1. Rs. 1800 crore 
2. Rs. 2075 crore
3. Rs. 2235 crore 
4. Rs. 2430 crore

 

04 What will be the risk weighted assets for operational risk as per basic indicator approach?

1. Rs. 18540.50 crore 
2. Rs. 22507.75 crore
3. Rs. 22511.50 crore 
4. Rs. 27939.50 crore

 

Answers of BFM Case study 2:

1 – I 

2 – I 

3 – III

4 – IV

 

Explanations of Answers of BFM Case study 2:

 

1: Operating profit = Interest earned + other non-interest income + profit on sale of fixed assets + income on sale of 3rd party products — interest paid — operating expense

Operating profit = Rs. 28000 crore + Rs. 4700 crore + Rs. 350 crore + Rs. 250 crore – Rs. 17800 crore – Rs. 8800 crore 

Operating profit = Rs. 6700 crore

 

2: Gross income = Net interest income + Net non-interest income

Gross income = Rs. 28000 crore – Rs. 17800 crore + Rs. 4700 crore 

Gross income = Rs. 14900 crore

 

3: Capital charge for operational risk = Gross income x 15% = 

Capital charge for operational risk = Rs. 14900 crore x 15% 

Capital charge for operational risk = Rs. 2235 crore 

 

4: RWA = Capital charge / minimum Basel-2 CAR. 

RWA = Rs. 2235 crore / 8% 

RWA = Rs. 27937.50 Cr

 

BFM CASE STUDY ON CAPITAL ADEQUACY 3:

 

KASHAV Bank is providing you the following details: 

• Tier 1 capital = 2000.00 crore

• Tier 2 capital = 2400.00 crore

• Risk weighted assets for credit risk = Rs. 20000.00 crore

• Risk weighted assets for market risk = Rs. 1000.00 crore

• Capital charge for operational risk = Rs. 600.00 crore

 

On the basis of above information, select the correct answer:

 

Q-01: What will be the amount of total risk weighted assets, if the CAR is 9%?

1. Rs. 21600 crore 
2. Rs. 23200 crore
3. Rs. 33457 crore 
4. Rs. 37779 crore

 

Q-02: What will be the amount of Tier I capital adequacy ratio of the bank?

1. 6.00% 
2. 5.81%
3. 5.29% 
4. 4.89%

 

Q-03: What will be the total capital to risk assets ratio?

1. 09.00% 
2. 10.59%
3. 11.12% 
4. 11.67%

 

Answers of BFM Case study 3:

1-IV 

2-III 

3-II 

 

Explanations of Answers of BFM Case study 3:

 

1. RWA for Credit risk + RWA for market risk + RWA for operational risk 

= Rs. 20000 crore + Rs. 1000 crore / 0.09 + Rs. 600 crore / 0.09

= Rs. 20000 crore + Rs. 11112 crore + Rs. 6667 crore = Rs. 37779 crore

 

2. RWA for Credit risk + RWA for market risk + RWA for operational risk 

= Rs. 20000 crore + Rs. 1000 crore / 0.09 + Rs. 600 crore / 0.09 

= Rs. 20000 crore + Rs. 11112 crore + Rs. 6667 crore = Rs. 37779 crore

 

Tier I capital = Rs. 2000 crore

Tier II capital = Rs. 2400 crore

Total = Rs. 4000 crore (Tier 2 cannot be Tier I. Hence maximum it can be taken = Rs. 2000 crore)

 

Tier I capital funds 

= Eligible Tier I / Total RWA 

= 2000 crore / 37779 crore 

= 5.29%

 

3. RWA for Credit risk + RWA for market risk + RWA for operational risk 

= Rs. 20000 crore + Rs. 1000 crore / 0.09 + Rs. 600 crore / 0.09 

= Rs. 20000 crore + Rs. 11112 crore + Rs. 6667 crore = 37779 crore

 

Tier I capital = Rs. 2000 crore

Tier II capital = Rs. 2400 crore

Total = Rs. 4000 crore (Tier 2 cannot be Tier I. Hence maximum it can be taken = Rs. 2000 crore)

 

Total capital funds = Eligible total capital fund / Total RWA 

= Rs. 4000 crore / Rs. 37779 crore = 10.59%

 

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