Question

Using the following information for ABC Bank, calculate the bank’s ratios of Tier 1- capital- to-risk-weighted assets and Total-capital- to-risk-weighted assets under Basel II norms.

(Rupees in million)

Cash	4.5	SLCs backing CPs	17.5
G-Secs	25.6	Long term unused loan commitments to companies	30.5
Deposits with other banks	4.0	Total OBS	48.0
Secured mortgaged loans	50.8	Tier 1 capital	7.5
Loans to pvt companies	105.3	Tier 2 capital	9.5
Total assets	190.2

Ignore market risks & operational risks.

Comment on your ratios from the following regulatory perspectives:

(a)   Indian,

(b)   Global (‘BCBS’)

Answer 1

Assets	Weighted Risk	Amount (Mn)	RWA (Mn)
Cash	0%	4.5	0
G=Secs	0%	25.6	0
Deposit With other Banks	20%	4	0.8
Secured Mortgaged Loans	0%	50.8	0
Loans to Pvt Companies	100%	105.3	105.3
			106.1
Tier 1 -Capital to RWA	7.5/106.1	7.07%
Total Capital to RWA	17/106.1	16.02%

As per RBI total Tier 1 Capital should be more than 7% and Total capital should be more than 9% of RWA. Capital Conservation buffer needs to be 2.5. so a total 11.5% needs to be maintained.

As per Global total Tier 1 Capital should be more than 4% and Total capital should be more than 8% of RWA.

as per Indian Context, ABC bank is in the line the requirements and as per global fulfilling the requirements.