Credit conversion factor - The credit conversion factor (CCF) converts the amount of a free credit line and other off-balance-sheet
transactions (with the exception of derivatives) to an EAD (exposure at default) amount. This function is used to calculate the
exposure at default.
CHIPS - Clearing House Interbank Payments System
CHAPS - Clearing House Automated Payment System
Coupon swap - A zero coupon swap is an exchange of income streams in which the stream of floating interest-rate payments is made
periodically, as it would be in a plain vanilla swap, but the stream of fixed-rate payments is made as one lump-sum payment when the
swap reaches maturity instead of periodically over the life of the swap.
Word Mine in dealing room - Dealer takes the spot/forward/deposit whichever has been quoted from the counter party. It is
dangerous to use the expression unless amounts have been qualified first. - Intrinsic Risk
Gone concern - Defunct firm or one in the process of being wound up. Debts of such firms become due immediately in full, their
market value is determined on the basis of auction or liquidation value of their tangible assets, and their goodwill counts for nothing.
Abbreviation of EMV chip - Europay, MasterCard and Visa
Provision coverage ratio = Cumulative provisions / Gross NPAs
Intrinsic risk - Risk does not mean volatility; risk means losing your money. That happens when a business fails to deliver the
operating performance embodied in the price an investor paid to acquire it.
Call risk - Call risk is the risk that a bond issuer will redeem its bonds before they mature.
Certificate of deposit - A certificate of deposit (CD) is a savings certificate entitling the bearer to receive interest. A CD bears a
maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks.
The original Basel III rule from 2010 required banks to fund themselves with 4.5% of common equity (up from 2% in Basel II) of riskweighted
assets (RWAs). Since 2015, a minimum Common Equity Tier 1 (CET1) ratio of 4.5% must be maintained at all times by the
bank.[3] This ratio is calculated as follows:
CET1/RWAs >= 4.5 %
The minimum Tier 1 capital increases from 4% in Basel II to 6%,[3] applicable in 2015, over RWAs.[4] This 6% is composed of 4.5%
of CET1, plus an extra 1.5% of Additional Tier 1 (AT1).
Furthermore, Basel III introduced two additional capital buffers:
A mandatory "capital conservation buffer", equivalent to 2.5% of risk-weighted assets. Considering the 4.5% CET1 capital ratio
required, banks have to hold a total of 7% CET1 capital, from 2019 onwards.
A "discretionary counter-cyclical buffer", allowing national regulators to require up to an additional 2.5% of capital during periods of
high credit growth. The level of this buffer ranges between 0% and 2.5% of RWA and must be met by CET1 capital.
MSF - Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI
against government securities. MSF is a very short term borrowing scheme for scheduled commercial banks.
Marginal Standing Facility (MSF) - 7.00% (w.e.f. 05/04/2016).
Decreased from 8.25% which was continuing since 02/06/2015
European option - A European option is an option that can only be exercised at the end of its life, at its maturity. European options
tend to sometimes trade at a discount to its comparable American option. This is because American options allow investors more
opportunities to exercise the contract.
Yield - The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed
annually as a percentage based on the investment's cost, its current market value or its face value.
BPV - BPV is a method that is used to measure interest rate risk. It is sometimes referred to as a delta or DV01. It is often used to
measure the interest rate risk associated with swap trading books, bond trading portfolios and money market books.
LC crystallisation questions
Exposure measure
Basel 3 general features
swap questions 2
What is supervisor review role in Basel 3
Restructuring provision is for how much period
Leverage ratio
Addtional tier 1 is how much percentage of tier 1
modified duration of equity
Bill buying rate
Cross rate
Loss spot
Case Studies on
1. Cancellation of contract
2. NRE/NRO POA
3. RWA
4. MEAN & SD
5. SLR
6. YTM
7. SHORT LERM & LONG TERM GAP ASSET VS Liabilities
8. NII & NIM
9. Tier1, Tier2
10. Capital adequecy
11. Nostro Vostro Loro
12. Daily volatilty
13. Stop loss limit
14. Operational risk case study
15. Foreign exchange numericals
16. Swap numericals
17. Liquidity case study
18. Forward rate agreement 25 crore 3 month swap, three year three business line calculate yield and risk weightage
19. Calculate CET Basel 3
20. Calculate Aadditional tier 1
2 to 3 question duration
5 question export bill(cancellation of contract rate, margin amount,rebook rate,etc)
5 question on capital adequacy (balance sheet provided, compute equity capital, tier 1 capital, total rw, capital adequacy, buffer
capital)
5 question on nostro,loro vostro
5 question on FRA
5 question on net interest margin
2-3 question on bonds
3-4 question on LC
some 2-3 sums on bpv
1. Rate qoute 1 ques
2.LC partial delivery UCPDC rule
3.FRA 6*9 dates of delivery and maturity
4.case study on rules and guidelines regarding NRE, NRO and FCNR accounts- amt of loan,POA,remittance,fund transfer limit etc
5.coupon swaps,forward contracts
6.securitization-SPV or Commercial bank allocation of assets
7.Case study on NII,NIM,EER
8.Case study on Cash flows,deviation during years,SD/mean
9.ECGC insurance premium bear by?
10.CHIPS-USA
11.treasury risk management 4-5 ques
12.European put option
13.Authorises person categ 2
14. ques on BOP expansion
15.bank margin calculation from rates
16.Stop loss given- asked whether buy or sell at what rate to book profit or stop loss
17.monthly volatility given-calculate daily volatility
18.modified duration calculation
19.case study on Nostro Vostro and Loro and Mirror accounts
20.which is not an off balance sheet item of following
21.crystallisation of sight bills 30 days
22.LC date expired due to bank closed due to hurricane UCPDC rule
23.standard ECGC policy cover-political risk
24.basel III - tier 2 capital req of total risk wtd assets, pillar 3 def
25.standardised approach and basic indicator approach and AMA all methods for operational risk calcualtion
24. volatility can also be measured by?
25.price volatility depends on yield volatility,BPV,Yield and price
26.VaR related 2 ques theoretical
27.derivatives hedge underlying risks
28.call risk
29.Maturity ladder or baskets case study
30.provision coverage ratio def
31.asset liability mismatch
32. Bond ytm,current yield 2-3 ques
Note : I found no case studies regarding risk wt asset or capital charge finding, provisioning,risk type identification or forex rate quotations which I heard alwez
come so there is a change in patten this time - more theory.
To clear this read - module 1 and 2 thoroughly and D- Basel III, asset classification and provisions (no ques this time), module 3- just browse over summary it's
sufficient. All the best !!
Recollected - Dec 2013
-----------------------
Which one of the following is the nodal agency designated by government of india to manage
the Export Marketing Fund (EmF)?
a. Exim Bank
b. Export promotion councils of respective commodities
c. Ministry of finance
d. Export Council guarantee corporations
Ans - a
..
Quantitative disclosures in respect of capital requirements for market risk in trading book not
include ?
a. Foreign Exchange Risk
b. Interest rate risk
c. Securitisation expousures
d. Equity position Risk
Ans - c
..
A bank borrows US $ for 03 months @ 2.5% and swaps the same in the INR for 03 months
for deployment in CPs @ 5.5%. The 03 Months premium on US $ is 0.75% the margin
generated by the bank in the transaction is ......
a. 3%
b. 2.25%
c. 5.5%
d. Non of these
Ans - b
= 5.5-2.5=3
= 3*.75
= 2.25%
..
The main purpose of capital adequacy norms is to ensure that a bank has sufficient capital to
......
a. Provide loans
b. Repay its depositors
c. Provide a stable resources to absorb any losses arising from the risks in its business
d. Have adequate infrastructure of its on
Ans - c
..
A bank holds stocks of a company ‟A‟ and wants to protect the downside risk on it may ......
a. Take a long position in the stock futures
b. Take a short position in the stock futures
c. Purchase call option on the stock
d. Sell put option
Ans - d
..
A 91 day T-bill with remaining maturity of 73 days is priced at Rs 99. What is the yield?
a. 5%
b. 5.05%
c. 4.95%
d. 5.20%
Ans - 2 (100-Price)*365*100 / (price * no of days to maturity)
Wherein;
P – Purchase price
D – Days to maturity
Day Count: For Treasury Bills, D = [actual number of days to maturity/365]
in this case price is 99 and days to maturity are 73 so answer would be
(100-99)*365*100 / ( 99*73)=5.05 ans
..
On a 5 point scale (very high,high,average,modete & Low),probability of occurrence of an
activity has been estimated at an average level. Potential financial impact is estimated at an
high level, given that the impect of internal control is 40% what is the estimated level of
operational level?
a. Very high to high
b. High to average
c. Average to moderate
d. Moderate to Low
Ans - d
..
Market risk in treasury can be controlled by ......
a. Overnight limit alone
b. Gap limit only
c. Counter party limit only
d. Both a and b
Ans - d
..
A bank identified 4 asets(a,b,c and d) with a view to reduce risk. it has to choose one of them
Which one of the following criteria would be most relevant for the purpose?
a. Risk capital required for each assests
b. Return on risk capital vis-à-vis that for the portfolio
c. Correlation of assets with the portfolio
d. Income earmed on assets
Ans - c
..
Losses from failed transaction processing is classified under „Event Type Classification as ......
a. Business Disruptions and System failure
b. Execution,Delivery and process Management
c. Clients, products and Business Practices
d. None of the above
Ans - b
..
Which one of the following ratio does not take into account risks in banking business?
a. ROC
b. Capital adequacy
c. RORAC
d. RAROC
Ans - a
..
A rating model combines financial ratios using reported accounting instruction and equaty
values to forecast the probability of a company enterning bankrupacy with in 12 month
period. This model is known as ......
a. Altman,s Z score model
b. Credit metrics model
c. Credit risk model
d. None of the Above
Ans - a
..
Interest income of a bank does not include ......
a. Profit on sale of investments
b. Interest on balances with RBI
c. Interst on bills discounted
d. Interest on car loans
Ans - a
..
Components of portfolio risk are ......
a. Dafault risk and systematic risk
b. Down-gradation risk and concentration risk
c. Concentration risk and intrinsic risk
d. Default risk and down-gradation risk
Ans - c
..
Loans against balances held in FCNR(B) account can be permitted up to ......
a. Rs 50 lakh with 35% margin
b. Rs 100 lakh with 35% margin
c. US $ 1 MIO without any margin
d. Any amount subject to usual margin requirements.
Ans - d
Banks can from 12.10.2012 grant loan against these depsoits without any limits subjuect to
usual margin requirements
..
Who advices the weekly average rates for FCNR(B) deposits to the ADR ......
a. Forex Association of india
b. FEDAI
c. EXIM Bank
d. RBI
Ans - b
..
YTM of a bond depends upon ......
a. Coupon rate and market value only
b. Market value and residual maturity only
c. Residual matuarity and coupon rate only
d. Coupon rate market value and residual matuarity
Ans - b
..
Export packing Credit is normally computed on the basis of ......
a. FOB value of Export
b. CIF value of export
c. CFR value of export
d. C & I value of export
Ans - a
..
A bank in Mumbai quotes a FRA on 10th March 6*9 FRA at MIBOR 5.15-5.25 What is the
settlement date matuarity date of the FRA
a. 10th Dec : 10th Dec
b. 10th Sep : 10th Dec
c. 10Th Sep : 10th Sep
d. 10th Dec : 10th Sep
Ans - b
..
Which approaches are used for measueing and managing funding requirement ?
i) stock approach
ii) Standered approached
iii) Flow approach
iv) Quantitatives approach
a. i) and iii) only
b. ii) and iv) only
c. ii) and iii) only
d. i) and iv) only
Ans - a
..
IF the YTM is 6% and the coupon rate of 7% is payable semi-annually the value of the bond
to be ......
(PVIFA (3%,14)=11.296, PVIF (3%,14)=.661
a. Rs 1451.72
b. Rs 1056.36
c. Rs 1112.84
d. Non of above
Ans : bond valuation=i (PVIFAkd,n) + F (PVIFkd,n) =
70*11.296+1000*.661=790.72+661=1451.72 ANS
Based on the following information answer Q no 27 to 28
Tour bank ABCD is planning to get international banking and start forex trading tou are
request to undertake several steps/ takes liences etc.
..
Based on the information given below answer Q no 22 to Q 25
The forex daelar of KBC Bank sold GBP 20000 in the interbank market @83.7500 in cover of
import TT recorted by one of their branches. Subsequently it was detected that the
transaction had erroneously reported twice by the branch and hence the sale had to be
cancelled the interest rate at the time of cancellation was 1GBP=83.6875 /83.7275.
ONE month forward rate: 1 GBP =83.7300/83.7700
Brokerage of Rs. 1000 for each sale as well as purchase transaction is payable.
What is the amount received in the original sale transaction by the dealar?
a. Rs 16,75,400
b. Rs 16,73,750
c. Rs 16,74,000
d. Rs 16,74,550
Ans:
Which rate would be applied for cancellation?
a. Bill Selling
b. Bill buying
c. TT selling
d. TT Buying
Ans:
How much has to be paid to the dealer at the time of cancellation?
a. Rs 16,74,550
b. Rs 16,74,600
c. Rs 16,75,550
d. Rs 16,73,750
Ans:
How much is the loss/gain on cancellation of GBP sale by the dealer?
a. Rs 1550 loos
b. Rs 1550 Gain
c. Rs 1000 Gain
d. No profit no loss
Ans:
Recollected - June 2015
------------------------------
Calculation of CRR and SLR
Gold card scheme of exporters
Supervisory review
Rwa calculation
Letter of credit case study
business line exposure numerical
calculation of incremental NPA
questions related to risks and treasury
UDPDC 600
irrevocable lc
Asset liability Gap. Case study
Export bill case study
Tier1 and tier2 capital n CAR case study
On 12 feb, received import bill of USD 10000. The bill has to retired to debit the a/c of the customer. Interbank spot rate
=34.6500/7200. The spot rate for March is 5000/4500. The exchange margin TT SELLING is 0.15% and exchange margin BILL
SELLING is 0.20%.quote rate to be applied
For retirement of import bills, whether under LC or otherwise, bank's bill selling rate ruling on the date of retirement of bills or the
forward rate, shall be applied.
All foreign currency bills under LC, if not retired on receipt, shall be crystallized into Rupee liability, at TT Selling rate, on the 10th day
after the date of receipt of documents.
So, here the answer should be
= 34.4500 - (34.45 * 0.20 / 100)
= 34.4500 - 0.0689
= 34.3811
...............
ABC bank ltd has following repricing assets &liabilities as on 31/03/2015
Call money rs1500crore
Cash credit adances rs1200 crore
Cash in hand rs1000crore
Saving bank deposit rs1500crore
Fixed deposit rs1500crore
Current bal a/c rs1250 crore
1.adjusted gap in repricing assets &liabilities?
2.if intrest falls by 1%across the board for all assets&liabilities the net intrest income will be?
3.if int increases by1.5% across the board for all assets &liabilities the net intrest income will be?
If int on call money falls by1% on cash credit by 0.5% on sb a/c by 0.30% & on fd by 1% the net intrest income?
...............
Export bill for usd 5mio drawn 90 days from the date of shipment
Shipment date 3rd october2014
Due date is 1st feb2015
Exchange margin 0.15%
Spot rupee : 63.15/20
Premium spot-january55/60 paise
Rate to be quoted to nearest 0.25 paise & rupee amt is to be rounded off
Rate of intrest on post shipment export up to 180 days is 9%p.a Comm.
On bills purchased is 0.075% Int & comm to be charged up front
a.bill buying rate?
b.The int to be recovered from the exporter will be?
c.the comm charged to the transaction will be closed to?
d.Amt payable to the exporter will be?
e.in case int chargeable is 10%, amt payable to the exporter will be lower by?
...............
A customer presents a bill worth usd 1mio at your bank which is due for maturity at ant time during second month.following
information as follows
Rs/$ spot:63.42/63.57
One month swap points:20/10
Two month swap points:15/10
Bank‟s margin is 0.5%. for merchant transaction
1.one month forward market buying rate?
2.One month forward selling rate will be?
3.the two months forward market buying rate?
4.the rate quoted for buying the bill will be?
...............
ABC bank ltd on 15/10/2014 as follows : Rs in crore
Paid up capital 500
Stock surplus 25
Statutory reserves 650
Capital reserves representing Surplus arising out of sale proceeds of assets 50
Other disclosed free reserves 120
General provision & loss reserves 150
Specific provision on npa at port folio level 15
Provision in lieu of diminution in fair value of assets in case of restructured adv 10
Revaluation reserves 100
Infusion of capital after published bal sheet 50
Rwa under credit/standarised approach 6000
Capital charge for market risk 270
Capital chare for operational risk 180
a.eligible tier1 capital?
b.eligible tier2 capital?
c.eligible crar of the bank will be?
d.as per guidelines exposure ceiling of abc bak on15/10/2014 to a borrower group in the infrastructure tale space?
e.bank intends to finance a single nbfc& purposes&other infrastructure finance its exposure ceiling will be on 15/10/2014?
...............
Default probality of advance portfolio of a bank Rating aaa aa a bbb bb b ccc 3yrs 0.03% 0.12% 0.25% 1.05% 6% 25% 40% 5yrs
0.10% 0.35% 0.55% 1.90% 10% 35% 25% Base rate of 11% is charged to aaa category of borrowers for a 3yr loan load factor to
be added to base rate. 1%of aa, 2%of a, 3% of bbb& 4% of bb a/c load factor to be further increased by 0.5% for each additional
maturity year over 3yrs will be
1.a loan of rs400 crore for 5yrs was given to an A rated COMP two yrs back.there has been no default. Current out standing is rs200
crore. Exposure at default is 100% and loss given default is 50%. The expected loss on this a/c will be?
2.as per risk policy of the bank the loan that shall earn the lowest return will be?
3.received a proposal from a A rated borrower for a loan repayable in 5yrs.what rate of intrest should be charged to th borrower?
4.as on 31/03/2014,the bank had 200BBB rated a/c out of which 10% a/c migrated to default category by 31/03/2015.
5. what is the increase in the number of a/c‟s in the default category?
...............
ABC bank has a capital of rs400 crore s on 31/03/2014 following addl details as follows
s.no details amt in crore
1. cash &bal with rbi 200
2. bank balances 200
3. INVESTMENTS Held for trading 500
Available for sale 1000
Held to maturity 500
4. advances(net) 2000
5. other assets 300
6. total assets 4700
Interms of counter party the investments as follows
Counter party amt in crore
Government 1000
Banks 500 Others 500 The break investments as under Govt.sec bank bonds other sec total HFT 100 100 300 500 AFS 600 400 - 1000
Trading book 700 500 300 1500
HTM 300 - 200 500
TOTAL 1000 500 500 2000
Risk weights assigned as follows DETAILS OF ASSET RISK WEIGHT Cash&bal with rbi 0
Bank bal 20
INVESTMENTS Govt 2.5
Banks 22.5
Others 102.5
Adv & other assets 100
1.total risk weighted assets are?
2.% of total risk weighted assets to the book value of assets?
3.capital adequacy of the bank will be?
4.diff between the max&min risk weighted assets under investments?
5.capital held by abc bank in excess of the minimum regulatory requirement comes to ---------------- crores?
...............
Recollected - Dec 2015
----------------------------
1. As per basel 3...investment % in banking and FI
Minimum total capital requirement will remain at the current 8% level (9% as per RBI).
But the required total capital will increase to 10.5% (11.5% as per RBI) when combined with the conservation buffer (2.5%).
2. What option is available to issuer in CP?
Issuer of CP can issue/hold CP in dematerialised or physical form
3. Call money otc deal ____ time period for NDS
Deals in the Call/Notice/Term money market can be done from 9:00 am to 5:00 pm on weekdays and from 9:00 am to 2:00 pm on
Saturdays or as specified by RBI from time to time.
4. fimmda/fedai/iba formed mibor committee...name this company
Board of Financial Benchmarks India Pvt. Ltd (FBIL)
5. ALCO committee meeting in ____ time period
Individual banks will have to decide the frequency for holding their ALCO meetings
6. Under lrs amt dat can be remitted per fy
USD 250,000
7. Recession period as per ICAAP
8. No of principles under SRP
4
9. Negative carry of crr n slr
10. No. imp areas in mkt disciplines
13
11. T-bill min investment
Rs. 25000
12. NIM and EER Formula....
NIM = NII - NIE
EER = Equity / Total assets
13. case study on dgap,weight,leverage, modified duration...
Modified duration = sub of pvt/ sub of pv
Mc duration = mod dur/ yield + 1
Dirty Bond is a bond with interest of broken period. One that is traded on a day between two successive coupon payment dates.
Npa provision calculations
gap calculAtions
nim
rwa calculations
cd theory
fwd rate calculations
What is dirty price
..what is ponv
..basel 3 questions
...difference between credit linked note nd CDS
...question on haircut
..case study on duration, modified duration
..case study on Letter of credit
Case study on pricing of assets nd liabilities
..questions on spot price..forward rate
5 Numbers bunch on Commercial paper
Like validity, amount, eligibility etc.
Total 5 number.
All r there in ur sample questions bt one by one.
Here they asked in bunch.
Currency swap sum for 5 number. Last time also in june it had come
5 number questions on Import Lc. Different 2 Questions.
Like 1 is lc for quantity 1000mt nd export presented 2 bill of ladings from different dates. If lc is ristricked for partial shipment then 4
option for different discrepancies ..
Other Questions if lc is silent on insurance and exporter submit 105% of invoice amt insurance cover then..
Like this 5 question on lcs basically on ucpdc article bt example wise
Static and dynamic simulation
How many partys in an otc txn
higher the RAROC____is the reward expectation from the investor.
As per regulator Basel III which are of following criteria is required for addition Tier I capital at the pre speeding trigger point.
Dirty price=clean price+accrued interest
T-bill min investment
Rs. 25000
Under LRS amt dat can be remitted per fy
USD 250,000
NIM and EER Formula....
Net Interest Margin is the ratio of net interest income to average interest-earning assets = NIM = NII - NIE
EER = Equity / Total assets
No. imp areas in mkt disciplines
13
F.I can issue CDs for a period of?
1 to 3 years
Interest rate ceiling fixed by regulator on FCNR (B), 3-5yrs?
Interest ceiling for maturity period between 1 year and 3 years is LIBOR/Swap +200bps
Interest ceiling for maturity period between 3 years and 5 years is LIBOR/Swap +400bps
3 types of Forex exposures
Transaction, Translation and Economic Exposure
25 day volatility of a stock is 3.75. Find daily volatility?
volatility stocks = root of no. of days * daily volatility
0.75
C.D are issued in the form of?
Usance Promissory Note
Article 10 of UCP 600?
Ammenement acceptance
CRILC full form
Central Repository of Information on Large Credits (CRILC)
RWA of housing loan
Housing Loans - 50%
Housing Loans > Rs. 30 Lakhs - 75%
Provision of sub - standard category (secured)?
15%
Advanced measurement approach under operational risk, risk mitigation upto ..........%?
20%
Minimum credit rating by sebi?
The minimum credit rating shall be 'A3' as per rating symbol and definition prescribed by SEBI.
Full Form of PONV
point of non-viability
Interbank Rate
The rate of interest charged on short-term loans made between banks. Banks borrow and lend money in the interbank market in
order to manage liquidity and meet the requirements placed on them.
...........
Case Studies on NPA Provisions
A claim of Rs. 49 lacs has been settled by ECGC in favour of a bank against default of Rs. 70 lacs. Subsequently the bank realizes Rs.
15 lacs with the collaterals available to the loan. What will be actual amount settled by ECGC after realization of security by the bank?
a. Rs. 49 lacs
b. Rs. 42.5 lacs
c. Rs. 38.5 lacs
d. Rs. 34 lacs
Ans - c
Explanation :
ECGC had settled Rs. 49 lacs on default of 70 Lacs (That is 70% of the default amount)
But Subsequent to that settlement, Rs. 15 lacs was realised through the security held. So, the claim amount from ECGC should be, 55
Lacs only from ECGC.
And the ECGC had settled only 70 % of the claim amount. So, the settlement amount will be,
70% of Rs. 55 lacs = 5500000 x 70/100 = 38.5 lacs
So, actual amount settled by ECGC = Rs. 38.5 lacs
..
Asset in doubtful category for 2 years – Rs. 500000/-
Realization value of security – Rs. 300000/-
What will be the provision requirement?
a. Rs. 500000/-
b. Rs. 320000/-
c. Rs. 200000/-
d. Rs. 175000/-
Ans - b
Explanation
Provision for secured portion of Doubtful Cat for 2 years = 40%
Provision for unsecured portion of Doubtful Cat for 2 years = 100%
Here,
Secured portion = Rs. 300000
Unsecured portion = Rs. 200000
Provision
= (300000 * 40/100) + 200000
= 120000 + 200000
= 320000
..
An advance of Rs. 400000/- has been declared sub standard on 31/05/2015. It is covered by securities with realizable value of Rs.
250000/-. What will be the total provision in the account as on 31/03/2015?
a. 150000
b. 75000
c. 55000
d. 50000
Ans - b
Explanation :
Sub standard assets will attract provision of 15 % for secured portion and 25 % for unsecured portion. Please refer
“http://rbidocs.rbi.org.in/rdocs/notification/PDFs/62MCIRAC290613.pdf”
Page - 25, Para – 5.4. So,
= 15% of 250000 + 25% of of 150000
= 37500 + 37500
= 75000
..
Balance sheet of a bank provides the following information:
Fixed Assets - 1000cr
Investment in central Govt Securities - Rs 10000cr
In standard loan accounts
Housing Loans - RS 6000cr (Secured, below Rs 10 lac)
the Retail loan - Rs 4000cr
Other loans - Rs 8000cr
sub-standard secured loans - Rs 1000cr
sub-standard unsecured loans - Rs 500cr
Doubtful loans (D-1, secured) - Rs 800cr
Doubtful loans (D-1, unsecured) - Rs 600cr
Doubtful loans (D-2, secured) - Rs 500cr
Doubtful loans (D-2, unsecured) - Rs 1000cr
Doubtful loans (D-3, secured) - Rs 1000cr
Doubtful loans (D-3, unsecured) - Rs 600cr
Loss Assets - 50cr and
other assets - Rs 500cr.
Answer the following questions, based on this information, by using standard Approach for credit risk.
1. What is the amount of RWAs for investment in govt securities?
a. Rs 5000cr
b. Rs 3500cr
c. Rs 2500cr
d. Nil
2. What is the amount of RWAs for sub-standard unsecured accounts?
a. Rs 500cr
b. Rs 7500cr
c. Rs 1000cr
d. Rs 1500cr
3. What is the amount of RWAs for doubtful (D-1, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
4. What is the amount of RWAs for doubtful (D-2, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
5. What is the amount of RWAs for doubtful (D-3, unSecured) accounts?
a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr
6. What is the amount of RWAs for retail loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
7. What is the amount of RWAs for housing loans?
a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr
Solution :
1. d
RW against Govt Securities = 0 %
So, RWA
= 10000 x 0%
= 0 Cr
2. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in Sub-Standard Un-Secured - 25 %, and so, RW = 100 %
So, RWA
= 500 x 100 %
= 500 Cr
3. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in doubtful (D-1, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 600 x 50 %
= 300 Cr
4. b
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in doubtful (D-2, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 1000 x 50 %
= 500 Cr
5. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%
Provision in doubtful (D-3, unsecured) - 100 %, and so, RW = 50 %
So, RWA
= 600 x 50 %
= 300 Cr
6. a
RW on retail loans = 75 %
So, RWA
= 4000 x 75%
= 3000 Cr
7. a
RW on housing loans = 50 %
So, RWA
= 6000 x 50%
= 3000 Cr
.......................................
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
..
BASEL III
3 Pillars of BASEL III
The basic structure of Basel III remains unchanged with three mutually reinforcing pillars.
Pillar 1 : Minimum Regulatory Capital Requirements based on Risk Weighted Assets (RWAs) : Maintaining capital calculated through
credit, market and operational risk areas.
Pillar 2 : Supervisory Review Process : Regulating tools and frameworks for dealing with peripheral risks that banks face.
Pillar 3: Market Discipline : Increasing the disclosures that banks must provide to increase the transparency of banks
Major Features of Basel III ?
(a) Better Capital Quality : One of the key elements of Basel 3 is the introduction of much stricter definition of capital. Better quality
capital means the higher loss-absorbing capacity. This in turn will mean that banks will be stronger, allowing them to better withstand
periods of stress.
(b) Capital Conservation Buffer: Another key feature of Basel iii is that now banks will be required to hold a capital conservation buffer
of 2.5%. The aim of asking to build conservation buffer is to ensure that banks maintain a cushion of capital that can be used to
absorb losses during periods of financial and economic stress.
(c) Countercyclical Buffer: This is also one of the key elements of Basel III. The countercyclical buffer has been introducted with the
objective to increase capital requirements in good times and decrease the same in bad times. The buffer will slow banking activity
when it overheats and will encourage lending when times are tough i.e. in bad times. The buffer will range from 0% to 2.5%,
consisting of common equity or other fully loss-absorbing capital.
(d) Minimum Common Equity and Tier 1 Capital Requirements : The minimum requirement for common equity, the highest form of
loss-absorbing capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted assets. The overall Tier 1 capital
requirement, consisting of not only common equity but also other qualifying financial instruments, will also increase from the current
minimum of 4% to 6%. Although the minimum total capital requirement will remain at the current 8% level, yet the required total
capital will increase to 10.5% when combined with the conservation buffer.
(e) Leverage Ratio: A review of the financial crisis of 2008 has indicted that the value of many assets fell quicker than assumed from
historical experience. Thus, now Basel III rules include a leverage ratio to serve as a safety net. A leverage ratio is the relative amount
of capital to total assets (not risk-weighted). This aims to put a cap on swelling of leverage in the banking sector on a global basis.
3% leverage ratio of Tier 1 will be tested before a mandatory leverage ratio is introduced in January 2018.
(f) Liquidity Ratios: Under Basel III, a framework for liquidity risk management will be created. A new Liquidity Coverage Ratio (LCR)
and Net Stable Funding Ratio (NSFR) are to be introduced in 2015 and 2018, respectively.
(g) Systemically Important Financial Institutions (SIFI) : As part of the macro-prudential framework, systemically important banks will
be expected to have loss-absorbing capability beyond the Basel III requirements. Options for implementation include capital
surcharges, contingent capital and bail-in-debt.
Comparison of Capital Requirements under Basel II and Basel III :
Requirements Under Basel II Under Basel III
Minimum Ratio of Total Capital To RWAs 8% 10.50%
Minimum Ratio of Common Equity to RWAs 2% 4.50% to 7.00%
Tier I capital to RWAs 4% 6.00%
Core Tier I capital to RWAs 2% 5.00%
Capital Conservation Buffers to RWAs None 2.50%
Leverage Ratio None 3.00%
Countercyclical Buffer None 0% to 2.50%
Minimum Liquidity Coverage Ratio None TBD (2015)
Minimum Net Stable Funding Ratio None TBD (2018)
Systemically important Financial Institutions Charge None TBD (2011)
..
1. Wish you all the very best for your exam.
............
Credit conversion factor - The credit conversion factor (CCF) converts the amount of a free credit line and other off-balance-sheet
transactions (with the exception of derivatives) to an EAD (exposure at default) amount. This function is used to calculate the
exposure at default.
CHIPS - Clearing House Interbank Payments System
CHAPS - Clearing House Automated Payment System
Coupon swap - A zero coupon swap is an exchange of income streams in which the stream of floating interest-rate payments is made
periodically, as it would be in a plain vanilla swap, but the stream of fixed-rate payments is made as one lump-sum payment when the
swap reaches maturity instead of periodically over the life of the swap.
Word Mine in dealing room - Dealer takes the spot/forward/deposit whichever has been quoted from the counter party. It is
dangerous to use the expression unless amounts have been qualified first. - Intrinsic Risk
Gone concern - Defunct firm or one in the process of being wound up. Debts of such firms become due immediately in full, their
market value is determined on the basis of auction or liquidation value of their tangible assets, and their goodwill counts for nothing.
Abbreviation of EMV chip - Europay, MasterCard and Visa
Provision coverage ratio = Cumulative provisions / Gross NPAs
Intrinsic risk - Risk does not mean volatility; risk means losing your money. That happens when a business fails to deliver the
operating performance embodied in the price an investor paid to acquire it.
Call risk - Call risk is the risk that a bond issuer will redeem its bonds before they mature.
Certificate of deposit - A certificate of deposit (CD) is a savings certificate entitling the bearer to receive interest. A CD bears a
maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks.
The original Basel III rule from 2010 required banks to fund themselves with 4.5% of common equity (up from 2% in Basel II) of riskweighted
assets (RWAs). Since 2015, a minimum Common Equity Tier 1 (CET1) ratio of 4.5% must be maintained at all times by the
bank.[3] This ratio is calculated as follows:
CET1/RWAs >= 4.5 %
The minimum Tier 1 capital increases from 4% in Basel II to 6%,[3] applicable in 2015, over RWAs.[4] This 6% is composed of 4.5%
of CET1, plus an extra 1.5% of Additional Tier 1 (AT1).
Furthermore, Basel III introduced two additional capital buffers:
A mandatory "capital conservation buffer", equivalent to 2.5% of risk-weighted assets. Considering the 4.5% CET1 capital ratio
required, banks have to hold a total of 7% CET1 capital, from 2019 onwards.
A "discretionary counter-cyclical buffer", allowing national regulators to require up to an additional 2.5% of capital during periods of
high credit growth. The level of this buffer ranges between 0% and 2.5% of RWA and must be met by CET1 capital.
MSF - Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI
against government securities. MSF is a very short term borrowing scheme for scheduled commercial banks.
Marginal Standing Facility (MSF) - 7.00% (w.e.f. 05/04/2016).
Decreased from 8.25% which was continuing since 02/06/2015
European option - A European option is an option that can only be exercised at the end of its life, at its maturity. European options
tend to sometimes trade at a discount to its comparable American option. This is because American options allow investors more
opportunities to exercise the contract.
Yield - The income return on an investment. This refers to the interest or dividends received from a security and is usually expressed
annually as a percentage based on the investment's cost, its current market value or its face value.
BPV - BPV is a method that is used to measure interest rate risk. It is sometimes referred to as a delta or DV01. It is often used to
measure the interest rate risk associated with swap trading books, bond trading portfolios and money market books.
LC crystallisation questions
Exposure measure
Basel 3 general features
swap questions 2
What is supervisor review role in Basel 3
Restructuring provision is for how much period
Leverage ratio
Addtional tier 1 is how much percentage of tier 1
modified duration of equity
Bill buying rate
Cross rate
Loss spot
Case Studies on
1. Cancellation of contract
2. NRE/NRO POA
3. RWA
4. MEAN & SD
5. SLR
6. YTM
7. SHORT LERM & LONG TERM GAP ASSET VS Liabilities
8. NII & NIM
9. Tier1, Tier2
10. Capital adequecy
11. Nostro Vostro Loro
12. Daily volatilty
13. Stop loss limit
14. Operational risk case study
15. Foreign exchange numericals
16. Swap numericals
17. Liquidity case study
18. Forward rate agreement 25 crore 3 month swap, three year three business line calculate yield and risk weightage
19. Calculate CET Basel 3
20. Calculate Aadditional tier 1
2 to 3 question duration
5 question export bill(cancellation of contract rate, margin amount,rebook rate,etc)
5 question on capital adequacy (balance sheet provided, compute equity capital, tier 1 capital, total rw, capital adequacy, buffer
capital)
5 question on nostro,loro vostro
5 question on FRA
5 question on net interest margin
2-3 question on bonds
3-4 question on LC
some 2-3 sums on bpv
1. Rate qoute 1 ques
2.LC partial delivery UCPDC rule
3.FRA 6*9 dates of delivery and maturity
4.case study on rules and guidelines regarding NRE, NRO and FCNR accounts- amt of loan,POA,remittance,fund transfer limit etc
5.coupon swaps,forward contracts
6.securitization-SPV or Commercial bank allocation of assets
7.Case study on NII,NIM,EER
8.Case study on Cash flows,deviation during years,SD/mean
9.ECGC insurance premium bear by?
10.CHIPS-USA
11.treasury risk management 4-5 ques
12.European put option
13.Authorises person categ 2
14. ques on BOP expansion
15.bank margin calculation from rates
16.Stop loss given- asked whether buy or sell at what rate to book profit or stop loss
17.monthly volatility given-calculate daily volatility
18.modified duration calculation
19.case study on Nostro Vostro and Loro and Mirror accounts
20.which is not an off balance sheet item of following
21.crystallisation of sight bills 30 days
22.LC date expired due to bank closed due to hurricane UCPDC rule
23.standard ECGC policy cover-political risk
24.basel III - tier 2 capital req of total risk wtd assets, pillar 3 def
25.standardised approach and basic indicator approach and AMA all methods for operational risk calcualtion
24. volatility can also be measured by?
25.price volatility depends on yield volatility,BPV,Yield and price
26.VaR related 2 ques theoretical
27.derivatives hedge underlying risks
28.call risk
29.Maturity ladder or baskets case study
30.provision coverage ratio def
31.asset liability mismatch
32. Bond ytm,current yield 2-3 ques
