Risk management very Important Terms

    Risk management very  Important Terms 

Capital Funds

Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II. 

Tier I Capital

A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital. 

Tier II Capital

Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital. 

Revaluation reserves

Revaluation reserves are a part of Tier-II capital. These reserves arise from revaluation of assets that are undervalued on the bank's books, typically bank premises and marketable securities. The extent to which the revaluation reserves can be relied upon as a cushion for unexpected losses depends mainly upon the level of certainty that can be placed on estimates of the market values of the relevant assets and the subsequent deterioration in values under difficult market conditions or in a forced sale. 

Leverage

Ratio of assets to capital. 

Capital reserves

That portion of a company's profits not paid out as dividends to shareholders. They are also known as undistributable reserves and are ploughed back into the business. 

Deferred Tax Assets

Unabsorbed depreciation and carry forward of losses which can be set-off against future taxable income which is considered as timing differences result in deferred tax assets. The deferred Tax Assets are accounted as per the Accounting Standard 22. 

Deferred Tax Liabilities

Deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities. 

Subordinated debt

Refers to the status of the debt. In the event of the bankruptcy or liquidation of the debtor, subordinated debt only has a secondary claim on repayments, after other debt has been repaid. 

Hybrid debt capital instruments

In this category, fall a number of capital instruments, which combine certain characteristics of equity and certain characteristics of debt. Each has a particular feature, which can be considered to affect its quality as capital. Where these instruments have close similarities to equity, in particular when they are able to support losses on an ongoing basis without triggering liquidation, they may be included in Tier II capital. 

BASEL Committee on Banking Supervision

The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks' foreign establishments with the aim of ensuring effective supervision of banks' activities worldwide. 

BASEL Capital accord

The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries. The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004. BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face. These three pillars are:

Minimum capital requirements, which seek to refine the present measurement framework

supervisory review of an institution's capital adequacy and internal assessment process;

market discipline through effective disclosure to encourage safe and sound banking practices 

Risk Weighted Asset

The notional amount of the asset is multiplied by the risk weight assigned to the asset to arrive at the risk weighted asset number. Risk weight for different assets vary e.g. 0% on a Government Dated Security and 20% on a AAA rated foreign bank etc. 

CRAR(Capital to Risk Weighted Assets Ratio)

Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. The higher the CRAR of a bank the better capitalized it is. 

Credit Risk

The risk that a party to a contractual agreement or transaction will be unable to meet its obligations or will default on commitments. Credit risk can be associated with almost any financial transaction. BASEL-II provides two options for measurement of capital charge for credit risk 

1.standardised approach (SA) - Under the SA, the banks use a risk-weighting schedule for measuring the credit risk of its assets by assigning risk weights based on the rating assigned by the external credit rating agencies.

2. Internal rating based approach (IRB) - The IRB approach, on the other hand, allows banks to use their own internal ratings of counterparties and exposures, which permit a finer differentiation of risk for various exposures and hence delivers capital requirements that are better aligned to the degree of risks. The IRB approaches are of two types:

a) Foundation IRB (FIRB):The bank estimates the Probability of Default (PD) associated with each borrower, and the supervisor supplies other inputs such as Loss Given Default (LGD) and Exposure At Default (EAD). 

b) Advanced IRB (AIRB):In addition to Probability of Default (PD), the bank estimates other inputs such as EAD and LGD. The requirements for this approach are more exacting. The adoption of advanced approaches would require the banks to meet minimum requirements relating to internal ratings at the outset and on an ongoing basis such as those relating to the design of the rating system, operations, controls, corporate governance, and estimation and validation of credit risk components, viz., PD for both FIRB and AIRB and LGD and EAD for AIRB. The banks should have, at the minimum, PD data for five years and LGD and EAD data for seven years. In India, banks have been advised to compute capital requirements for credit risk adopting the SA. 

Market risk

Market risk is defined as the risk of loss arising from movements in market prices or rates away from the rates or prices set out in a transaction or agreement. The capital charge for market risk was introduced by the BASEL Committee on Banking Supervision through the Market Risk Amendment of January 1996 to the capital accord of 1988 (BASEL I Framework). There are two methodologies available to estimate the capital requirement to cover market risks: 

1) The Standardised Measurement Method: This method, currently implemented by the Reserve Bank, adopts a 'building block' approach for interest-rate related and equity instruments which differentiate capital requirements for 'specific risk' from those of 'general market risk'. The 'specific risk charge' is designed to protect against an adverse movement in the price of an individual security due to factors related to the individual issuer. The 'general market risk charge' is designed to protect against the interest rate risk in the portfolio.

2) The Internal Models Approach (IMA): This method enables banks to use their proprietary in-house method which must meet the qualitative and quantitative criteria set out by the BCBS and is subject to the explicit approval of the supervisory authority. 

Operational Risk

The revised BASEL II framework offers the following three approaches for estimating capital charges for operational risk:

1) The Basic Indicator Approach (BIA): This approach sets a charge for operational risk as a fixed percentage ("alpha factor") of a single indicator, which serves as a proxy for the bank's risk exposure. 

2) The Standardised Approach (SA): This approach requires that the institution separate its operations into eight standard business lines, and the capital charge for each business line is calculated by multiplying gross income of that business line by a factor (denoted beta) assigned to that business line.

3) Advanced Measurement Approach (AMA): Under this approach, the regulatory capital requirement will equal the risk measure generated by the banks' internal operational risk measurement system. In India, the banks have been advised to adopt the BIA to estimate the capital charge for operational risk and 15% of average gross income of last three years is taken for calculating capital charge for operational risk. 

Internal Capital Adequacy Assessment Process (ICAAP)

In terms of the guidelines on BASEL II, the banks are required to have a board-approved policy on internal capital adequacy assessment process (ICAAP) to assess the capital requirement as per ICAAP at the solo as well as consolidated level. The ICAAP is required to form an integral part of the management and decision-making culture of a bank. ICAAP document is required to clearly demarcate the quantifiable and qualitatively assessed risks. The ICAAP is also required to include stress tests and scenario analyses, to be conducted periodically, particularly in respect of the bank's material risk exposures, in order to evaluate the potential vulnerability of the bank to some unlikely but plausible events or movements in the market conditions that could have an adverse impact on the bank's capital. 

Supervisory Review Process (SRP)

Supervisory review process envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority. The objective of the SRP is to ensure that the banks have adequate capital to support all the risks in their business as also to encourage them to develop and use better risk management techniques for monitoring and managing their risks. 

Market Discipline

Market Discipline seeks to achieve increased transparency through expanded disclosure requirements for banks. 

Credit risk mitigation

Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part with cash or securities or guaranteed by a third party. 

Mortgage Back Security

A bond-type security in which the collateral is provided by a pool of mortgages. Income from the underlying mortgages is used to meet interest and principal repayments. 

Derivative

A derivative instrument derives its value from an underlying product. There are basically three derivatives 

a) Forward Contract- A forward contract is an agreement between two parties to buy or sell an agreed amount of a commodity or financial instrument at an agreed price, for delivery on an agreed future date. Future Contract- Is a standardized exchange tradable forward contract executed at an exchange. In contrast to a futures contract, a forward contract is not transferable or exchange tradable, its terms are not standardized and no margin is exchanged. The buyer of the forward contract is said to be long on the contract and the seller is said to be short on the contract.

b) Options- An option is a contract which grants the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset, commodity, currency or financial instrument at an agreed rate (exercise price) on or before an agreed date (expiry or settlement date). The buyer pays the seller an amount called the premium in exchange for this right. This premium is the price of the option.

c) Swaps- Is an agreement to exchange future cash flow at pre-specified Intervals. Typically one cash flow is based on a variable price and other on affixed one. 

Duration

Duration (Macaulay duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk between securities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights are nothing but the present value of the cash flows themselves. It is expressed in years. The duration of a fixed income security is always shorter than its term to maturity, except in the case of zero coupon securities where they are the same. 

Modified Duration

Modified Duration = Macaulay Duration/ (1+y/m), where 'y' is the yield (%), 'm' is the number of times compounding occurs in a year. For example if interest is paid twice a year m=2. Modified Duration is a measure of the percentage change in price of a bond for a 1% change in yield. 

Non Performing Assets (NPA)

An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. 

Net NPA

Gross NPA - (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held). 

Coverage Ratio

Equity minus net NPA divided by total assets minus intangible assets. 

Slippage Ratio

(Fresh accretion of NPAs during the year/Total standard assets at the beginning of the year)*100 

Restructuring

A restructured account is one where the bank, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of installments and rate of interest. It is a mechanism to nurture an otherwise viable unit, which has been adversely impacted, back to health. 

Substandard Assets

A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected. 

Doubtful Asset

An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values - highly questionable and improbable. 


Loss Asset

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. 

Off Balance Sheet Exposure

Off-Balance Sheet exposures refer to the business activities of a bank that generally do not involve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or contingent and thus, do not appear on the institution's balance sheet until and unless they become actual assets or liabilities. 

Current Exposure Method



The credit equivalent amount of a market related off-balance sheet transaction is calculated using the current exposure method by adding the current credit exposure to the potential future credit exposure of these contracts. Current credit exposure is defined as the sum of the positive mark to market value of a contract. The Current Exposure Method requires periodical calculation of the current credit exposure by marking the contracts to market, thus capturing the current credit exposure. Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor prescribed by RBI, according to the nature and residual maturity of the instrument. 

Risk Management::(Most Important)

  01 RBI implemented the Basel-III recommendations in India, w.e.f:

a) 01.01.2013, b. 31.03.2013, c. 01.04.2013, d. 30.09.2013
02 Basel III recommendations shall be completely implemented in India by:
31.03.2020, b. 31.03.2019 c. 31.03.2618 d. 31.03.2017
03 Basel III capital regulations were released by Basel Committee on Banking Supervision (BCBS) during as a
Global Regulatory Framework for more resilient banks and banking systems:
December 2010, b. March 2011, c. December 2011, d. December 2012

Risk Management ::( Very important content read everyone)

  Risk Management ::( Very important content read everyone)

The growing sophistication in banking operations, online electronic banking,

improvements in information technology etc, have led to increased diversity and

complexity of risks being encountered by banks. These risks can be broadly grouped

into Credit Risk, Market Risk and Operational Risk. These risks are

interdependent and events that affect one area of risk can have ramifications for a

range of other risk categories.

Basel-I Accord: It was introduced in the year 2002-03, which covered capital

requirements for Credit Risk. The Accord prescribed CRAR of 8%, however, RBI

stipulated 9% CRAR. Subsequently, Banks were advised to maintain capital charge

for Market Risk also.

Basel-II New Capital Accord: Under this, banks have to maintain capital for Credit

Risk, Market Risk and Operational Risk w.e.f 31.03.2007. The New Capital Accord

rests on three pillars viz., Minimum Capital Requirements, Supervisory Review

Process & Market Discipline. The implementation of the capital charge for various risk

categories are Credit Risk, Market Risk and Operational Risk. Analysis of the bank’s

CRAR under should be reported to the Board at quarterly intervals.

Internal Ratings Based (IRB) Approach: Under this approach, banks must

categorise the exposures into broad classes of assets as Corporate, Sovereign, Bank,

Retail and Equity. The risk components include the measures of the Probability of

Default (PD), Loss Given Default (LGD), Exposure at Default (EAD) and Effective

Maturity (M). There are two variants i.e Foundation IRB (FIRB) and Advanced IRB.

Under FIRB, banks have to provide their own estimates of PD and to rely on

supervisory estimates for other risk components (like LGD, EAD) while under

Advanced IRB; banks have to provide their own estimates of all the risk components.

It is based on the measures of Expected Losses (EL) and Unexpected Losses (UL).

Expected Losses are to be taken care of by way of pricing and provisioning while the

risk weight function produces the capital requirements for Unexpected Losses.

Market Risk: It is a risk pertaining to the interest rate related instruments and

equities in the Trading Book i.e AFS (Available For Sale) and HFT (Held for Trading)

positions and Foreign Exchange Risk throughout the bank (both banking & trading

books). There are two approaches for measuring market risk viz., Standardized

Duration Approach & Internal Models Approach.

Operational Risk: Banks have to maintain capital charge for operational risk under

the new framework and the approaches suggested for calculation of the same are –

Basic Indicator Approach and The Standardized Approach. Under the first approach,

banks must hold capital equal to 15% of the previous three years average positive

gross annual income as a point of entry for capital calculation. The second approach

suggests dividing the bank’s business into eight lines and separate weights are

assigned to each segment. The total capital charge is calculated as the three year

average of the simple summation of the regulatory capital charges across each of the

business lines in each year.

Advanced Measurement Approach (AMA): Under this, the regulatory capital

requirement will equal the risk measure generated by the bank’s internal operational

risk measurement system using certain quantitative and qualitative criteria. Tracking

of internal loss event data is essential for adopting this approach. When a bank first

moves to AMA, a three-year historical loss data window is acceptable.

Pillar 2 – Internal Capital Adequacy Assessment Process (ICAAP): Under this,

the regulator is cast with the responsibility of ensuring that banks maintain sufficient

capital to meet all the risks and operate above the minimum regulatory capital

ratios. RBI also has to ensure that the banks maintain adequate capital to withstandthe risks such as Interest Rate Risk in Banking Book, Business Cycles Risk, and

Credit Concentration Risk etc. For Interest Rate Risk in Banking Book, the regulator

may ensure that the banks are holding sufficient capital to withstand a standardized

Interest Rate shock of 2%. Banks whose capital funds would decline by 20% when

the shock is applied are treated as ‘Outlier Banks’. The assessment is reviewed at

quarterly intervals.

Pillar 3 – Disclosure Requirements: It is aimed to encourage market discipline by

developing a set of disclosure requirements which will allow market participants to

assess the key pieces of information on the capital, risk exposures, risk assessment

processes and hence the capital adequacy of the institution. Banks may make their

annual disclosures both in their Annual Reports as well as their respective websites.

Banks with capital funds of `500 crore or more, and their significant bank

subsidiaries, must disclose their Tier-I Capital, Total Capital, total required capital

and Tier-I ratio and total capital adequacy ratio, on a quarterly basis on their

respective websites. The disclosures are broadly classified into Quantitative and

Qualitative disclosures and classified into the following areas:

Area Coverage

Capital Capital structure & Capital adequacy

Risk Exposures &

Assessments

Qualitative disclosures for Credit, Market, Operational,

Banking Book interest rate risk, equity risk etc.

Credit Risk General disclosures for all banks.

Disclosures for Standardised & IRB approaches.

Credit Risk Mitigation Disclosures for Standardised and IRB approaches.

Securitisation Disclosures for Standardised and IRB approaches.

Market Risk Disclosures for the Standardised & Internal Models

Approaches.

Operational Risk The approach followed for capital assessment.

Equities Disclosures for banking book positions

Interest Rate Risk in

the Banking Book

(IRRBB)

Nature of IRRBB with key assumptions. The increase /

decrease in earnings / economic value for upward /

downward rate shocks.

The Basel-II norms are much better than Basel-I since it covers operational risk.

However, risks such as Reputation Risk, Systemic Risk and Strategic Risk (the risk of

losses or reduced earnings due to failures in implementing strategy) are not covered

and exposing the banks to financial shocks. As per Basel all corporate loans attracts

8 percent capital allocation where as it is in the range of 1 to 30 percent in case of

individuals depending on the estimated risk. Further, group loans attract very low

internal capital charge and the bank has a strong incentive to undertake regulatory

capital arbitrage to structure the risk position to lower regulatory risk category.

Regulatory capital arbitrage acts as a safety valve for attenuating the adverse effects

of those regulatory capital requirements that activity’s underlying economic risk.

Absence of such arbitrage, a regulatory capital requirement that is inappropriately

high for the economic risk of a particular activity could cause a bank to exit that

relatively low-risk business by preventing the bank from earning an acceptable rate

of return on its capital.

Nominally high regulatory capital ratios can be used to mask the true level of

insolvency probability. For example – Bank maintains 12% capital as per the norms

risk analysis calls for 15% capital. In a regulatory sense the bank is well capitalized

but it is to be treated as undercapitalized from risk perspective.

Basel-III is a comprehensive set of reform measures developed to strengthen the

regulation, supervision and risk management of the banking sector. The new

standards will considerably strengthen the reserve requirements, both by increasing

the reserve ratios and by tightening the definition of what constitutes capital. The

new norms will be made effective in a phased manner from 1st July 2013 and

implemented fully by 31st March 2019 and banks should maintain minimum 5.5% in

common equity (as against 3.6% now) by 31st March 2015 and create a Capital

Conservation Buffer (CCB) of 2.5% by 31st March 2019. Further, banks should

maintain a minimum overall capital adequacy of 11.5% by 31st March 2019 and

supplement risk based capital ratios by maintaining a leverage ratio of 4.5%. These

measures will ensure well capitalization of banks to manage all kinds of risks besides

to bring in more clarity by clearly defining different kinds of capital.

Counter Cyclical Capital Buffer (CCCB): The objective of CCCB is twofold viz., it

requires banks to build up a buffer of capital in good times which may be used to

maintain flow of credit to the real sector in difficult times and also to achieve the

broader macro-prudential goal of restricting the banking sector from indiscriminate

lending in the periods of excess credit growth that have often been associated with

the building up of system-wide risk. It may be maintained in the form of Common

Equity Tier-1 capital or other fully loss absorbing capital only and the amount of the

CCCB may vary from 0 to 2.5% of total risk weighted assets of the banks. RBI

intends banks to have a sustainable funding structure. This would reduce the

possibility of banks’ liquidity position eroding due to disruptions in their regular

sources of funding thus increasing the risk of failure leading to broader systemic

stress. The Basel committee on banking supervision framed two ratios viz., Liquidity

Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as part of global

regulatory standards on liquidity to be implemented from 1st January 2018.

i) Liquidity Coverage Ratio (LCR): In order to promote short-term resilience of

the liquidity risk profile of banks, RBI has introduced LCR in a phased manner,

starting with a minimum requirement of 60% from 1st January 2015, and reaching a

maximum of 100% by 1st January 2019. The LCR will ensure that banks have an

adequate stock of unencumbered high-quality liquid assets that can be converted

easily and immediately in private markets into cash to meet their liquidity needs for

a 30-calendar day liquidity stress scenario.

 ii) Net Stable Funding Ratio (NSFR): The ratio seeks to ensure that banks

maintain stable source of funding with respect to the profile of their assets (loans

and investments) and off-balance sheet activities such as extending asset

management and brokerage services to the clients. The NSFR should be 100% on an

ongoing basis. It limits over reliance on short-term wholesale funding, encourages

better assessment of funding risks across all assets and off-balance sheet items and

promotes funding stability.

Tier – I capital consists of Paid up Equity Capital + Free Reserves + Balance in

Share Premium Account + Capital Reserves (surplus) arising out of sale proceeds of

assets but not created by revaluation of assets MINUS Accumulated loss + Book

value of Intangible Assets + Equity Investment in Subsidiaries+ Innovative Perpetual

Debt instruments.

Tier – II consists of Cumulative perpetual preferential shares & other Hybrid debt

capital instruments + Revaluation reserves + General Provisions + Loss Reserves

(up to maximum 1.25% of weighted risk assets) + Undisclosed Reserves +

Subordinated Debt + Upper Tier-II instruments. Subordinated Debts are unsecured

and subordinated to the claims of all the creditors. To be eligible for Tier-II capital

the instruments should be fully paid, free from restrictive clauses and should not be

redeemable at the instance of holder or without the consent of the Bank supervisory

authorities. Subordinated debt usually carries a fixed maturity and they will have to

be limited to 50% of Tier-I capital.

However, due to the stress on account of rollover of demonetization and GST, the

implementation of Basel-III norms may slightly be delayed and the regulator likely to

inform the timeframe shortly.

Economic Capital (EC) is a measure of risk expressed in terms of capital. A bank

may, for instance, wonder what level of capital is needed in order to remain solvent

at a certain level of confidence and time horizon. In other words, EC may be

considered as the amount of risk capital from the banks’ perspective; therefore,

it differs from Regulatory Capital (RC) requirement measures. It primarily aims to

support business decisions, while RC aims to set minimum capital requirements

against all risks in a bank under a range of regulatory rules and guidance. So far, EC

is rather a bank-specific or internal measure of available capital and there is no

common domestic or global definition of EC. The estimates of EC can be covered by

elements of Tier-1, 2 & 3, or definitions used by rating agencies and/or other types

of capital, such as planned earning, unrealized profit or implicit government

guarantee. EC is highly relevant because it can provide key answers to specific

business decisions or for evaluating the different business units of a bank.

Dynamic Provisioning: At present, banks generally make two types of provisions

viz., general provisions on standard assets and specific provisions on non-performing

assets (NPAs). The present provisioning framework does not have countercyclical or

cycle smoothening elements. Though the RBI has been following a policy of

countercyclical variation of standard asset provisioning rates, the methodology has

been largely based on current available data and judgment, rather than on an

analysis of credit cycles and loss history. Since the level of NPAs varies through the

economic cycle, the resultant level of specific provisions also behaves cyclically.

Consequently, lower provisioning during upturns, and higher provisioning during

downturns have pro-cyclical effect on the real economy. However, few banks have

started making floating provisions without any predetermined rules; many banks are

away from the concept which has become difficult for inter-bank comparison. In the

above backdrop, RBI introduced dynamic provisioning framework for Indian banks to

address pro-cyclicality of capital and provisioning to meet the international

standards. Recently, RBI has allowed banks to recognize some of their assets like

real estate, foreign currency and deferred tax, reducing the extra capital needs of

state-owned banks by 15 per cent. The move is aimed to align the regulatory capital

of banks with the Basel-III standards.

Leverage Ratio: It is the tier-1 capital divided by the sum of on-balance sheet

exposures, derivative exposures, securities financing transaction exposures and off-

balance sheet items. This ratio is calibrated to act as a credible supplementary

measure to the risk based capital requirements with the objective to constrain the

build-up of leverage in the banking sector to avert destabilizing deleveraging

processes for the sound financial economy and to reinforce the risk based

requirements with a simple, non-risk based “backstop” measure. The desirable

exposure should be within 25 times of tier-1 capital.

Banks in India need substantial capital funds in the ensuing years mainly to fund the

credit growth which is likely to grow at around 15% to 20% p.a. and banks are

required to set aside a portion of capital for the said purpose. Banks also need

additional capital to write off bad loans as well as to meet the operational risks on

account of weaker implementation of systems and procedures. More importantly, the

implementation of Basel-III norms warrants pumping of substantial capital funds.

Raising these funds, though, will require several steps, apart from legislative

changes as Public Sector Banks can not dilute its equity below 51%. Attracting

private capital warrants minimum governance and structural reforms. It is also

proposed to create an independent Bank Holding Company to invite private capital

without diluting the equity to address the issue.

Caiib ABM strategy

  CAIIB ABM Strategy

ABM is one of the compulsory subjects for CAIIB. Most of the people find difficult to clear this paper. Today, I will tell you how to study for ABM subject.

This subject also contains 4 modules

MODULE – A: Economic Analysis

MODULE – B : Business Mathematics

MODULE – C : HRM in banks

MODULE – D : Credit Management

As we are bank employees we get very less time for study, so how to decide which topics to be read, which topics to be skipped?

-As I had told you in my previous blog article that generally paper consists of 60% theoretical & 40% numerical or case studies, so choose the module to be study in deep so as to clear the paper easily depending upon your personal strength and weakness.

If you observed all the modules, you will realize that Module A and Module C are most scoring modules. Do not skip these modules. Module B contains Business Mathematics which many people find difficult to study as the level of mathematics is tough, especially for non-engineering background people. Those who works in Credit/Loan Department will find that Module D easy as well as interesting. Module D is most important not only exam point of view but also for your daily working in Credit Department. So do not skip Module D.

IMPORTANT TOPICS FROM EACH MODULE

Module A- Supply and Demand, Money Supply and Inflation, Business Cycles, GDP Concepts and Union Budget.

No need to read McMillan Book line by line for thise module, short notes will be quite useful for studying this module. Don’t read stats given in these chapters. In GDP Concepts and Union Budget chapters numerical are asked which are quite easy provided you know the components and formula.

Module B-Time Value of Money, Sampling Methods, Simulation, Bond Investment

Don’t go to deep for study this module as mathematical calculations are difficult to understand especially for non engineering background people. Practice the examples given in McMillan. Those who are not good at math can skip this module and focus more on remaining modules.

Module C-Development of Human Resources, Human Implications of Organisations, Performamce Management, HR & IT

You need to read thoroughly all the topics from this module from McMillan. It is quite easy and theoretical only. Repeatedly read MCQs from N.S. Toor book of this module.

Module D-Overview of Credit Management, Analysis of Financial Statement, Working Capital Finance, Credit Control and Monitoring, Rehabilitation and Recovery.

Read this module from McMillan book only. The chapters in this module are not lengthy as compared to other modules. Practice Numerical from Financial statement and balance sheet.

Overall, you have to study at least three modules in detail so as to achieve the 50 score. You can choose the modules to study more depending upon your strength. I would suggest that you can keep module B at last, just read formulas from this module, as this module is quite boring, lengthy and hard to understand.

https://iibfadda.blogspot.com/

Caiib BFM strategy

 BFM::;;

The strategy for the study of Bank Financial Management which many people finds difficult to clear. If you study properly, it is easy to clear the BFM. This subject also contains 4 modules, they are;

-International Banking

-Risk Management

-Treasury Management

-Balance Sheet Management

Many people do not correlate the syllabus of the subject with day to day banking activity. So they find it difficult to score and understand this subject. But this not true, this subject is very much important which will increase your knowledge regarding top management & middle management functioning of your bank as well as banking as a whole industry.

All the modules are equally important, but you may clear the paper with three modules study also. Module A & B are relatively easy and scoring as well. Let us discuss strategy for each module.

Module A-International Banking

Important topics are Exchange Rates and Forex Business, Basics for Forex Derivatives, Documentary LC, and Facilities for Exporters & Importers

Rapid reading or bullet point reading is quite useful for this module. Practice numerical again and again.

Many numerical/case studies are asked from this module which are quite easy as compared to Module B & Module D case studies. Refer the case studies from McMillan given at the end of the topic. Also N.S.Toor book has many numerical and case studies. Questions are asked on Exchange rates, Shipment Finance etc.

Module B-Risk Management

All chapters are equally important as they are interlinked to each other. Again focus more on case studies/numericals given in Apendix at the end of chapter. Maximum case studies are asked from this module. Though short notes are useful for this module I would suggest McMillan reading for this module because some questions are twisted type for which you require details of the concept which is hard to get from short notes. RBI website contains FAQs which are quite useful for this modules, you should read them at least once.

Module C- Treasury Management

Important topics are Introduction, Types of treasury products, Treasury Risk Management, Treasury and Asset-Liability Management.

Mostly questions asked on this module are theoretical type, so through reading of McMillan is important. If you don’t get time then you can skip this module or read short notes since the weighted of this module for exam point of view is low according to me as compared to Module A&B. But those who wish to make carrier or work in treasury department, this is the best module to learn.

Module-D Balance Sheet Management

Important chapters are Components of ALM in Bank’s Balance Sheet, Capital and banking Regulation,, Capital Adequacy, Asset Classification and Provisioning Norms, Interest rate Risk management.

Though McMillan book contain sufficient material but I would suggest you to refer RBI website for this module. In this module focus more on Case Studies as compared to theoretical questions. Do not skip this module as it is much important for exam as well as knowledge point of view. No need to read McMillan line by line.

Overall you have to keep balance between theoretical reading as well as case studies/numerical since the paper would contain 40-45% case studies. N.S.Toor book contains good case studies and MCQs. Also there are many resources available on the internet from where you will get case studies for this module. After giving this paper you will realized that BFM is easier as compared to ABM and no need to worry for BFM.

All IIBF 2022 Certifications ,JAIIB ,CAIIB PDFs in single link

All IIBF Certifications PDFs in single link

Be safe ,stay safe during this covid pandemic

Read corresponding  IIBF book 1st Macmillan / Taxmann.

These all materials are extra information to get knowledge.

All the best

IIBFADDA4U:

https://iibfadda4u.blogspot.com/?m=1

Certified credit officer/Professionals
https://drive.google.com/file/d/1noDBuJjOoNhbJYO5ghbNdI_1-lbBEpH8/view?usp=sharing


MSME
https://drive.google.com/file/d/1i4H8NgpjCtlEefnPW1KTIKDj9BWdHLcg/view?usp=sharing

KYC AML:
https://drive.google.com/file/d/1ooohD2A7OO8UaO2WjUBLyRd1aD_Yco6s/view?usp=sharing

BCSBI
https://drive.google.com/file/d/1IN4SVWdxCCMZ9nRvSUwbI4O0kCGGKCic/view?usp=sharing

CAIIB ABM
https://drive.google.com/file/d/1XsZMX4Xfonqp_CVWz-PtfEZ6TxDEYb-n/view?usp=sharing

CAIIB IT
https://drive.google.com/file/d/1UO2x6ZP7jDmS2Q3GXEhoO1_NyNYgWT-d/view?usp=sharing

Certified Treasury Professionals:
https://drive.google.com/file/d/1T-P1FwMLVjsJRvuLybZnssvRqFt1D5E4/view?usp=sharing

Digital banking
https://drive.google.com/file/d/1dNOf3cwC9oHkrGyBozvmGZOmbXLZjV55/view?usp=sharing

Forex Individual
https://drive.google.com/file/d/1R6VPUzjNyiSGpf2f3aCAJZEPiY7fwOCW/view?usp=sharing

Forex Operations
https://drive.google.com/file/d/1h54CyU7wN14T2M4wHNZCNGDzrihHYUeE/view?usp=sharing

Cyber Crime and fraud management
https://drive.google.com/file/d/1EBffHoxmW8rNmG5Q-peY2wn5QNlH0Lot/view?usp=sharing

Information System for Bankers
https://drive.google.com/file/d/1s3Jw0dSxu3dAfqXheSUv2n9tB3NV7HvH/view?usp=sharing

By Mr Aravind

https://drive.google.com/file/d/1NL_dNgrCYpsIGRRA9RsQc9bSV78EDX9w/view?usp=drivesdk


International Trade Finance
https://drive.google.com/file/d/1RSCeLuPD7Vkm7w9qiFfgs7yLH4Jz2xIJ/view?usp=sharing

IT SECURITY
https://drive.google.com/file/d/1PBBkirwJ3a4WCfvnU5cOPe8xIQTOAqGi/view?usp=sharing

Microfinance
https://drive.google.com/file/d/1JlBWepV73qPvP4Ni-UK0si1zdDbm80Ow/view?usp=sharing

Risk In financial services
https://drive.google.com/file/d/1zyLXzj7u0B3nDhProgBHJENLIcUmfbG9/view?usp=sharing

Certified Audit  Professionals:
https://drive.google.com/file/d/1hoF4w_jgChsbgMDmC3Xq7d5RLvDIo5m-/view?usp=sharing

ALL JAIIB Materials:

https://drive.google.com/drive/folders/1JdUsNs1R61rXVjvXzd8EwM6vhl42RSmX?usp=sharing

ALL CAIIB Materials:

https://drive.google.com/drive/folders/1gx-kZHxPj9mjOZ6dImkwY6UA6MafI2X0?usp=sharing

What next after CAIIB?

 What next after CAIIB?

15 Certificate Exams in Finance and Banking useful for Bankers::

Introduction
As per IBA settlement, bankers who have passed JAIIB and CAIIB exams are entitled to salary increments. The Banks which are following IBA Salary structure is giving this benefit to their employees. After passing JAIIB, Clerks are eligible to receive one increment and Officers are also eligible for one increment. Passing the CAIIB examination gives two increments to clerks while officers get one increment. Apart from these associate exams, there are Certificate Exams in Finance and Banking which are very helpful for development of bankers knowledge.

Whats next after CAIIB?
I know and felt your struggles and endeavours to pass the CAIIB for getting those increments. But now you have completed; Your sala1ry has increased and you have rejoiced for your success. There is no ending for knowledge gathering in our Industry. Our banking industry is vast and it is very dynamic. We need to update ourself regularly. Also we have to expand our knowledge to other related areas; So that we have our chances in Banking Industry. Institutions such as IIBF, NISM and NCFM are providing many useful Certificate Exams in Finance and Banking for development of knowledge to the bankers. Among them 15 Certificate Exams in Finance and Banking are very useful for bankers and the persons who cleared CAIIB must try to clear these exams.

List of Certificate Exams Offered by IIBF in Banking :
Indian Institute of Banking & Finance is offering many Certificate courses for benefit of Bankers, IT Employees and BPO Companies. The following courses are important and useful certificate courses for bankers.

Important Specialized Courses by IIBF:
Based on the recommendation from RBI Capacity Building Committee, IBA has identified the following blended courses offered by Indian Institute of Banking & Finance. The specialized courses will be made mandatory for bankers working in those specalized areas from 01.04.2018

S.No
Areas where certification has been identified by RBI
Course offered by IIBF and identified by IBA
1 Risk management – credit risk, market risk, operational risk, enterprise-wide risk, information security, liquidity risk
Risk in Financial Services
2 Treasury operations- Dealers, Mid office operations
Certified Treasury Dealer
3 Credit management- credit appraisal, rating, monitoring, credit administration
Certified Credit Officer

I have written a seperate detailed article for above courses read 4 Important Capacity Building Courses must do for Bankers

Other Useful Certification Courses
MSME Finance For Bankers
Certificate Exam in AML/KYC
Certificate In International Trade Finance,
Certificate Exam in Customer Services and Banking Codes & Standards
Certificate Exam in Foreign Exchange
MSME

Certificate In International Trade Finance

Certificate Examination In Information System Banker

Certificate Examination in AML/KYC

Customer Service & Banking codes and standards

Certificate Examination In It Security

Certificate Examination In Rural Banking Operations

Certificate Examination In Prevention Of Cyber Crimes And Fraud Management

Certificate Examination In Foreign Exchange Facilities For Individuals

Certificate Examination In Microfinance

Card Operations (for Employees of I.T. and BPO Companies)

Functions of Banks (for Employees of I.T. and BPO Companies)

Basics of Banking (for Employees of I.T. and BPO Companies)

Certificate Examination For DRA

Certificate Examination For DRA Telecallers

Business Correspondents / Facilitators

Certificate Course In Foreign Exchange

Certificate Course In Digital Banking

Introduction to Banking(for sub-ordinate staff of banks)-IN ENGLISH AND HINDI MEDIUM

Certificate Course for Non Banking Financial Companies

Certificate Examination For Small Finance Banks

List of Certificate Exams offered by NISM:

National Institute of Securities Market (NISM) is conducting various certificate exams for persons engaging in various segments of Indian Security Market. Almost all commercial Banks are providing DP services to their customers. So as a banker we need to know about Security markets. SEBI has mandated the NISM series exams.

Currency Derivatives
Equity Derivatives
Depository Operations
Merchant Banking
Mutual Fund Distributor Module.
Each module has series of examinations and passing them makes us specialized in Securities Market. For more details about examination fee and procedure visit NISM Certifications

List of Certificate Exams offered by NCFM

NSE Acadamy Certification in Financial Market (NCFM) conducts exams to test the expertise in different fields of the Financial Market. The following are important areas of financial market.

Modules in Commodities Market
Modules in Capital Market Module
Modules in Securities Market Module
Modules in Derivative Market Module
Modules in FIMMDA – Debt Market Module
Each module has Foundation, Intermediate and Advanced Modules which makes us to get expertise in the particular segment of the Financial Market. For more details about the exam visit NCFM Modules

Uses of Certificate Exams:
These are professional certificate exams conducted by reputed professional agencies in our Industry. So it has been recognized all over India by all Banks and other financial institutions.
These certificate course are very helpful for our vertical career development.
Some of these courses makes us specialized in particular segment of finance and banking. Thus we will be qualified to work in specialized areas.
During yearly appraisal and promotion appraisal marks are given to above courses under Special Qualifications.
Some Banks provides one time refund of examination fee after successful completion of the exams.
Conclusion:
Though there is no salary increment for the above examinations; They are helpful for bankers in many ways. The above lists of exams are not exhaustive, I have mentioned only the few important exams.

Caiib BFM numericals

 Caiib bfm very important:::

Bank Financial Management Numericals

A bak has computed its Tier I capital -Rs. 1000 Crores. Tier-II Capital -Rs 1200 Crores. RWAs for Credit Risk -Rs 15,000 Crores. Capital charge for market risk -Rs 600 Crores. Capital charge for operational risk -Rs 400 Crores.
What would be the bank's total RWAs?

18,889 Crores
21,161 Crores
26,111 Crores
26,141 Crores
Ans -3

Solution : RWAs for Credit Risk = Rs 15,000 Crores RWAs for Market Risk = Rs 600/.09 = Rs 6,667 Crores RWAs for Operational Risk = Rs 400/.09 = Rs 4,444 Crores Total RWAs = 15000+6667+4444 = Rs 26,111 Crores

Tier I Capital = Rs 1,000 Crores Tier II Capital = Rs 1,200 Crores Total Capital = Rs 2,000 Crores Maximum tier II capital that can be taken into account for the purpose of CRAR is 100% of tier I capital. Tier-I CRAR = (Eligible Tier I capital funds) / (Total RWAs) = 1000/26111 = 3.83%. Total CRAR = (Eligible total capital funds) / (Total RWAs) = 2000/26111 = 7.66%.

...........................................................................................................................................................................
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?

Rs. 49 lacs
Rs. 42.5 lacs
Rs. 38.5 lacs
Rs. 34 lacs
Ans -3

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 ECG

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

...........................................................................................................................................................................
Spot Rate -35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000 Transit Period -20 days. Exchange Margin -0.15%. Find 2 M Forward Buying Rate.

31.1971
34.1971
31.6976
34.6976
Ans – 4

Explanation :

Bcz, it is having Transit Period -20 days and 2 M Forward, 3 Month Forward Buying Rate will be applied, 20 days + 2M.

Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.

...........................................................................................................................................................................
What would be the issue price of a CP (Face value of Rs. 100) carrying an interest rate of 10 % and maturity of 1 year expressed as % of notional value?

100
96.15
90.90
92.50
Ans -3

Explanation :

Interest rate = 10 % annual

CPs are issued at discount prices. . So if face value is 100, then

Issue price × (1+10%) = 100 Issue price × 1.10 = 100 Issue price = 100/1.10 = 90.9090 = 90.90

...........................................................................................................................................................................
Asset in doubtful category for 2 years – Rs. 500000/Realization value of security – Rs. 300000/What will be the provision requirement?

Rs. 500000/-
Rs. 320000/-
Rs. 200000/-
Rs. 175000/-
Ans -2
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

...........................................................................................................................................................................
Inflow of USD 200,000.00 by TT for credit to your exporter's account, being advance payment for exports (credit received in Nostro statement received from New York correspondent). What rate you will take to quote to the customer, if the market is 55.21/25?

55.21
55.21-Bank commission
55.25
55.25-Bank commission
Ans -2

Explanation :

It will be purchase of USD from customer for which USD will have to be sold in the market. Say when

USD/Rs is being quoted as 48.09/11, meaning that market buys USD at Rs 48.09 and sells at Rs 48.11.

We shall have to quote rate to the customer on the basis of market buying rate, i.e. 48.09, less our

margin, as applicable, to arrive at the TT Buying Rate applicable for the customer transaction.

...........................................................................................................................................................................
Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium, GBP/USD 1.3965/75, USD/INR 55.16/18. Compute Rate for Customer.

76.5480
76.6985
77.1140
77.2682
Ans -4
Explanation :

For retirement of import bill in GBP, we need to buy GBP, to buy GBP we need to give USD and to get USD, we need to buy USD against Rupee, i.e. sell Rupee.

At the given rates, GBP can be bought at 1.3975 USD, while USD can be bought at 55.18. The GBP/INR rate would be 77.1140. (1.3975 x 55.18), at which we can get GBP at market rates. Thus the interbank rate for the transaction can be taken as 77.1140.

Add Margin 0.20% 0.1542.

Rate would be 77.1140 + 0.1542 = 77.2682 for effecting import payment. (Bill Selling Rate).

...........................................................................................................................................................................
Given that Tier I capital is Rs. 500 crores and Tier II capital Rs. 800 crores and further given that RWA for credit risk Rs. 5000 crores, capital charge for market risk and operational risk Rs. 200 crores and Rs. 100 respectively, answer the following questions if the regulatory CAR is 8%. Based on the data given above, answer the following questions.

What are the total risk weighted assets?

Rs. 7250 crores
Rs. 8750 crores
Rs. 9000 crores
Rs. 7800 crores
Ans – 2

RWA of mkt risk =200/.08=2500

RWA ops risk =100/.08=1250

Total RWA = RWA credit risk+ RWA mkt risk+ RWA ops risk

= 5000+2500+1250

= 8750

...........................................................................................................................................................................
Data relating to balance sheet as on 14 Mar 2015 banks reveals its capital at Rs. 1110 cr, Reserve 2150 cr, demand deposit 6500 cr, SB deposit 20500 cr, term deposits from banks 1300 cr, term deposit from public 30800 cr, borrowing from RBI nil, borrowing from other institutions 200 cr, refinance from NABARD 150 cr, bills payable 50 Cr, accrued 20 cr, sub ordinatted debt 200 cr and credit balance in suspense a/c 30 cr (Total Being 63000)

1.Total amt of liabilities not to be included in computing DTLs in RS

3250 cr
3300 cr
4600 cr
4700 cr
Ans -4

(1100+2150+150+1300=4700) In time liabilities capital and reserve + refinance from NABARD + term deposit of banks are not to be included

...........................................................................................................................................................................
2.Total amount of DTL on which CRR is to be maintained

58100 cr
63000 cr
58300 cr
67100 cr
Ans -3

=6500+20500+30800+200+50+20+200+30 =58300 other than those not included while calculating DTL

...........................................................................................................................................................................
3.Bank would require to maintain average CRR amounting to ...... , if the rate of CRR is 5%

2915
2905
1749
3150
Ans -1

5% of amt of DTL that is 58300 and 5% is 2915

...........................................................................................................................................................................
NET WORTH RS. 1500 CRS T1 + T2 CAPITAL RS 3500 CRS RSA RS 22500 CRS RSL RS 21000 CRS DA WT MODIFY DURATION OF ASSETS 1.80 DL WT MODIFY DURATION OF LIABILITY 1.10

DURATION OF GAP FOR BANK IS ESTAMATED AT

0.77
0.73
0.62
NONE
Ans -1

Solution:

DWAP = DA-W*DL = FIRST CALCULATE W=RSL/RSA=21000/22500=.933 = 1.80-.933*1.10 = 0.77

...........................................................................................................................................................................
LEVERAGE RATIO IS

6.43
15
14.33
6.14
Ans -1

LEVERAGE RATIO = RSA/(TIER1+TIERII) 31 = 22500/3500 = 6.428

...........................................................................................................................................................................
MODIFY DURATION OF EQUITY IS

4.97
5.99
3.68
9.56
Ans -2

Modified duration = DGAP*leverage ratio = 0.933*6.43 = 5.99

...........................................................................................................................................................................
Mr. X purchases a put option for 300 shares of A with strike price of Rs. 2000 having maturity after 02 months for Rs. 50. On maturity, shares of A were priced at Rs. 1900. What is the profit/lost for the individual on the transaction (without taking the interest cost and exchange commission into calculation)?

Profit of Rs. 30000
Profit of Rs. 15000
Loss of Rs. 30000
Loss of Rs. 15000
Ans: 2

Explanation.

This is put option, so it is assumed that, He will sell 300 shares of A at a price of 2000 Total value of shares is = 600000

Then he will buy the total shares in the market at a price of 1900. 300 × 1900 = 570000 So profit of 30000 in the transaction. .

But he has to paid Rs. 50 per share to buy put options. =300 × 50 = 15000 Total profit or loss = 600000 -570000 -15000 = 15000

...........................................................................................................................................................................
12% government of India security is quoted at RS 120. If interest rates go down by 1%, the market price of the security will be?

120
133.3
109
140
Ans – 2

Explanation :

Current Yield = Coupon Rate x 100/CMP Current Yield = 12 x 100/120 = 10%

Now, Interest rate goes down by 1% (That is 9%). By applying the same formula, we get : 9 = 12 x 100/CMP CMP = 1200/9 = 133.3

............................................................................................................................................................................................................................................................
Case study for calculation of capital for market risk

Bank has paid up capital 100 free res. 300 prov and conti res 200 reveluation of res. of 300 p n c p share 400 subordinate debt 300

r.w.a for credit and operational risk 10000 for market risk 4000 Based on the data given above, answer the following questions.

1.Tier-1 capital ?

900
800
750
610
Ans – 2

.............................................
2.Tier-2 capital ?

900
800
750
610
Ans –4

.............................................
3.Capital fund ?

895
1250
1410
1575
Ans – 3

hint : Formula : Tier 1 + Tier 2

.............................................
4.Capital adequacy ratio ?

9%
9.75 %
10.50 %
10.07 %
Ans – 4

CAR = T1+T2/RWA

.............................................
5.Minimum capital to support credit and opr. risk ?

900
950
1000
1250
Ans – 1

...........................................................................................................................................................................
Spot Rate -35.6000/6500 Forward 1M=3500/3000 2M=5500/3000 3M=8500/8000 Transit Period -20 days. Exchange Margin -0.15%. Find Bill Buying Rate

33.1971
34.1971
35.1971
36.1971
Ans -3

Solution :

Ans: Bill Buying Rate (Ready) : Bill Date +20 days Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971

...........................................................................................................................................................................
On 15th June, Customer presented a sight bill for USD 100000 for Purchase under L

Transit period is 20 days and Exchange margin is 0.15%. The spot rate is 34.80/90. Forward differentials: July -.65/.57 Aug -1.00/.97 Sep -1.40/1.37 How much amount will be credited to the account of the Exporter?
28.0988
34.0988
40.0988
44.0988
Ans: 2

Solution :

Bill Buying rate will be applied Spot Rate = 34.80 Less discount .65 = 34.15 Less Exchange Margin O.15% i.e. .0512

=34.80-0.60-0.0512 =34.0988

.......................................................................................................................................................................
Inflow of USD 200,000.00 by TT for credit to your exporter's account, being advance payment for exports (credit received in Nostro statement received from New York correspondent). What rate you will take to quote to the customer, if the market is 55.21/25?
55.21
55.21-Bank commission
55.25
55.25-Bank commission
Ans: 2

Explanation :

It will be purchase of USD from customer for which USD will have to be sold in the market. Say when USD/Rs is being quoted as 55.21/25, meaning that market buys USD at Rs 55.21 and sells at Rs 55.25.

We shall have to quote rate to the customer on the basis of market buying rate, i.e. 55.21, less our margin, as applicable, to arrive at the TT Buying Rate applicable for the customer transaction.

.......................................................................................................................................................................
A textile exporter, with estimated export sales of Rs. 300 lacs during the last year and projected sales of Rs.500 lacs for the current year, approaches the bank for granting credit facilities. The bank sanctions following facilities in the account:

PCL/FBP/FUBD/FBN Rs. 100.00 lacs

Sub limits:

PCL (25 % margin on fob value) Rs. 50.00 lacs FBP (10 % margin on bill amount) Rs. 50.00 lacs FUBD (15 % margin on bill amount) Rs. 50.00 lacs FBN (nil margin) Rs. 100.00 lacs.

He gets an order for USD 50,000.00 CF, for exports of textiles-dyed/hand printed, to UK, with shipment to be made by 15.9.2014.

On 2.6.2014 he approaches the bank for releasing PCL against this order of USD 50,000.00. The bank releases the PCL as per terms of sanction.

On 31.8.2014, the exporter submits export documents for USD 48,000.00, against the order for USD 50,000.00. The documents are drawn on 30 days usance

(D/A) as per terms of the order The bank discounts the documents at the days applicable rate, adjusts the PCL outstanding and credits the balance to the exporter's account, after recovering interest up to notional due date. Interest on PCL recovered separately.

The documents are realized on 29.10.2014, value date 27.10.2014, after deduction of foreign bank charges of USD 250.00. The bank adjusts the outstanding post shipment advance allowed against the bill on 31.8.2014.

Bank charges interest at -PCL-8.50 % upto 180 days, and post shipment at 8.50 % upto 90 days and

10.50 % thereafter. Overdue interest is charged at 14.50%. The USD/INR rates were as under:

2.6.2014: Bill Buying 48.20, bill Selling 48.40.

31.08.2014: TT buying 47.92, Bill buying 47.85, TT selling 48.08, Bill selling 48.15., premium for 30 days was quoted as 04/06 paise. Now answer the following:

1. What is the amount that the bank allows as PCL to the exporter against the given export order, considering insurance and freight costs of 12%. (i) Rs. 15,90,600 (ii) Rs. 24,10,000 (iii) Rs. 21,20,800 (iv) Rs. 18,15,000

2. What exchange rate will the bank apply for purchase of the export bill for USD 48,000.00 tendered by the exporter: (i) 47.89 (ii) 47.85 (iii) 47.91 (iv) 47.96

3. What is the amount of post shipment advance allowed by the bank under FUBD. for the bill submitted by the exporter: (i) Rs. 19,54,728 (ii) Rs. 19,52,280 (iii) Rs. 19,53,912 (iv) Rs. 22,98,720

4. What will be the notional due date of the bill submitted by the exporter: (i) 30.10.2014 (ii) 30.9.2014 (iii) 25.10.2014 (iv) 27.10.2014

5. Total interest on the export bill discounted, will be charged up to; (i) notional due date 25.10.2014 (ii) value date of credit 27.10.2014 (iii) date of realisation 30.10.2014 (iv) date of credit to nostro account 29.10.2014

Ans. 1: USD 50,000.00 @ 48.20 = Rs.. 2410000.00 -less 12% for insurance and freight cost i.e Rs. 289,200 = Rs.21,20,800.00 (for value of the order.

Less margin 25% i.e. Rs.530,200.00 balance Rs 15,90,600.00)

Ans. 2: 47.89 -Bill buying rate on 31.8.2008 -47.85 plus 4 paise premium for 30 days, this being a DA bill.

Ans 3: USD 48,000.00 @ 47.96 =Rs. 23,02,080.00, less 15% margin on DA bill, i.e. Rs. 345312.00 = Rs 19,56,768.00

Ans 4: Bill submitted on 31.8.2014-drawn on 30 days DA plus normal transit period of 25 days 31.8.2014 plus 30 days plus 25 days, i.e. total 55 days from 31.3.2014 i.e. 25.10.2014

Ans 5: Interest is charged up to the date the funds have been credited to the banks nostro account, the

effective date of credit is the value date of credit, i.e. 27.10.2014.

.......................................................................................................................................................................
A bank has compiled following data for computing its CRAR as on 30 Sep 2014

Tier I capital 2500 Tier ii capital 2000 RWA for credit risk other than retail assets (include 2000 crores of commercial real estate -35,500 Exposure on retail assets -8,700 Total eligible financial collaterals available for retail assets -1200 Capital charge for general market risk net position -450 Capital charge for specific risk -190 Vertical adjustment -15 Horizontal adjustment -10 Total capital charge for options -70 Gross income for the previous year -495 Gross income for the year before previous year -450 Gross income for 2nd year before previous year -390

Based on the data given above, answer the following questions.

The capital required for credit risk at minimum required rate as per RBI is ......

Rs. 4585 Crores
Rs. 4383 Crores
Rs. 3701 Crores
Rs. 3508 Crores
Ans -3

= 8700-1200=7500 @ 75% =5625 35500+5625=41125 9%= 3701 Crs

Total weighted assets for operational risk is ……

Rs. 4944 Crores
Rs. 4323 Crores
Rs. 9553 Crores
Rs. 7156 Crores
Ans -1

1335/3 =885/.09 =4944

.............................................
The CRAR of the bank as on 30th Sept 2013 is ……

7.35 %
8.05 %
9.22 %
10.23 %
Ans -2

41125+9833+4944 = 55902 4500/55902 = 8.049

.......................................................................................................................................................................
The bank compares its tier I CRAR with minimum require tier I CRAR And finds

Its tier I CRAR is more and exceeds requirement by 675 Crs
Its tier I CRAR is more and exceeds requirement by 355 Crs
Its tier I CRAR falls short by Rs 854 Crs
None of these
Ans -3

(As per RBI, Tier I capital adequacy ratio should be atleast 6 %) RWA is 55902 6 % of 55902 = 55902 x 6/100 = 3354. Tier I capital is 2500. So, 3354-2500=854 Tier I capital will be short fall by Rs. 854 Crores.

.......................................................................................................................................................................
A bank’s G sec portfolio has 100 day VaR at 95% confidence level of 4% based on yield What is the worst case scenario over 25 days?

Increase in yield by 0.4%
Decrease in yield by 0.4%
Increase in yield by 2%
Decrease in yield by 2%
Ans -3

Solution :

100 day VaR is 4 %. So one day Var is, 4 = one day VaR × square root of 100 4 =one day VaR × 10 One day VaR = 0.4 %

25 day VaR = 0.4 × suare root of 25 = 0.4 ×5 = 2% In worst case scenario yield will always increase. . Because this will decrease the market price or value. . Answer is increase in yield by 2 %

.....................................................................................................................................................................................................................................
A bond having a McCauley’s duration of 8 Yr is yielding 10% at present. What will be the modified duration?

8.8181
8.2323
7.5353
7.2727
Ans -4

Modified duration is McCauley's duration discounted by one period yield to maturity Here we are talking McCauley's duration is 8 years. Modified duration =McCauley's duration / ( 1 + yield ) = 8 /(1 + 10%) = 8/(1 +0.1) = 8/(1.1) = 7.2727

.......................................................................................................................................................................
What will be the annualized yield of the treasury bill face value Rs. 1 lac with maturity after 85 days which is being traded at Rs 98000/-?

8.59
8.76
8.19
8.26
Ans -2

Explanation : Fv-pp/pp x 365/85 [(100000-98000)/98000) x (365/85) = 8.76

.......................................................................................................................................................................
An exposer of Rs 100 lakhs is backed by lien on fixed deposit of Rs 30 lakhs. There is no maturity mismatch. What should be Hair cut for credit risk mitigation?

70 lakhs
0.70 lakh
0.00 lakh
30 lakhs
Ans -3

Hair cut for collateral under banks FDR is 0.

....................................................................................................................................................................................................................................................
What is the risk capital if the traded value is of 200 million and volatility is 8%?

18.67 million
37.28 million
16.00 million
39.12 million
Ans -2

Explanation :

Risk capital = 200 million* 0.08*2.33= 37.28 million

2.33 is the factor to be used while calculating risk capital

........................................................................................................................................................................................................................................................
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

Rs 1451.72
Rs 1056.36
Rs 1112.84
Rs. 1231.04
Ans -2

Explanation :

Bond valuation=i (PVIFAkd,n) + F (PVIFkd,n) Since, it is semi annually, 1000*7% / 2 = 35. So, 35*11.296 + 1000 * 0.661 = 395.36 + 661 = 1056.36

.......................................................................................................................................................................
ABC co has following data as on 31-03-2015 Value in cr

Paid up capital (for 2 crore share with face value of Rs 10) -20 Reserve -60 Long term Loans -80 PBIDT -50 Paid interest -12 Depreciation -10 Tax -08 Price earning ratio -10

1.On this basis, ans the following qtns

Its net profit would be ......

Rs. 38 Cr
Rs. 40 Cr
Rs. 42 Cr
Rs. 20 Cr
Ans – 4

PBIDT-I-D-T = 50-12-10-8 = 20 cr

.............................................
2.Book value of shares of the company as on 31-03-2015

Rs. 10 cr
Rs. 30 cr
Rs. 40 cr
Rs. 80 cr
Ans – 3

Book value of shares = (paid up capital + reserve)/no of shares = (20+60)/2 = 40

............................................. ....
3.The earning per share would be ......

Rs. 40 cr
Rs. 30 cr
Rs. 20cr
Rs. 10cr
Ans – 4

EPS=NPAT/paid up capital* face value = 20/20*10 = 10

......................................................
Market price of the share of the co......

Rs. 50 cr
Rs. 100 cr
Rs. 200 cr
Rs. 300 cr
Ans –2

Market price = PER * EPS = 10*10 = 100

.......................................................................................................................................................................
Data relating to balance sheet as on 14 Mar 2015 banks reveals its capital at Rs 1110 cr, reserve 2150 cr, demand deposit 6500cr,SB deposit 20500 cr, term deposits from banks 1300 cr, term deposit from public 30800 cr, borrowing from RBI nil, borrowing from other institutions 200 cr, refinance from NABARD 150 cr, bills payable 50 Cr, accrued 20 cr, subordinated debt 200 cr and credit balance in suspense a/c 30 cr (Total Being 63000)

Answer the following based on the data given above.

Total amt of liabilities not to be included in computing DTLs in Rs

3250 cr
3300 cr
4600 cr
4700 cr
Ans -4

In time liabilities capital and reserve + refinance from NABARD + term deposit of banks not to be included

1100+2150+150+1300

=4700

.............................................
Total amount of DTL on which CRR is to be maintained

Rs. 58100 cr
Rs. 63000 cr
Rs. 58300 cr
Rs. 67100 cr
Ans – 3

6500+20500+30800+200+50+20+200+30=58300

other than those not included while calculating DTL

.............................................
Bank would required to maintain average CRR amounting to, if the rate of CRR is 5%

2915
2905
1749
3150
Ans – 3

= 5% of 58300

= 2915

.............................................
What are the risk weighted assets for market risk?

Rs. 1000 crores
Rs. 1500 crores
Rs. 2000 crores
Rs. 2500 crores
Ans –4

200/.08 =2500

.............................................
What are the risk weighted assets for operational risk?

Rs 1000 Cr
Rs 2000 Cr
Rs 1250 Cr
Rs 2500 Cr
Ans – 3

100/.08 = 1250 Ans

.............................................
What is the Tier-I CRAR?

10.29 %
11.42 %
5.71%
14.85 %
Ans -3

TIER-I CRAR=Eligible tier-1 capital/(Total RWAs) = 500/8750 = 5.71%

.............................................
What is the total capital adequacy ratio?

0.1486
0.1111
0.1143
0.1282
Ans –3

Total CRAR = Eligible Total capital/(Total RWAs) = 1000/8750 = 11.42 %

(Remember here tier-II capital does not exceed 100 % of tier-I capital. So, Tier-II of Rs. 500Crore is taken for calculation (500+500=1000).

.......................................................................................................................................................................
If there is an assets of Rs. 120 in the doubtful-I cat and the realization value of security is Rs. 100 only, what will be the provision requirement?

Rs. 40
Rs. 45
Rs. 50
Rs. 60
Ans – 2

Since it a doubtful-I cat asset, so 25% of realization value Rs.100 i.e Rs. 25 and 100% of short Fall that is 120-100=20 so ans will be 20+25=45

.......................................................................................................................................................................
A bond having duration of 8 Yr is yielding 10% at present. If yield increase by .60%, what would be the impact on price of the bond?

Bond price would go up by 4.36%
Bond price would fall by 4.36%
Bond price would go up by 2.82%
Bond price would fall by 2.82%
Ans -2

Modified duration is McCauley's duration discounted by one period yield to maturity Here we are talking McCauley's duration is 8 years. Modified duration =McCauley's duration / ( 1 + yield )

8 /(1 + 10%) = 8/(1 +0.1) = 8/(1.1) = 7.2727

% change in price =-modified duration × yield change

= -7.2727× (0.60%) = (-)4.3636 % = (-) 4.36% ( -)means decrease in price

4.36 % decrease in price. .

.......................................................................................................................................................................
Mr. Raj purchases a call option for 400 shares of A with strike price of Rs. 100 having maturity after 03 months for Rs. 20 and also buy a put option for 200 shares of B with strike price of Rs. 200 having maturity after 03 months for Rs. 30. On maturity, shares of A were priced at Rs. 130 and shares of B were priced at Rs. 180. What is the profit/lost for the individual on the transaction (without taking the interest cost and exchange commission into calculation)?
Profit of Rs. 4000
Profit of Rs. 2000
Loss of Rs. 4000
Loss of Rs. 2000
Ans -2

Explanation.

First one is a call option, so it is assumed that, He will purchase 400 shares of A at a price of 100 Total value of shares is = 40000 Then he will sell the total shares in the market at a price of 130. 400 × 130 = 52000 But he paid the premium for call options @ 20 × 400 = 8000 So profit in this first transaction will be 52000 -40000 -8000 =4000 (Profit of Rs. 4000)

Second one is a put option, so it is assumed that, He will sell 200 shares of A at a price of 200 Total value of shares is = 40000 Then he will buy the total shares in the market at a price of 180. 200 × 180 = 36000 But he has to paid Rs. 30 per share to buy put options. =30 × 200 = 6000

So profit in this transaction will be 40000 -36000 -6000 = -2000 (loss of Rs. 2000)

So taking both the transactions, 4000-2000 = 2000 (Profit of Rs. 2000)

.......................................................................................................................................................................
The balance sheet of x bank provide the following information as on 31 mar 2013 Rs , Cr) capital 1000, reserves-6000, current account deposit 30000, saving bank deposit 3000, term deposit, term deposit 30000 and borrowings 3000 on the assts side the cash -6900, bal with banks-15000, investment-15000, bills purchased =-20000, cash credit-20000, term loans-20000 and fixed assets 3100. Total-100000. Earning assets out of total assets are 90000 cr. Cash credit , bill purchased and investments are affected by change in interest rate. Term loans carry fixed interest rate . SB an d TD are affected by change in interest rate.

1.Rate sensitive assts of the bank are

55000
75000
85000
none
Ans -1

2.A Rate sensitive liabilities of the abnk are

63000
93000
60000
none
Ans -3

3.The above bank has ......

positive gap
negative gap
marginal gap
zero gap
Ans -2

4.Tier-I capital of the bank

1000
7000
10000
none
Ans -2

.................................................................................................................................................................................................................................................
A company enjoys cash credit account with a bank. It also has a term loan account with o/s balance of Rs. 15 Crores as on 31-03-2015. The bank has also subscribed to the bonds issued by the borrower company amounting to Rs. 3 Crores. As on 31-03-2015, the CC account with o/s balance of Rs 1.20 Crs is required to be classified as NPA. There is no default in payment of interest and installment in the term loan and bonds. What will be the amount that will become NPA on account of this company?

Rs. 1.20 Crores
Rs. 4.20 Crores
Rs. 16.20 Crores
Rs. 19.20 Crores
Ans -4
= 15+3+1.20 = 19.20

.......................................................................
If there is an assets of Rs. 150 only in the doubtful-III cat and the realization value of security is Rs. 100 only, what will be the provision requirement.

Rs. 50
Rs. 95
Rs. 110
Rs. 150
Ans – 4

Since it a doubtful-III Cat asset,

100% provision is required for the entire asset.

So, 150 is the right ans.

..............................................................
If there is an assets of Rs. 120 only in the doubtful-II cat and the realization value of security is Rs. 100 only, what will be the provision requirement ?

Rs. 40
Rs. 50
Rs. 60
Rs. 70
Ans – 3

Since it a doubtful-II Cat asset, so 40% realization value of Rs. 100 i.e Rs.40 and 100% of short Fall that is

120-100=20 so ans will be 40+20=60

.......................................................................................................................................................................
Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium, GBP/USD 1.3965/75, USD/INR 55.16/18. Compute Rate for Customer.

76.5480
76.6985
77.1140
77.2682
Ans -4

Explanation :

For retirement of import bill in GBP, we need to buy GBP. To buy GBP we need to give USD and to get USD, we need to buy USD against Rupee, i.e. sell Rupee. At the given rates, GBP can be bought at 1.3975 USD and USD can be bought at Rs. 55.18. The GBP/INR rate would be 77.1140. (1.3975 x 55.18), at which we can get GBP at market rates. Thus the interbank rate for the transaction can be taken as 77.1140. Add Margin 0.20% 0.1542. Rate would be 77.1140 + 0.1542 = 77.2682 for effecting import payment.

(Bill Selling Rate).

........................................................................................................................................................................................................................................................................
ABC Ltd Option Quotes. Stock Price : Rs. 350

Calls Puts Strike Price Jan Feb March Jan Feb March 300 50 55 ---- 320 36 40 43 3 5 7 340 18 20 21 8 11 - 360 6 9 16 18 21 23 380 4 5 6 -43 -

-A blank means no quotation is available

1. List out the options which are out-of-the-money. 2. What are the relative pros and cons (i.e. risk and reward) of selling a call against the 5000 shares held, using (i) Feb/380 calls versus (ii) March 320/ calls ? 3. Show how to calculate the maximum profit, maximum loss and break-even associated with the strategy of simultaneously buying say March/340 call while selling March/ 360 call?

4. What are the implications for the firm, if for instance, it simultaneously writes March 360 call and buys March 320/put? 5. What should be value of the March/360 call as per the Black-Scholes Model? Assume that t=3 months, risk-free rate is 8 percent and the standard deviation is 0.40 6. What should be the value of the March/360 put if the put-call parity is working? Solution:

1) Calls with strike prices 360 and 380 are out –of –the-money. 2) (i) If the firm sells Feb/380 call on 5000 shares, it will earn a call premium of Rs.25,000 now. The risk

however is that the firm will forfeit the gains that it would have enjoyed if the share price rises above Rs. 380.

(ii) If the firm sells March 320 calls on 5000 shares, it will earn a call premium of Rs.215,000 now. It should however be prepared to forfeit the gains if the share price remains above Rs.320.

3) Let s be the stock price, p1 and p2 the call premia for March/ 340 and March/ 360 calls respectively. When s is greater than 360, both the calls

will be exercised and the profit will be { s-340-p1} – { s-360-p2 } = Rs. 15 The maximum loss will be the initial investment , i.e. p1-p2 = Rs.5 The break even will occur when the gain on purchased call equals the net premium paid

i.e. s-340 = p1 – p2 =5 Therefore s= Rs. 345

4) If the stock price goes below Rs.320, the firm can execute the put option and ensure that its portfolio value does not go below Rs. 320 per share.

However, if stock price goes above Rs. 380, the call will be exercised and the stocks in the portfolio will have to be delivered/ sold to meet the

obligation, thus limiting the upper value of the portfolio to Rs. 380 per share. So long as the share price hovers between R. 320 and Rs. 380, the

firm will lose Rs. 1 (net premium received) per pair of call and put.

5) S0 =350 E =360 t =0.25 r = 0.07 s =0.40

350 (0.40)2 ln + 0.07+ x 0.25 360 2 d1 =0.40 x Ö0.25 = ( -0.0282 + 0.0375) / 0.2 = 0. 0465 d2 = 0.0465 -0.40 v.0.25.. = -0.1535

Using normal distribution table N (0.00) = 1-0.5000 = 0.5000 N (0.05) = 1 – 0.4801 = 0.5199 Therefore N( 0.0465) = 0.5000 + (0.0465/0.0500) x (0.5199 – 0.5000) = 0.5185 N ( -0.20) = 0.4207 N ( -0.15) = 0.4404

Therefore N ( -0.1535) = 0.4207 + ( 0.0465/0.0500) x(0.4404 – 0.4207) = 0.4390 E /ert = 360 / e0.07 x0. 25 = 360 / 1. 01765 = 353.75 C0 = 350 x 0.5185 – 353.75 x 0.4390 = 181.480 – 155.30 = Rs. 26.18

6) If put-call parity is working, we have P0 = C0 – S0 + E/ert Value of the March/360 put = 26.18 -350 + 353.75 = Rs.29.93

.......................................................................................................................................................................
you have given the following information, in summary about the profit & loss a/c of the c bank

Interest earning Rs 120000 cr Other income Rs 1800 cr Profit on sale of fixed assets Rs 120 cr Income from sale of third party products Rs 80 cr

On expenses side Interest expenses are Rs 8200 cr Operating expences Rs 3400 cr Provisions of Rs 1600cr

Answer following

Operating profit for the bank ......

Rs 800cr
4400 cr
2400 cr
2800 cr
Ans -3

Gross income for the purpose of working out capital charge for operational risk under Basel II would be
6000 cr
4400 cr
4000cr
2600cr
Ans -1

Under basic indicator approach the bank would be required to allocate capital for operational risk under Basel-ii based on operations for one year as.

900 cr
600 cr
300 cr d 1200 cr
Ans -1

The risk weighted assets for operational risk under basel-II in the above case would be:

11250 cr
90000 cr
5000 cr
6000 cr
Ans -1

The allocation of capital for market risk under basel-II would be ......

296 cr
592 cr
444 cr
Insufficient data to calculate the capital required
Ans - 4

...................................................................................................................................................................................................................................................................
Mr. Raj purchases a call option for 500 shares of A with strike price of Rs. 140 having maturity after 03 months at a premium of Rs. 40. On maturity, shares of A were priced at Rs. 180. Taking interest cost @ 12% p.a What is the profit/lost for the individual on the transaction?
Profit of Rs. 20000
Profit of Rs. 600
Loss of Rs. 20600
Loss of Rs. 600
Ans -4
Explanation.

This is call option, so it is assumed that, He will purchase 500 shares of A at a price of 140 Total value of shares is = 70000

.......................................................................................................................................................................
Mr. Raj purchases a call option for 500 shares of A with strike price of Rs. 140 having maturity after 03 months at a premium of Rs. 40. On maturity, shares of A were priced at Rs. 180. Taking interest cost @ 12% p.a What is the profit/lost for the individual on the transaction?

Profit of Rs. 20000
Profit of Rs. 600
Loss of Rs. 20600
Loss of Rs. 600
Ans -4

Explanation.

This is call option, so it is assumed that, He will purchase 500 shares of A at a price of 140 Total value of shares is = 70000

Then he will sell the total shares in the market at a price of 180. 500 × 180 = 90000 So profit of 20000 in the transaction. . But he has to pay the premium for call options. Which is 40 × 500 = 20000 And the fund interest cost will be, 12% p.a So for 03 months 12/4=3%) = 20000 × 3/100 = 600 Total premium + premium cost = 20000 + 600 = 20600

In total, = 20000 -20600 = -600

......................................................................................................................................................................................................................................................................
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?
150000
75000
55000
50000
Ans -2

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

.......................................................................................................................................................................
XYZ Bank’s foreign correspondent maintaining a Nostro Rupee account with XYZ bank, wants to fund his

account by purchase of Rs. 10.00 million, against US dollars. Assuming that the USD/INR interbank market is at 56.2380/2420, what rate would be quoted to the correspondent, ignoring exchange margin?

56.2380
56.2400
56.2420
56.2425
Ans -1

The transaction is to sell Rs 10.00 million, against US dollars, and hence the XYZ Bank would quote the

lower of the two rates, i.e. 56.2380 (Sell low maxim).

.......................................................................................................................................................................
XYZ Bank’s foreign correspondent maintaining a Nostro Rupee account with XYZ bank, wants to fund his

account by purchase of Rs. 10.00 million, against US dollars. Assuming that the USD/INR interbank market is at 56.2380/2420, what rate would be quoted to the correspondent, ignoring exchange margin? Calculate amount of USD XYZ Bank would receive in its USD Nostro account, if the deal is struck.

175438.60
177803.07
177815.71
178571.43
Ans -3

Explanation :

The transaction is to sell Rs 10.00 million, against US dollars. Hence the XYZ Bank would quote the lower of the two rates, i.e. 56.2380. If the deal is struck, the foreign bank would pay Rs. 10000000/56.2380 = USD 177815.71 to XYZ Bank USD Nostro account.

.......................................................................................................................................................................
A bank borrows US $ for 03 months @ 3.0% and swaps the same in to INR for 03 months for deployment in CPs @ 5%. The 3 months premium on US $ is 0.5%.

What is the margin(gain/loss) generated by the bank in the transaction?

2%
3%
1.5%
2.5%
Ans -3

Explanation :

Bank borrows US $ for 3 months @ 3% Same it will invest in CP for 3 months @ 5% So, it gains 2% by interest rate margin here. But when bank repay its borrowing in $, it has pay 0.5% extra because US $ will be costly by 0.5% as US $ is at premium. So it will reduce bank gain by 0.5%. 2.0%-0.5% = 1.5%

.......................................................................................................................................................................
A bond with a coupon rate of 9% maturing in 2015 and trading at Rs 180 will have yield of …...
4%
5%
6%
7%
Ans -2

Explanation :

Current yield = Coupon rate/Prevailing market value

= 9/180= 5%

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*Financial News Bulletin Dt.3rd April , 2022*

 *Financial News Bulletin Dt.3rd April , 2022*

PSBs that received capital through recapitalisation (recap) bonds may have to take a hit of around Rs 13,000 crore following the RBI’s directive to recognise these bonds at market value, according to ICRA. However, despite the discounting of bonds by 44%-45%, the PSBs will continue to have tier-I capital adequacy above the regulatory requirement. There is, though, a possibility of some PSBs reporting losses for the fourth quarter of financial year 2021-22 (Q4FY22) as a consequence.

-Business Standard

HDFC said its individual loan business continued to see strong momentum during the quarter ended March 31, 2022. During the quarter ended March 31, 2022, it assigned individual loans amounting to ₹8,367 crore compared to ₹7,503 crore in the corresponding quarter of the previous year. In a stock exchange filing, it said individual loans sold in the preceding 12 months amounted to ₹28,455 crore, compared to ₹18,980 crore in the preceding year.

-Business Line

Bank of Maharashtra has decided to come up with a fintech start-up policy to give a fillip to its digital banking channels. The bank’s board has taken a conscious decision to come up with fintech start-up policy, in consultation with leading tech experts and end- users, said AS Rajeev, MD & CEO, on Friday at the launch of BoM’s ‘Fintech Mahotsav.’

-Business Line

The CASA deposits of Karnataka Bank reached 32.97% as on March 31, according to Mahabaleshwara M S, MD & CEO, Karnataka Bank.

-Business Line

SEBI has agreed to mutual funds industry body AMFI's request to extend the deadline to July 1 for implementing discontinuation of pooling of accounts. Besides, the mutual fund industry has agreed to keep the launch of new fund offers (NFOs) on hold during this period, the Association of Mutual Funds in India (AMFI) said in a statement.

-Moneycontrol.com

Infosys is shutting down its Russia office, BBC reported. The development follows criticism directed at UK’s Chancellor of the Exchequer Rishi Sunak over his wife Akshata Murty’s shareholding in the Bengaluru-based firm cofounded by her father NR Narayana Murthy.

-Economic Times

The country’s foreign exchange reserves declined by $2.030 billion in the week ended March 25, 2022, primarily due to fall in foreign currency assets. Forex reserves stood at $617.648 billion as at March 25, 2022. Forex reserves had declined by $2.597 billion in the week ended March 18, 2022, and by $9.646 billion in the week ended March 11, 2022.

-Business Line

Gautam Adani, the chairman of Adani Group, has overtaken Reliance Industries CMD Mukesh Ambani to become the richest Indian with a net worth of $100 billion, according to Bloomberg Billionaires Index. With this, Adani has also joined the centibillionaires club. A person with a net worth of $100 billion or above is called a centibillionaire.

-Business Today

Petrol and diesel prices were today hiked by 80 paise a litre each, taking the total increase in rates in the last 12 days to Rs 7.20 per litre. This is the 10th increase in prices since the ending of a four-and-half-month long hiatus in rate revision on March 22.

-Business Standard