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Recollected - Dec 2015
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ABC Bank has the following re-pricing assets and liabilities (Rs. in crores):
Call Money - 600
Cash Credit Loans - 480
Cash in Hand - 500
Saving Bank - 600
FD - 600
Current Depost - 600
Now, answer the following based on the above information.
1. What is the adjusted gap in re-pricing assets and liabilities?
Adjusted gap :
= (SB + FD) - (Call money + CC)
= (600 + 600) - (600 + 480)
= 1200 - 1080
= Rs.120cr (Rs. 120 cr Negative Gap, because assets are less than liabilities)
The cash in hand and current account deposits are not subject to re-pricing as these are not interest bearing, hence these have been ignored.
2. What is the change in NII, if interest rate falls by 3% points for all assets and liabilities?
There is negative gap (interest bearing liabilities more) of Rs.120cr [(600+600)-(600+480)].
Which means the interest cost declines @2% on this negative gap, which leads to increase in NII.
Hence it is Rs.120cr * 3% = Rs. 3.60cr increase in NII
3. What is the change in NII, if interest rate increase by 3% points for all assets and liabilities?
There is negative gap (interest bearing liabilities more) of Rs.120cr [(600+600)-(600+480)].
Which means the interest cost increases @3% on this negative gap, which leads to decline in NII.
Hence it is Rs.120cr * 3% = Rs. 3.60cr decline in NII
4. What is the change in NII, if interest rate falls on call money by 1%, SB by 0.2%, FD by 1% and CC by 0.6%?
Fall in interest income in case of assets
= (Call- 600 * 1% = 6.00cr) + (Cash credit- 480 * 0.6% = 2.88)
= Rs.8.88cr.
Fall in interest expenses in case of liabilities
= (SB- 600 * 0.2 = 1.20cr) + (FD- 600 + 1% = 6.00 cr)
= 7.20cr
Net Decline = 8.88cr - 7.20cr = 1.68cr
5. What is the change in NII, if interest rate increases on call money by 0.5%, SB by 0.1%, FD by 0.8% and CC by 1%?
Increase in interest amount in case of assets :
= (Call- 600 * 0.5% = 3.00cr) + (Cash credit- 480 * 1% = 4.80)
= Rs.7.80cr.
Increase in interest amount in case of liabilities :
= (SB- 600 * 0.1 = 0.60cr) + (FD- 600 * 0.8% = 4.80cr)
= 5.40cr
Net improvement = 7.80cr - 5.40cr = 2.40cr
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ABC Bank provides following information:
Rs.in crores - 1 st year
Net profits - 250
Provisions - 300
Staff expenses - 350
Other operating expenses - 150
Other income - 400
Rs.in crores - 2nd year
Net profits - 200
Provisions - 250
Staff expenses - 300
Other operating expenses - 250
Other income - 500
Answer the following questions, based on the above information :
1. What is the amount of capital charge for operational risk, on the basis of 1st year results alone as per Basic indicator approach.
Capital charge = Gross income * 15%
Gross income = net profit + provisions + staff expenses + other operating expenses
= 250 + 300 + 350 + 150 = 1050 cr
Capital charge = 1050 * 15% = 157.50 cr
2. What is the amount of capital charge for operational risk, on the basis of 2nd year results alone as per Basic indicator approach.
Capital charge = Gross income * 15%
Gross income = net profit + provisions + staff expenses + other operating expenses
= 200 + 250 + 300 + 250 = 1000 cr
Capital charge = 1000 * 15% = 150 cr
3. What is the amount of capital charge for operational risk, on the basis of 1st and 2nd year results as per Basic indicator approach.
Capital charge = Gross income * 15%
Gross income = net profit + provisions + staff expenses + other operating expenses
1st year = 250 + 300 + 350 + 150 = 1050 cr
2nd year = 200 + 250 + 300 + 250 = 1000 cr
Average gross income =(1050 + 1000) / 2 = 2050 / 2 = 1025 cr
Capital charge = 1025 * 15% = 153.75 cr
4. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 1st year results alone, as per Basic indicator approach?
RWA = Capital charge / 8%
= 157.50 / 8%
= Rs.1968.75 cr
5. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 2nd year results alone?
RWA = Capital charge / 8%
= 150 / 8%
= Rs.1875 cr
6. What is the amount of risk weighted assets for operational risk as per Basel 2 recommendations, on the basis of 1st year and 2nd results?
RWA = Capital charge / 8%
= 153.75 / 8%
= Rs.1921.88 cr
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