Under Basel III norms (as amended by RBI in 2024), what is the minimum Common Equity Tier-1 (CET1) capital requirement for Systemically Important Banks (SIBs)?
A5.50%
B6.00%
C6.50%
D7.00%
Correct Answer:
C. 6.50%
Explanation:
Basel III requires CET1 minimum of 4.5% plus Capital Conservation Buffer of 2.5%. For SIBs, an additional 0.5% surcharge applies, totaling 6.50% minimum CET1 requirement.
The RBI announced a reduction in the Standing Deposit Facility (SDF) rate by 25 basis points to 6.50%. What is the immediate market implication?
ABanks will have higher incentive to keep excess liquidity with RBI
BBanks will have lower incentive to deposit with RBI and may lend more
CThe money supply will automatically decrease
DAll banks must reduce their deposit rates immediately
Correct Answer:
B. Banks will have lower incentive to deposit with RBI and may lend more
Explanation:
SDF rate reduction makes RBI deposits less attractive, incentivizing banks to deploy liquidity in market lending rather than parking with RBI, potentially increasing money supply and lending.
Examine the data: A bank's foreign exchange earnings increased from ₹2,400 crore to ₹2,850 crore while forex outflows increased from ₹1,900 crore to ₹2,100 crore. Calculate the change in net forex earnings.
AIncreased by ₹250 crore
BIncreased by ₹350 crore
CDecreased by ₹50 crore
DIncreased by ₹100 crore
Correct Answer:
A. Increased by ₹250 crore
Explanation:
Previous net forex = 2,400 - 1,900 = ₹500 crore. Current net forex = 2,850 - 2,100 = ₹750 crore. Change = 750 - 500 = ₹250 crore increase.
Under the Basel III framework as per RBI guidelines (2024), what is the total capital requirement (Tier-1 + Tier-2) for a non-SIB scheduled commercial bank?
A9.50%
B10.50%
C11.50%
D12.50%
Correct Answer:
C. 11.50%
Explanation:
Basel III requires minimum CET1 of 4.5%, Tier-1 capital of 6%, and Total capital of 9% plus Capital Conservation Buffer of 2.5%, totaling 11.5% for non-SIB banks.
A bank's Dividend Payout Ratio increased from 35% to 48% despite a 12% decline in net profit. What is the strategic implication?
AThe bank is prioritizing shareholder returns over capital retention
BThe bank's capital adequacy ratio will increase
CThe bank's profitability is improving
DThis indicates stronger asset quality
Correct Answer:
A. The bank is prioritizing shareholder returns over capital retention
Explanation:
Higher payout ratio (48%) despite lower profit indicates the bank is distributing more of its earnings as dividends, retaining less capital for growth and strengthening reserves. This can impact future capital buffers.
A bank's provision coverage ratio (PCR) on Gross NPAs increased from 58% to 67% YoY. What does this signify?
AThe bank's asset quality has improved significantly
BThe bank has made higher provisions, improving loss absorption capacity
CThe bank's profitability has increased
DThe bank faces stricter NPA classification norms
Correct Answer:
B. The bank has made higher provisions, improving loss absorption capacity
Explanation:
PCR measures provisions made against Gross NPAs. An increase from 58% to 67% indicates the bank has provisioned more of its NPAs, improving its capacity to absorb potential losses and reducing future profit volatility.
A bank's Deposit Growth Rate was 12% and Advances Growth Rate was 15% in FY2024. What does this scenario suggest?
ALoan-to-Deposit ratio is decreasing
BLoan-to-Deposit ratio is increasing
CCredit expansion is slower than deposit mobilization
DThe bank faces liquidity risk
Correct Answer:
B. Loan-to-Deposit ratio is increasing
Explanation:
When advances grow faster than deposits (15% > 12%), the Loan-to-Deposit ratio increases, indicating higher credit expansion relative to deposit mobilization
Analyze the quarterly data: Bank A's Non-Performing Assets decreased from ₹18,000 crore to ₹15,000 crore, while its Gross Advances remained ₹3,00,000 crore. Calculate the change in Gross NPA ratio:
ADecreased from 5% to 6%
BIncreased from 5% to 6%
CDecreased from 6% to 5%
DRemained constant at 5.5%
Correct Answer:
C. Decreased from 6% to 5%
Explanation:
Previous NPA ratio = (18,000/3,00,000) × 100 = 6%. New NPA ratio = (15,000/3,00,000) × 100 = 5%. The ratio decreased.
A bank's Asset Quality Indicator shows 8% Gross NPAs. If total Advances are ₹4,00,000 crore, and Provision Coverage Ratio is 65%, calculate the Net NPA ratio approximately:
