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Q.51Hard Data Interpretation
A bank reports Floating Rate Advances of ₹1,50,000 crore and Fixed Rate Advances of ₹90,000 crore. If rates rise by 200 bps, what is the repricing benefit compared to a bank with 60% floating rate portfolio?
AThe first bank benefits more due to higher floating rate exposure
BBoth banks benefit equally regardless of floating rate mix
CThe second bank (60% floating) would benefit more
DCannot be determined without deposit repricing data
Correct Answer:
A. The first bank benefits more due to higher floating rate exposure
Explanation:
First bank has 62.5% floating rate (150,000/240,000), second bank has 60%. First bank will capture more repricing benefit when rates rise as more of its portfolio reprices upward, enhancing net interest income.
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.
Analyze the quarterly data: A bank's Advances grew 14% QoQ while Deposits grew 8% QoQ. If this trend continues, which regulatory metric is most at risk?
AReturn on Equity (ROE)
BLoan-to-Deposit ratio and liquidity coverage metrics
CGross NPA ratio
DCost-to-Income ratio
Correct Answer:
B. Loan-to-Deposit ratio and liquidity coverage metrics
Explanation:
Advances growing faster (14%) than deposits (8%) will increase LTD ratio unsustainably and strain liquidity metrics. If continued, it could breach LCR and NSFR requirements, risking regulatory non-compliance.
A bank's Interest Earned increased by ₹850 crore while Interest Expended increased by ₹620 crore. What is the impact on Net Interest Income (NII)?
ANII increases by ₹230 crore
BNII decreases by ₹230 crore
CNII increases by ₹1,470 crore
DCannot be determined without prior year figures
Correct Answer:
A. NII increases by ₹230 crore
Explanation:
NII = Interest Earned - Interest Expended. If Interest Earned increases by ₹850 crore and Interest Expended increases by ₹620 crore, the net increase in NII = 850 - 620 = ₹230 crore.
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.
Under RBI's resolution framework for financial stress, what is the key trigger for invoking prompt corrective action (PCA) for a bank?
AWhen net profit declines by 10% YoY
BWhen capital ratio falls below specified thresholds or when net NPA exceeds 6%
CWhen operating expenses exceed 50% of operating income
DWhen return on assets becomes negative for a quarter
Correct Answer:
B. When capital ratio falls below specified thresholds or when net NPA exceeds 6%
Explanation:
RBI's PCA framework is triggered when a bank's capital ratio, asset quality (Net NPA > 6%), or profitability metrics breach specified thresholds. This is designed to protect financial stability.
A bank's efficiency ratio (operating expenses to operating income) is 42%. What does this indicate about the bank's operational health?
AThe bank is highly efficient; below 45% is considered strong
BThe bank is inefficient; efficiency ratio should be below 30%
CThe bank's cost structure is unsustainable
DThe bank must immediately reduce staff costs
Correct Answer:
A. The bank is highly efficient; below 45% is considered strong
Explanation:
Efficiency ratio of 42% (operating expenses/operating income) indicates strong operational efficiency. Industry benchmark for healthy banks is typically 40-50%. Lower ratios indicate better cost management.
A bank's Net Interest Margin (NIM) improved from 2.8% to 3.2% year-on-year. If the bank's total assets are ₹5,00,000 crore, what is the approximate increase in NIM in absolute terms?
