According to Basel III framework implemented in India, what is the minimum Common Equity Tier 1 (CET1) ratio for banks?
Answer: A
Basel III mandates minimum CET1 ratio of 5.5% for banks, with additional buffers bringing total capital requirements higher.
Q.2Hard
A bank's Net Interest Margin (NIM) decreased from 3.2% to 2.8% YoY. If gross advances are ₹400,000 crore, what is the approximate impact on net interest income?
Answer: B
NIM decrease = 3.2% - 2.8% = 0.4%. Impact = 400,000 × 0.4% = ₹1,600 crore approximate decrease in NII.
Q.3Hard
A bank's Interest Coverage Ratio (ICR) is 3.5x. If interest expenses are ₹2,800 crore, what is the approximate profit before interest and taxes (EBIT)?
Analyze the stress test data: Under the baseline scenario, a bank's CRAR is 12.5%. Under the adverse scenario (with 200 bps slippage in NPA), the CRAR drops to 10.8%. What is the impact on capital adequacy?
Answer: A
Decline = 12.5% - 10.8% = 1.7% = 170 bps. 10.8% is still above Basel III minimum CRAR of 10.5%
Q.5Hard
A bank's Effective Interest Rate (EIR) on advances is 9.2% and on deposits is 4.1%. If advances constitute 65% of total earning assets and deposits form 75% of total liabilities, calculate the approximate Net Interest Spread (NIS).
Answer: C
NIS = (Yield on Advances × Advances % / Total Assets) - (Cost of Deposits × Deposits % / Total Liabilities). Simplified: 9.2% - 4.1% = 5.1% as basic spread
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Q.6Hard
Study the multi-year data: CAR in FY2022: 13.2%, FY2023: 13.8%, FY2024: 14.5%. If RWA increased by 18% from FY2023 to FY2024, what is the percentage change in capital?
Answer: C
CAR = Capital/RWA. 14.5% = Capital / (RWA×1.18). If FY2023 CAR was 13.8%, capital must have grown at: 14.135.8 × 1.18 = 1.248 = 24.8% growth
Q.7Hard
A bank's treasury portfolio shows: Government Securities ₹1,50,000 crore (YTM: 6.8%), Corporate Bonds ₹75,000 crore (YTM: 7.8%), Money Market Instruments ₹25,000 crore (YTM: 6.2%). Calculate the portfolio's weighted average yield.
Examine the comparative data: Bank A has NPA ratio of 1.8% with provision coverage of 72%, Bank B has NPA ratio of 2.2% with provision coverage of 68%. Which bank has better asset quality indicators in terms of net NPA?
Answer: B
Net NPA = GNPA × (1 - Provision Coverage). Bank A: 1.8% × (1 - 0.72) = 1.8% × 0.28 = 0.504% ≈ 0.50%. Bank B: 2.2% × 0.32 = 0.704% ≈ 0.70%. Bank A is better
Q.9Hard
A bank's Return on Assets (ROA) is 1.2% with a Net Profit Margin of 24%. What is the implied Asset Turnover Ratio?
Answer: A
ROA = Net Profit / Total Assets. Net Profit Margin = Net Profit / Revenue. Asset Turnover = Revenue / Assets. ROA = NPM × Asset Turnover. 1.2% = 24% × Asset Turnover. Asset Turnover = 0.05 times.
Q.10Hard
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?
Answer: A
First bank has 62.5% floating rate (150,240000,000), 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.
Q.11Hard
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?
Answer: B
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.
Q.12Hard
Under RBI's resolution framework for financial stress, what is the key trigger for invoking prompt corrective action (PCA) for a bank?
Answer: B
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.
Q.13Hard
Examine the data: Bank X's Current Ratio (liquid assets to demand deposits) is 45%, while regulatory requirement is 80%. This indicates:
Answer: B
45% Current Ratio against 80% requirement indicates the bank is deficient in liquid assets relative to demand deposits, posing liquidity risk
Q.14Hard
A bank's Commercial Advances showed CAR of 18.5%, Agricultural Advances CAR of 15.2%, and Consumer Advances CAR of 11.8%. Which segment carries the highest credit risk as per risk weighting?
Answer: A
Higher CAR for a segment indicates higher risk weights assigned. Commercial Advances at 18.5% CAR carries highest risk weighting under Basel III norms
Q.15Hard
Analyze quarterly trends: Bank Y's Net Interest Income grew 8% while Total Assets grew 12% QoQ. This implies:
Answer: B
When assets grow faster (12%) than NII (8%), it indicates NIM is compressing as the bank is earning lower interest on incremental assets
Q.16Hard
Under RBI's Prompt Corrective Action (PCA) framework 2024, at what Capital Adequacy Ratio threshold does a bank enter PCA supervision?
Answer: B
Under RBI's PCA framework, SCBs with CAR below 8.5% (along with other indicators) trigger supervisory action and corrective measures
Q.17Hard
A bank's Statutory Liquidity Ratio (SLR) requirement is 18%. If deposits are ₹10,00,000 crore and current SLR maintenance is ₹1,95,000 crore, calculate the deficit/surplus:
Analyze the complex scenario: Bank Z has CAR of 16%, NPA ratio of 6.5%, and ROA of 0.8%. It wants to increase lending by ₹50,000 crore. What is the primary constraint?
Answer: B
With 16% CAR (closer to Basel III minimum), and planned lending increase, the bank's capital adequacy becomes the binding constraint for expansion
Q.19Hard
Bank E's Return on Equity (ROE) decreased from 16.2% to 14.8% in Q3 2024 despite profit increase. What is the most likely reason?
Answer: B
ROE = Net Profit / Shareholders' Equity. A decrease in ROE despite profit increase suggests equity capital increased (through capital infusion or retained earnings), diluting the ROE metric.
Q.20Hard
Bank H's Net Interest Spread (NIS) narrowed from 2.4% to 2.1% in Q3 2024. What market condition likely caused this?
Answer: B
NIS = Rate earned on assets - Rate paid on deposits. Narrowing suggests the yield curve compressed, reducing the difference between lending and deposit rates, a typical scenario in monetary tightening.
