CAIIB BFM Case Studies on Capital Adequacy (2026): Solved CAR, Tier 1 & Tier 2

If you are hunting for high-quality CAIIB BFM case studies on capital adequacy. You are in exactly the right place. The Bank Financial Management (BFM) paper rewards candidates who can calculate. Not just memorise. And capital adequacy is the single most numerical-heavy chapter in the syllabus.

In this 2026 guide. We walk through three fully solved case studies on Capital Adequacy Ratio (CAR). Tier 1 and Tier 2 capital, risk-weighted assets and operational risk capital charge. Every figure is worked out step by step. So you learn the method, not just the answer.

By the end. You will be able to compute CAR under the Basel framework in your sleep. Let us begin.

Why Capital Adequacy Dominates the CAIIB BFM Paper

Capital adequacy sits at the heart of Bank Financial Management. It measures a bank's ability to absorb losses. Regulators worldwide use it to keep the banking system safe.

For your CAIIB BFM exam, this topic matters for three reasons:

1. It is highly scoring. Numerical questions have one correct answer. Learn the steps and the marks are yours.
2. It repeats every cycle. CAR, Tier 1, Tier 2 and operational-risk sums appear in almost every BFM attempt.
3. It builds concepts. Understanding capital funds makes the rest of the risk-management module far easier.

So treat the case studies below as your core revision drill. Solve each one on paper before you read the explanation.

Capital Adequacy: The Core Concepts You Must Know

Before the case studies, let us lock down the building blocks. The capital adequacy framework divides a bank's capital into two broad tiers.

Tier 1 Capital (Core Capital)

This is the highest-quality. Permanent capital that absorbs losses while the bank keeps running. It typically includes:

• Paid-up equity capital
• Free reserves (e.g., statutory and other disclosed reserves)
• Perpetual non-cumulative preference shares

Tier 2 Capital (Supplementary Capital)

This is supplementary capital that absorbs losses when the bank is wound up. It commonly includes:

• General provisions and loss reserves &mdash. Eligible only up to 1.25% of risk-weighted assets
• Revaluation reserves — taken at a discount (in the classic exam treatment. At a 55% haircut, i.e., only 45% counts)
• Subordinated debt and certain hybrid instruments

The CAR Formula

The headline ratio you will calculate again and again is:

Important: the exact minimum percentages. Caps. Discounts are set by the regulator and revised from time to time.

Always confirm on the latest official IIBF notification. The prevailing RBI Basel III guidelines before your exam. The classic 9% / 4.5% figures used below match the long-standing exam treatment of these case studies.

Quick-Reference Formula Table for CAIIB BFM Capital Adequacy

Keep this table on your revision wall. It captures every formula used in the three case studies.

Metric	Formula / Treatment
Tier 1 Capital	Paid-up capital + Free reserves + Perpetual non-cumulative preference shares
Tier 2 Capital	General provisions (max 1.25% of RWA) + Revaluation reserve at discount (45% counted) + Subordinated debt
Total Capital Fund	Tier 1 + Tier 2
CAR	Total Capital Fund ÷ Total RWA × 100
Operational Risk Charge (BIA)	15% × Gross Income
RWA from Capital Charge	Capital Charge ÷ Minimum CAR

Want to test these formulas under timed conditions? Try our free mock tests after you finish this guide.

CAIIB BFM Case Study 1: Capital Adequacy of BAARISH Bank

This is the flagship problem. It touches Tier 1. Tier 2. Total capital fund. CAR and the split of capital across credit, operational and market risk.

BAARISH Bank has the following figures:

• Paid-up capital = Rs. 200 crore
• Free reserves = Rs. 600 crore
• Provisions and contingencies reserves = Rs. 400 crore
• Revaluation reserve = Rs. 600 crore
• Perpetual non-cumulative preference shares = Rs. 800 crore
• Subordinated debt = Rs. 600 crore
• Risk-weighted assets for credit and operational risk = Rs. 20,000 crore
• Risk-weighted assets for market risk = Rs. 8,000 crore

On the basis of the above information. Select the correct answer for each question.

The Questions

Q1. What will be the Tier 1 capital amount?

1. 1,800 crore
2. 1,600 crore
3. 1,500 crore
4. 1,220 crore

Q2. What will be the Tier 2 capital amount?

1. 1,800 crore
2. 1,600 crore
3. 1,500 crore
4. 1,220 crore

Q3. What will be the total capital fund amount?

1. 1,790 crore
2. 2,510 crore
3. 2,850 crore
4. 3,350 crore

Q4. What will be the capital adequacy ratio of BAARISH Bank?

1. 9.00%
2. 9.65%
3. 10.25%
4. 10.07%

Q5. What will be the minimum capital amount to support credit. Operational risk?

1. 1,800 crore
2. 1,900 crore
3. 2,000 crore
4. 2,500 crore

Q6. What will be the minimum Tier 1. Tier 2 amounts to support credit and operational risk?

1. 1,800 crore & 1,800 crore
2. 1,200 crore & 1,800 crore
3. 900 crore & 900 crore
4. 600 crore & 900 crore

Q7. What will be the Tier 1 capital fund available to support market risk?

1. 900 crore
2. 700 crore
3. 500 crore
4. 370 crore

Q8. What will be the amount of Tier 2 capital fund available to support market risk?

1. 900 crore
2. 700 crore
3. 500 crore
4. 320 crore

Answer Key for Case Study 1

Question	Correct Option	Value
Q1 — Tier 1	II	Rs. 1,600 crore
Q2 — Tier 2	IV	Rs. 1,220 crore
Q3 — Total Fund	III	Rs. 2,850 crore
Q4 — CAR	III	10.25%
Q5 — Min capital (credit + op)	I	Rs. 1,800 crore
Q6 — Min Tier 1 & Tier 2	III	Rs. 900 cr & Rs. 900 cr
Q7 — Tier 1 for market risk	II	Rs. 700 crore
Q8 — Tier 2 for market risk	IV	Rs. 320 crore

Step-by-Step Explanation for Case Study 1

Tier 1 capital:

= Paid-up capital + Free reserves + Perpetual non-cumulative preference shares= 200 + 600 + 800= Rs. 1,600 crore

Tier 2 capital:

= Provisions. Contingencies reserves (max 1.25% of RWA) + Revaluation reserve at 55% discount + Subordinated debt= 350 + 270 (i.e.. 600 × 45%) + 600= Rs. 1,220 crore

Note: the general provisions are capped at 1.25% of the Rs. 28,000 crore total RWA, which works out to Rs. 350 crore (out of the Rs.

400 crore available). The revaluation reserve of Rs. 600 crore is taken at a 55% haircut, so only 45% (Rs.

270 crore) counts.

Total capital fund (Q3):

= Tier 1 + Tier 2 = 1,600 + 1,220 = Rs. 2,850 crore

Capital adequacy ratio (Q4):

Total RWA = 20,000 (credit + operational) + 8,000 (market) = Rs. 28,000 crore.CAR ≈ 2,850 ÷ 28,000 ≈ 10.25%

Minimum capital for credit and operational risk (Q5):

= 20,000 × 9% = Rs. 1,800 crore

Minimum Tier 1 and Tier 2 for credit and operational risk (Q6):

Tier 1 = 20,000 × 4.5% = Rs. 900 croreTier 2 = 20,000 × 4.5% = Rs. 900 crore

Tier 1 fund available for market risk (Q7):

= Total Tier 1 − Tier 1 used for credit & operational risk= 1,600 − 900 = Rs. 700 crore

Tier 2 fund available for market risk (Q8):

= Total Tier 2 − Tier 2 used for credit & operational risk= 1,220 − 900 = Rs. 320 crore

CAIIB BFM Case Study 2: Operational Risk for SHAGUN Bank

This case study focuses on the Basic Indicator Approach (BIA) for operational risk &mdash. A favourite of examiners.

The financial results of SHAGUN Bank as on 31st March 2020 are:

• Interest earned = Rs. 28,000 crore
• Other non-interest income = Rs. 4,700 crore
• Profit on sale of fixed assets = Rs. 350 crore
• Income on sale of third-party products = Rs. 250 crore
• Interest paid = Rs. 17,800 crore
• Operating expenses = Rs. 8,800 crore
• Provisions = Rs. 1,100 crore

The Questions

Q1. What will be the operating profit?

1. Rs. 5,600 crore
2. Rs. 5,800 crore
3. Rs. 6,200 crore
4. Rs. 6,700 crore

Q2. What will be the gross income as per the Basic Indicator Approach for operational risk?

1. Rs. 14,900 crore
2. Rs. 5,800 crore
3. Rs. 6,200 crore
4. Rs. 6,700 crore

Q3. What will be the capital charge for operational risk as per the Basic Indicator Approach?

1. Rs. 1,800 crore
2. Rs. 2,075 crore
3. Rs. 2,235 crore
4. Rs. 2,430 crore

Q4. What will be the risk-weighted assets for operational risk as per the Basic Indicator Approach?

1. Rs. 18,540.50 crore
2. Rs. 22,507.75 crore
3. Rs. 22,511.50 crore
4. Rs. 27,937.50 crore

Answer Key for Case Study 2

Question	Correct Option	Value
Q1 — Operating profit	IV	Rs. 6,700 crore
Q2 — Gross income	I	Rs. 14,900 crore
Q3 — Capital charge (op risk)	III	Rs. 2,235 crore
Q4 — RWA (op risk)	IV	Rs. 27,937.50 crore

Step-by-Step Explanation for Case Study 2

Operating profit (Q1):

= Interest earned + Other non-interest income + Profit on sale of fixed assets + Income on sale of third-party products &minus. Interest paid − Operating expenses= 28,000 + 4,700 + 350 + 250 − 17,800 − 8,800= Rs. 6,700 crore

Gross income for BIA (Q2):

= Net interest income + Net non-interest income= (28,000 − 17,800) + 4,700= 10,200 + 4,700 = Rs. 14,900 crore

Note: under the Basic Indicator Approach. Items such as profit on sale of fixed assets are excluded from gross income. Which is why this differs from operating profit.

Capital charge for operational risk (Q3):

= Gross income × 15%= 14,900 × 15% = Rs. 2,235 crore

RWA for operational risk (Q4):

= Capital charge ÷ minimum Basel II CAR= 2,235 ÷ 8% ≈ Rs. 27,937.50 crore

CAIIB BFM Case Study 3: Total RWA and CAR for KASHAV Bank

The final case study ties everything together &mdash. Converting capital charges back into RWA. Computing both Tier 1 and total CAR.

KASHAV Bank provides the following details:

• Tier 1 capital = Rs. 2,000 crore
• Tier 2 capital = Rs. 2,400 crore
• Risk-weighted assets for credit risk = Rs. 20,000 crore
• Risk-weighted assets for market risk = Rs. 1,000 crore
• Capital charge for operational risk = Rs. 600 crore

The Questions

Q1. What will be the amount of total risk-weighted assets. If the CAR is 9%?

1. Rs. 21,600 crore
2. Rs. 23,200 crore
3. Rs. 33,457 crore
4. Rs. 37,779 crore

Q2. What will be the Tier 1 capital adequacy ratio of the bank?

1. 6.00%
2. 5.81%
3. 5.29%
4. 4.89%

Q3. What will be the total capital to risk assets ratio?

1. 9.00%
2. 10.59%
3. 11.12%
4. 11.67%

Answer Key for Case Study 3

Question	Correct Option	Value
Q1 — Total RWA	IV	Rs. 37,779 crore
Q2 — Tier 1 CAR	III	5.29%
Q3 — Total CAR	II	10.59%

Step-by-Step Explanation for Case Study 3

Total risk-weighted assets (Q1):

First convert the operational. Market risk capital charges into RWA by dividing by 9%. Then add the credit RWA.

= RWA (credit) + RWA (market) + RWA (operational)= 20,000 + (1,000 ÷ 0.09) + (600 ÷ 0.09)= 20,000 + 11,112 + 6,667= Rs. 37,779 crore

Tier 1 CAR (Q2):

= Eligible Tier 1 ÷ Total RWA= 2,000 ÷ 37,779 ≈ 5.29%

Total CAR (Q3):

Total capital fund = Tier 1 + Tier 2 = 2,000 + 2,400 = Rs. 4,000 crore.

= Total capital fund ÷ Total RWA= 4,000 ÷ 37,779 ≈ 10.59%

Concept check: Tier 2 capital cannot exceed Tier 1 capital. Here Tier 2 (Rs. 2,400 crore) is higher than Tier 1 (Rs.

2,000 crore), so for strict regulatory eligibility only Rs. 2,000 crore of Tier 2 would normally be admitted. The classic exam solution shown above takes the full Rs.

4,000 crore for the total-CAR computation &mdash. Always read the question carefully and apply the capping rule when asked.

How to Study Capital Adequacy for CAIIB BFM (A Practical Plan)

Reading solutions is not enough. Here is a simple, high-yield study routine.

1. Memorise the formula table above. Write it from memory each morning until it sticks.
2. Solve by hand. Do not just read the explanation &mdash. Cover it and attempt the sum yourself first.
3. Group the question types. Tier 1/Tier 2 split. CAR, operational-risk BIA and RWA-from-charge are the four recurring patterns.
4. Practise under time pressure. Use timed mock tests so you can compute fast on exam day.
5. Revise with our free notes. Browse more solved examples in our free guides.

Aim to solve at least 20 to 30 capital-adequacy sums before the exam. Repetition turns these into guaranteed marks.

Common Mistakes to Avoid in Capital Adequacy Sums

Most candidates lose marks here not from difficulty, but from avoidable slips. Watch out for these:

• Forgetting the 1.25% cap on general provisions in Tier 2. Always test the provision against 1.25% of RWA and take the lower figure.
• Ignoring the revaluation-reserve discount. Only the discounted portion (45% in the classic treatment) counts.
• Mixing up operating profit and gross income. They are not the same &mdash. BIA gross income excludes certain one-off items.
• Using the wrong denominator for CAR. Always use total RWA (credit + market + operational).
• Dividing by the wrong rate when converting a capital charge to RWA. Use the minimum CAR specified in the question.
• Letting Tier 2 exceed Tier 1 without applying the cap when the question demands eligible capital.

Slow down on these steps and your accuracy will jump immediately.

Frequently Asked Questions (FAQ)

What is capital adequacy ratio (CAR) in simple terms?

CAR is the ratio of a bank's capital funds to its risk-weighted assets. Expressed as a percentage. It shows how much loss-absorbing capital a bank holds against the risks it carries. A higher CAR means a safer, more resilient bank.

What is the difference between Tier 1 and Tier 2 capital?

Tier 1 is core. Permanent. High-quality capital (equity.

Free reserves. Perpetual non-cumulative preference shares) that absorbs losses while the bank operates. Tier 2 is supplementary capital (eligible general provisions.

Discounted revaluation reserves, subordinated debt) that absorbs losses mainly on winding up.

How is operational risk capital charge calculated under the Basic Indicator Approach?

Under the Basic Indicator Approach. The operational-risk capital charge equals 15% of average gross income. Gross income is broadly net interest income plus net non-interest income. With certain one-off items excluded.

What are the current minimum CAR requirements for the CAIIB BFM exam?

The case studies here use the long-standing 9% total and 4.5% Tier 1 treatment. However. Regulatory minimums and buffers change over time. So you must confirm the latest percentages on the official IIBF notification. Current RBI Basel III guidelines before your exam.

Are capital adequacy case studies important for CAIIB BFM 2026?

Yes. Capital adequacy is one of the most frequently tested. Most scoring areas in the BFM paper. Since the questions are numerical with a single correct answer. Mastering the formulas almost guarantees you those marks.

Final Thoughts: Turn Capital Adequacy Into Easy Marks

Capital adequacy looks intimidating. But it is one of the most predictable. Scoring parts of the CAIIB BFM paper. Once you internalise the Tier 1 and Tier 2 structure. The CAR formula and the operational-risk approach, these sums become almost mechanical.

So do not just read these CAIIB BFM case studies on capital adequacy &mdash. Solve every one with pen and paper. Then time yourself on fresh problems. Consistent practice is what separates a clear pass from a near miss.

You have the method. Now put in the reps, and walk into your exam confident. All the best for your CAIIB BFM 2026 attempt!

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