Given the following information, what will be the capital charge for operational risk as per Basic indicator approach, for year 1 and year 2?

Solution

Capital charge = 15% * Gross Income Gross Income of year 1 = Net profit + provisions + staff expenses + other operating expenses                                     = 120+240+280+160                                     = 800 Gross Income of year 2 = Net profit + provisions + staff expenses + other operating expenses                                     = 150+290+320+240                                     = 1000 Capital charge for Year 1 = 15% *800 = 120 crore Capital charge for Year 2 = 15% *1000 = 150 crore