A bank plans to grow its risk-weighted assets by 18% a year for three years while earning a 13% return on equity and paying out a quarter of it. Project its CET1 ratio and the capital it must raise.

The CET1 ratio falls from 12.5% to about 10.1% by year three, and Semvar must raise about Rs 4,014 crore to get back to target. Capital grows only at the retained return, 13% times 75%, or 9.75% a year, while RWA grows 18%. Growth faster than 9.75% has to be paid for with new equity, a lower payout, or cheaper assets.

Think of a family that saves part of its income and wants to buy a bigger house every year. If the house price rises faster than the savings pile, the family needs a bigger loan or a gift, however good its income looks. A bank's capital grows only at its return on equity times the share of profit it keeps, and any asset growth faster than that dilutes the ratio. For Semvar that internal capital generationThe rate at which retained profit adds to capital: return on equity multiplied by the share of profit not paid out. rate is 13% x 75%, which is 9.75% a year. The plan asks RWA to grow at 18%, so the ratio must fall unless something else changes.

Now roll it forward. Year one: profit is 13% of Rs 12,500 crore, Rs 1,625 crore, of which Rs 406 crore is paid out, so CET1 ends at Rs 13,719 crore while RWA reaches Rs 1,18,000 crore. The ratio drops to 11.63% in the first year, then 10.81%, then 10.06%. Notice that the bank is below its own target from year one, not only at the end, which matters for the timing of any raise.

At year three RWA is Rs 1,64,303 crore, so 12.5% of it is Rs 20,538 crore. Semvar has Rs 16,524 crore. The raise is the difference, about Rs 4,014 crore, roughly a third of today's capital. The shortfall roughly doubles each year because it compounds: RWA grows on a larger base every year while retained profit grows on a base that is already too small. Raising once at the end also means spending two years below target, which a supervisor and the rating agencies would notice long before year three.

There are four levers, and a strong answer prices each one. Stopping the dividend alone does not close the gap: retaining all 13% gives CET1 of Rs 18,036 crore by year three, a ratio of 10.98%, still Rs 2,502 crore short. Slowing RWA growth to 9.75% holds the ratio flat with no raise at all. Lowering risk densityRisk-weighted assets divided by total assets. It falls when the book shifts to lower risk weight lending such as secured retail loans. by growing secured lending faster than unsecured lending stretches each rupee of capital further. And raising equity earlier and in smaller pieces avoids two years below target. In practice a bank mixes them: say, 13 to 14% RWA growth, a lower payout, and a modest raise in year two.

State the limits of the sketch. It ignores the regulatory minimums and buffers that sit below the 12.5% target, which the reader should confirm with the current RBI framework, and it assumes ROE holds at 13% while the bank grows fast, which is exactly when credit quality tends to slip. If growth brings higher losses, the retained rate falls and the raise gets bigger.