What are Risk Weighted Assets ?

Defination:
  • The Risk weighted assets refer to the fund based assets such as Cash, Loans, Investments and other assets. 
  • This means that they are the total assets owned by the Banks, however, the value of each asset is assigned a risk weight (for example 100% for corporate loans and 50% for mortgage loans) and the credit equivalent amount of all off-balance sheet activities. Each credit equivalent amount is also assigned a risk weight.
Here an important question arises:
  • Investment in which among the following is the Most Risk Free asset of a Bank as per the RBI guidelines :
  • 1. Housing Loans
  • 2. Government Approved Securities
  • 3. Venture Capital Investments
  • 4. Loans against Jewellery
  • The degree of risk expressed % weights assigned by the Reserve Bank of India.

The following table shows the Risk weights for some important assets assigned by RBI in an increasing order.

  • Balance with Reserve Bank of India - 0%
  • Central/ s tate Government Guaranteed advances - 0%
  • S S I advances up to CGF guarantee - 0%
  • Loans agains FD (Fixed Depos its ), LIC Policy- 0% 
  • Government approved Securities - 2.5%
  • Balance with Banks other than RBI which maintain the 9% CRAR - 20%
  • Secured Loan to the S taff Members -20%
  • Hous ing Loans <Rs. 30 Lakh -50%
  • Hous ing Loans >Rs. 30 Lakhs -75%
  • Loans agains t Gold and Jewellery <Rs. 1 Lakh - 50%
  • Retail Lending up to Rs. 5 crore -75%
  • Loans Guaranteed by DGCGC / ECGC -50%
  • Loans to Public S ector Undertakings -100%
  • Foreign Exchange and Gold in Open Pos -ition -100%
  • Claims on unrated corporates -100%
  • Commercial Real estate -100%
  • Cons umer Credit -125%
  • Credit Cards -125%
  • Exposure to Capital Markets -125%
  • Venture Capital Investment as a part of Capital Market exposure - 150%
Government Guaranteed securities, against the LIC policies etc. are safest assets with 0% Risk weighted assigned to them. 
On the other hand, the venture Capital Investment as a part of Capital Market exposure has the maximum risk weight assigned to them.