What are Risk Weighted Assets ?
Here an important question arises:
- 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.
- 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.