To understand BASEL III norms, we have to look into Tier I and TIER II capitals. But before get into the details of these let us understand the classification of risk weighted assets in brief.
First of all, the definition of risk weighted assets– These are an amount of funds which a bank should hold as any time ready liquid assets. The amount of such asset is determined by calculating the percent of assets that the bank hold with respect to weighted risk to capital.
In simpler terms, Risk weighted Assets are such assets like Cash, investment, loans, etc. , comprising total assets owned by the Banks. However, value of each asset is assigned with a weighted risk (like 100% risk weight for corporate loans and 0% risk for government bonds).
The Capital Adequacy Ratio (CAR), is also referred to as the Capital to Risk (Weighted) Assets Ratio (CRAR). It is the ratio of the bank’s Capital assets to the risk involved.
Classification of Risk weighted Asset:
The degree of risk involved is expressed in percentage and it is assigned by the Reserve Bank of India. The Risk weights of a few important assets as assigned by the RBI are listed in the table below:
|Item of Asset||Weighted Risk Percent|
|Balance with Reserve Bank of India||0%|
|Central or state Government Guaranteed advances||0%|
|SSI advances up to CGF guarantee||0%|
|Loans against Fixed Deposits,and LIC Policy||0%|
|Government approved Securities||2.5%|
|Balance with Bank (excluding RBI) which maintains the 9% CRAR||20%|
|Secured Loan to the Staff Members||20%|
|Housing Loans less than Rs. 30 Lakh||50%|
|Housing Loans more than Rs. 30 Lakhs||75%|
|Loans against Gold and Jewellery less than <Rs.1 Lakh||50%|
|Retail Lending up to Rs. 5 crore||75%|
|Loans Guaranteed by DGCGC / ECGC||50%|
|Loans to Public Sector Undertakings||100%|
|Foreign Exchange and Gold in open||100%|
|Claims on unrated corporates||100%|
|Commercial Real estate||100%|
|Exposure to Capital Markets||125%|
|Venture Capital Investment||150%|
These classification helps in understanding various concepts regarding bank assets and risk management. Hence, knowledge of Risk weighted assets is important for all banking recruitement aspirants. These concepts are also helpful in other competitive exams in an indirect manner. We at exampariksha always thrive to provide you relevant Banking study material and notes for dealing with the challenges of various examinations. Not only study material and Notes but we also give out the tips and tricks on our website and our pages for social media at Facebook, and Twitter.
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