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).

classification of risk weighted assets

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.

>>>>>>> Study about Banks and their Taglines for IBPS by clicking here<<<<<<<

 

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 
 Cash0%
Balance with Reserve Bank of India0%
Central or state Government Guaranteed advances0%
 SSI advances up to CGF guarantee0%
Loans against Fixed Deposits,and LIC Policy0%
 Government approved Securities2.5%
Balance with Bank (excluding RBI) which maintains the 9% CRAR 20%
Secured Loan to the Staff Members20%
Housing Loans less than Rs. 30 Lakh50%
Housing Loans more than Rs. 30 Lakhs75%
Loans against Gold and Jewellery less than <Rs.1 Lakh50%
Retail Lending up to Rs. 5 crore75%
Loans Guaranteed by DGCGC / ECGC50%
Loans to Public Sector Undertakings100%
Foreign Exchange and Gold in open100%
Claims on unrated corporates100%
Commercial Real estate100%
Consumer Credit125%
Credit Cards125%
Exposure to Capital Markets125%
Venture Capital Investment150%

<<<<< Read about banking abbreviations by clicking here>>>>>

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.

If you have any suggestion regarding any topic or subject that you want us to cover, do inform us in the comments or through the contact us page, we would be happy to cater to you.

<<<<< Read about DBMS normalisation here>>>>>

 

Study Material for UPSC IAS Prelims and Mains

☑ Study Plans & Online Test Series for Civil Services Exams

UPSC Prelims Exam :
How To Prepare
Test Series
UPSC Mains Exam :
How To Prepare
Test Series

Free Study Material & Online Tests for Various Subjects

Current Affairs :
Study Material
Online Quiz
General Awareness :
Study Material
Online Quiz
Reasoning : 
Study Material
Online Quiz
English :
Study Material
Online Quiz
History :
Study Material
Online Quiz
Geography :
Study Material
Online Quiz
Political Science :
Study Material
Online Quiz
Economics :
Study Material
Online Quiz
Environment GK :
Study Material
Online Quiz
Science & Tech. :
Study Material
Coming Soon
State Exam GK :Coming Soon
Online Quiz