How is risk weight calculated?

Banks calculate risk-weighted assets by multiplying the exposure amount by the relevant risk weight for the type of loan or asset. A bank repeats this calculation for all of its loans and assets, and adds them together to calculate total credit risk-weighted assets.

What is risk weight in housing loan?

According to the RBI’s October 2020 circular, risk weight for all the new housing loans would be 35 per cent if the loan to value ratio is 80 per cent or lower. If the LTV ratio is higher than 80 per cent and up to 90 per cent, the risk weight would be 50 per cent.

Can risk-weighted assets be negative?

When calculation the RWA with a confidence interval, some of the calculated value of RWA– may be negative.

What is risk weight for consumer loans?

The Reserve Bank of India (RBI) on Thursday said it has reduced the risk weight requirement for consumer loans to 100 per cent, a move that will reduce cost of such loans. Currently, the risk weight requirement for such loans is 125 per cent.

What is gold loan risk weight?

3. It has been decided to reduce, with immediate effect, the risk weight on loans up to Rs. 1 lakh against gold and silver ornaments to 50 per cent from the existing level of 125 per cent.

What is good capital adequacy ratio?

The risk-weighted assets take into account credit risk, market risk and operational risk. As of 2019, under Basel III, a bank’s tier 1 and tier 2 capital must be at least 8 per cent of its risk-weighted assets. The minimum capital adequacy ratio (including the capital conservation buffer) is 10.5 per cent.

Should Crar be high or low?

A bank with a high capital adequacy ratio is considered to be above the minimum requirements needed to suggest solvency. Therefore, the higher a bank’s CAR, the more likely it is to be able to withstand a financial downturn or other unforeseen losses.

What is the risk weight of credit card?

Under the standardised approach for Credit Risk Management, consumer credit, including personal loans and credit card receivables attract a higher risk weight of 125 per cent or higher, if warranted by the external rating of the counterparty.