BFM Bank financial management Case Study on Risk Weighed Assets

Balance sheet of a bank provides the following information:

Fixed Assets - 1000cr
Investment in central Govt Securities - Rs 10000cr

In standard loan accounts
Housing Loans - RS 6000cr (Secured, below Rs 10 lac)
the Retail loan - Rs 4000cr
Other loans - Rs 8000cr

sub-standard secured loans - Rs 1000cr
sub-standard unsecured loans - Rs 500cr
Doubtful loans (D-1, secured) - Rs 800cr
Doubtful loans (D-1, unsecured) - Rs 600cr
Doubtful loans (D-2, secured) - Rs 500cr
Doubtful loans (D-2, unsecured) - Rs 1000cr
Doubtful loans (D-3, secured) - Rs 1000cr
Doubtful loans (D-3, unsecured) - Rs 600cr
Loss Assets - 50cr and
other assets - Rs 500cr.

Answer the following questions, based on this information, by using standard Approach for credit risk.

1. What is the amount of RWAs for investment in govt securities?

a. Rs 5000cr
b. Rs 3500cr
c. Rs 2500cr
d. Nil

2. What is the amount of RWAs for sub-standard unsecured accounts?

a. Rs 500cr
b. Rs 7500cr
c. Rs 1000cr
d. Rs 1500cr

3. What is the amount of RWAs for doubtful (D-1, unSecured) accounts?

a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr

4. What is the amount of RWAs for doubtful (D-2, unSecured) accounts?

a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr

5. What is the amount of RWAs for doubtful (D-3, unSecured) accounts?

a. Rs 300cr
b. Rs 500cr
c. Rs 800cr
d. Rs 900cr

6. What is the amount of RWAs for retail loans?

a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr

7. What is the amount of RWAs for housing loans?

a. 3000cr
b. 4000cr
c. 5000cr
d. 6000cr

Solution :

1. d
RW against Govt Securities = 0 %

So, RWA
= 10000 x 0%
= 0 Cr

2. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%

Provision in Sub-Standard Un-Secured - 25 %, and so, RW = 100 %

So, RWA
= 500 x 100 %
= 500 Cr

3. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%

Provision in doubtful (D-1, unsecured) - 100 %, and so, RW = 50 %

So, RWA
= 600 x 50 %
= 300 Cr

4. b
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%

Provision in doubtful (D-2, unsecured) - 100 %, and so, RW = 50 %

So, RWA
= 1000 x 50 %
= 500 Cr

5. a
If the provision is less than 20 %, then RW is 150%
If the provision is 20-49 %, then RW is 100%
If the provision is 50% or more, then RW is 50%

Provision in doubtful (D-3, unsecured) - 100 %, and so, RW = 50 %

So, RWA
= 600 x 50 %
= 300 Cr

6. a
RW on retail loans = 75 %

So, RWA
= 4000 x 75%
= 3000 Cr

7. a
RW on housing loans = 50 %

So, RWA
= 6000 x 50%
= 3000 Cr