Now Practice Yourself(one more)-BFM-RWA-Standard Approach for Credit Risk -------------------------

Now Practice Yourself(one more)-BFM-RWA-Standard Approach for Credit Risk --------------------------------------------------------------- Balance sheet of a bank provides the following information: sub-standard secured loans - Rs 2500cr sub-standard unsecured loans - Rs 1200cr Doubtful loans (D-1, secured) - Rs 1200cr Doubtful loans (D-1, unsecured) - Rs 1000cr Doubtful loans (D-2, secured) - Rs 1200cr Doubtful loans (D-2, unsecured) - Rs 1500cr Doubtful loans (D-3, secured) - Rs 900cr Doubtful loans (D-3, unsecured) - Rs 1500cr Loss Assets - 250cr and other assets - Rs 900cr. Fixed Assets - 3000cr Investment in central Govt Securities - Rs 12000cr In standard loan accounts Housing Loans - RS 15000cr (Secured, below Rs 10 lac) the Retail loan - Rs 15000cr SME Loans - Rs 12000 Cr Other loans - Rs 9000cr Answer the following questions, based on this information, by using standard Approach for credit risk. 1. What is the amount of RWAs for Loss Assets accounts? 2. What is the amount of RWAs for sub-standard secured accounts? 3. What is the amount of RWAs for sub-standard unsecured accounts? 4. What is the amount of RWAs for investment in govt securities? 5. What is the amount of RWAs for retail loans? 6. What is the amount of RWAs for SME loans? 7. What is the amount of RWAs for housing loans? 8. What is the amount of RWAs for doubtful (D-1, Secured) accounts? 9. What is the amount of RWAs for doubtful (D-1, unSecured) accounts? 10. What is the amount of RWAs for doubtful (D-2, Secured) accounts? 11. What is the amount of RWAs for doubtful (D-2, unSecured) accounts? 12. What is the amount of RWAs for doubtful (D-3, Secured) accounts? 13. What is the amount of RWAs for doubtful (D-3, Secured) accounts? Solution : 1. What is the amount of RWAs for Loss Assets accounts? Solution 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 Loss Assets - 100 %, and so, RW = 50 % RWA=Loss Aseets*RW = 250 x 50 % = 125 Cr ............................................................ 2. What is the amount of RWAs for sub-standard secured accounts? Solution 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 Secured - 15 %, and so, RW = 150 % RWA=Sub-Standard Secured*RW = 2500 x 150 % = 3750 Cr ............................................................ 3. What is the amount of RWAs for sub-standard unsecured accounts? Solution 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 % RWA=sub-standard unsecured*RW = 1200 x 100 % = 1200 Cr ............................................................ 4. What is the amount of RWAs for investment in govt securities? Solution RW against Govt Securities = 0 % RWA=Invest in Govt Securities*RE RWA= 12000 x 0% = 0 Crore ............................................................ 5. What is the amount of RWAs for retail loans? Solution RW on retail loans = 75 % RWA=Retail loan*RW RWA= 15000 x 75% = 11250 Cr ............................................................ 6. What is the amount of RWAs for SME loans? Solution RW on SME loans = 75 % RWA=SME loan*RW RWA = 12000 x 75% = 9000 Cr ............................................................ 7. What is the amount of RWAs for housing loans? Solution RW on housing loans = 50 % RWA=Housing loan*RW RWA= 15000 x 50% = 7500 Cr ............................................................ 8. What is the amount of RWAs for doubtful (D-1, Secured) accounts? Solution 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, Secured) - 25 %, and so, RW = 100 % RWA=doubtful-1 Secured *RW RWA= 1200 x 100 % = 1200 Cr ............................................................ 9. What is the amount of RWAs for doubtful (D-1, unSecured) accounts? Solution 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 % RWA=doubtful-1 Un Secured *RW RWA= 1000 x 50 % = 500 Cr ............................................................ 10. What is the amount of RWAs for doubtful (D-2, Secured) accounts? Solution 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, Secured) - 40 %, and so, RW = 100 % RWA=doubtful-2 Secured *RW RWA= 1200 x 100 % = 1200 Cr ............................................................ 11. What is the amount of RWAs for doubtful (D-2, unSecured) accounts? Solution 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 % RWA=doubtful-2 Un Secured *RW RWA= 1200 x 50 % = 600 Cr ............................................................ 12. What is the amount of RWAs for doubtful (D-3, Secured) accounts? Solution 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, Secured) - 100 %, and so, RW = 50 % RWA=doubtful-3 Secured *RW RWA= 900 x 50 % = 450 Cr ............................................................ 13. What is the amount of RWAs for doubtful (D-3, Un Secured) accounts? Solution 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 % RWA=doubtful-3 Un Secured *RW RWA= 1500 x 50 % = 750 Cr ............................................................

 

Can anyone please explain how much provisions to be made on different types of assets for calculating RWA?

 

Rbi guidelines is there for provisioning. It is written in the above example.