What is risk-weighted asset in banking?
Sep 22, 06:09

Banks sanction loans to entities who back the same by collateral, but while assigning the loans banks face a risk of the loan turning bad. Due to this, banks typically hold or set aside a minimum amount of capital to face the eventuality of a default. Risk-weighted assets (RWA), in banking parlance, is a method used by lenders to calculate the capital adequacy ratio of a bank. As per Basel III standards, lenders must maintain a minimum of 8 percent capital adequacy ratio, while as per the norms issued by the Reserve Bank of India, banks' minimum capital adequacy ratio must be at least nine percent.

Risk weighted assets RWA_001