Capital Adequacy Ratio (Contd..)

Step 2: Calculation of Risk Weighted Assets (RWA)

RWA are calculated by multiplying the relevant weights to the value of assets and off-balance sheet items.

The weights assigned to each of the items are as follows:

Domestic Operations

Funded Risk Assets	Percentage weights
1. Cash, balances with RBI, balances with other banks, money at call and short notice and investments in Govt. and other trustees securities	0
2. Claims on commercial banks such as certificates of deposits etc.	20
3. Other Investments	100
4. Loans and advances including bills purchased and discounted and other credit facilities
A. Loans guaranteed by GOI	2.5
B. Loans guaranteed by State Govt.	2.5
C. Loans guaranteed by PSUs of GOI	100
D. Loans guaranteed by PSUs of State Govt.	100
E. Others	100
5. Premises, furniture & fixtures	100
6.Other Assets	100

Off Balance Sheet Items

Off balance sheet items are first multiplied by the corresponding credit conversion factors. Then it is multiplied by the risk weights attributable to the item.

Items	Credit conversion factors
1. Direct Credit Substitutes	100
2. Certain transaction related to contingent items	50
3. Short term self liquidating trade related contingencies	20
4. Sale and repurchase agreement and asset sales with recourse, where the credit risk remains with the bank	100
5. Forward and asset purchases, forward deposits and partly paid shares and securities	100
6. Note issuance facilities and underwriting facilities	50
7. Other commitments with an original maturity of over 1 year	50
8. Similar commitments with an original maturity of over 1 year, or which can be cancelled at any time.	0
9. Aggregate outstanding foreign exchange contracts of original maturity
Of less than 1 year	2
For each additional year or part thereof	3

Note:

In the Mid-term Statement on Monetary and Credit Policy for 1998-99, a risk weight of 2.5 per cent was introduced for the risk arising out of market price variations for investments in Government and other approved securities, with effect from the year ending March 31, 2000. In view of the growing share of investments in the assets of banks, the risk weight of 2.5 per cent is being extended to cover all investments including securities outside the SLR. This, however, will take effect from the year ending March 31, 2001.