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CMA Final · Risk Management in Banking and Insurance · Credit Risk Management

Under the Basel standardised approach to credit risk, a bank holds a ₹50 crore corporate exposure carrying a risk weight of 100% and a ₹80 crore exposure to a rated corporate carrying a risk weight of 50%. Ignoring other assets, what is the total credit risk-weighted asset amount, and what minimum capital is required at 9% of RWA?

Risk-weighted assets are 50 crore at 100% plus 80 crore at 50%, totalling 90 crore. At 9% the required capital is 8.10 crore. Using unweighted exposures of 130 crore would overstate both RWA and capital.

  1. ARWA ₹90 crore; capital ₹8.10 croreCorrect
  2. BRWA ₹130 crore; capital ₹11.70 crore
  3. CRWA ₹90 crore; capital ₹11.70 crore
  4. DRWA ₹130 crore; capital ₹8.10 crore

Explanation

RWA = 50×100% + 80×50% = 50 + 40 = ₹90 crore. Capital at 9% = 0.09 × 90 = ₹8.10 crore. Adding exposures without weights gives ₹130 crore, which is the key error.

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