What does RW stand for?

Under the standardised approach of the RBI's new Capital Adequacy Framework for Basel II, Bank Loan ratings from Fitch would enable Canara Bank to assign the appropriate risk weights applicable to its borrowers, a Fitch release here said today.

Similar rules apply to banks' equity portfolios, using a risk weight of 8 percent (4 percent if the portfolio is both liquid and well-diversified, and 2 percent for certain index funds).

Although bank bonds have a risk weight of 20 per cent, they are priced at least 200 basis points over sovereign issues, or close to 10 per cent.

Basel IA, as proposed, modifies the Basel I method of assigning risk-weighted assets (RWA) in several key ways, including: increasing the number of risk weight categories; introducing greater granularity into the stratification of asset classes; and expanding the role of external ratings in determining risk weights for direct exposures, collateral, guarantees and securitizations.

In the Basel IA NPR, the banking agencies are proposing to expand the number of risk weight categories, allow the use of external ratings to risk weight certain exposures, expand the range of recognized collateral and eligible guarantors, use loan-to-value ratios to risk weight most residential mortgages, increase the credit conversion factor for certain commitments, assess a capital charge for early amortizations in securitizations of revolving exposures and eliminate the 50% risk weight for certain derivative transactions.

Basel I assigned a uniform zero weight to loans to governments, while assigning a uniform 100 percent risk weight to loans to private firms.

Another critical area for the Australian market is the excessive risk weight applied to mortgage secured housing loans under the existing Accord.

The ANPR also discusses approaches that would change the credit conversion factor for certain types of commitments, assign a risk-based capital charge to certain securitizations with early-amortization provisions, and assign a higher risk weight to loans that are 90 days or more past due or in nonaccrual status and to certain commercial real estate exposures.