How is RWA calculated?

RWA is a Risk-Weighted Asset. It is calculated by multiplying the exposure amount by the relevant risk weight for the type of asset or loan. The total credit risk-weighted assets are calculated by the banks by repeating the above calculation for all of its assets and loans. This kind of asset calculation is done to find the capital adequacy ratio (CAR) or the capital requirement. You can read about the Capital Adequacy Ratio (CAR) in the given link.

Further readings:

1. Topic-Wise GS 3 Questions for UPSC Mains
2. Basel III Norms – Regulations by Basel Committee on Banking Supervision