Regulatory Capital and Capital Adequacy
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What is regulatory capital in the context of Basel III?
Regulatory capital is the minimum amount of capital that banks must hold as mandated by regulators to absorb unexpected losses and ensure solvency. It comprises Tier 1 (going-concern) and Tier 2 (gone-concern) capital components.
What is the minimum Capital Adequacy Ratio (CAR) required for Indian banks under Basel III?
Minimum CAR is 11.5% including Capital Conservation Buffer.
What does Capital Adequacy Ratio (CAR) measure?
CAR measures a bank's capital in relation to its risk-weighted assets, indicating the bank's ability to absorb losses before becoming insolvent. Under Basel III, the minimum CAR prescribed by RBI is 9%.
What is the minimum total capital ratio prescribed by RBI under Basel III?
RBI prescribes minimum total capital ratio of 9%.
What is the minimum Common Equity Tier 1 (CET1) ratio prescribed by RBI under Basel III?
RBI prescribes a minimum CET1 ratio of 5.5% of Risk-Weighted Assets (RWAs) for Indian banks, which is higher than the Basel III international minimum of 4.5%.
What is the minimum Leverage Ratio prescribed by RBI for banks?
RBI prescribes minimum Leverage Ratio of 4% for Indian banks.
What constitutes Common Equity Tier 1 (CET1) capital?
CET1 capital includes paid-up equity share capital, share premium arising from CET1 instruments, statutory reserves, capital reserves, retained earnings, and other disclosed free reserves, net of regulatory deductions.
What instruments qualify as Tier 2 capital under Basel III?
General provisions, revaluation reserves, subordinated debt qualify as Tier 2.
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