What are Tier I and Tier II Capital?
The Basel-I defined two tiers of the Capital in the banks to provide a point of view to the regulators. The Tier-I Capital is the core capital while the Tier-II capital can be said to be subordinate capitals. The following info shows the 2 tiers of the Capital Fund under the Basel II.
Tier-I Capital |
Minus:
|
Tier-II Capital |
|
- As per the Basel II accords, the banks have to maintain the Minimum Total CRAR of 8%. The RBI stipulated 9% for India and within that the Tier Capital would be 6% (By 31.3.2010)
- Most banks prefer to hold at least 12% CAR at all points of time because a lower CAR increases their cost of resource
Please note that banks have to follow the following minimum requirements of Capital Fund:
- Minimum Total CRAR (Basel II Recommendations) : 8%
- Minimum Total CRAR (RBI Guidelines) : 9%
- For New Private Sector Banks : 10%
- The banks that undertake insurance business: 10%
- Local Area Banks 15%
- For dividend declaration by banks 9%
jyoti
January 11, 2012 at 12:09 pmhow a lowere CAR increases the cost of resourse??
Tuhin
November 19, 2014 at 12:00 pmlower CAR means more money can be lent to castomers. So more money in market. Inflation is the effect.
sakthivel
November 30, 2014 at 8:11 amThe value of the resources are always fixed when the CAR increases PPP value increase gradually.example if a car cost 5 lac when we approach bank for loan they gave loan with heavy interest.
saugata
March 23, 2012 at 1:01 amWhy do the Banks has to maintain Tier-I capital ratio at 8% ? and how the lower CAR increases the cost of resources?
Gaurav Dobhal
May 6, 2012 at 10:21 amAs we study that CAR = Capital/risk
if CAR is low means risk is high. And if risk in production is high then it will definitely affect the resources
Gaurav Dobhal
May 6, 2012 at 10:25 amAs per Basel I suggestions Assets of banks are catagorised on the basis of the credit risk or the risk weightage of assets from 0% risk weightage to 100 and more than 100%. 0% refers to sovereign capital or the Govt capital where more than 100% refers to corporate sector. So according to Basel I banks having international presence have to hold atleast 8% to cover their risk and the risk as calculated as per the different catagories mentioned above
shmare
December 14, 2012 at 7:16 pmPlease explain Tier 1 and Tier 2 in simple language ????
Sir , Need help badly .
anurag
June 14, 2014 at 4:54 pmTwo types of capital are measured – tier one capital which can absorb losses without a bank
being required to cease trading, e.g. ordinary share capital, and tier two capital which can
absorb losses in the event of a winding-up and so provides a lesser degree of protection to
depositors, e.g. subordinated debt
Dev
August 16, 2013 at 9:33 pmPlease explain tier-I and tier-II in simple language.???
ava
May 9, 2014 at 12:22 pmFrom Wikipedia,
Tier I Capital : core capital, which consists primarily of common stock (equity share) and disclosed reserves (or retained earnings) and other items as explained in the article.
Tier II Capital : supplement capital, which consists elements as explained in the article.
Thuydung
November 8, 2014 at 11:33 amCan anyone can help me explain what is the difference between the tier 1 and tier 2, pls ???
nitin
January 7, 2015 at 6:55 pmplease explain tier 1 and tier 2 capital in simple language with examples.