Page 158 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 10: Financial Services

on standard assets and 'Investment Fluctuation Reserve' together with other Notes
'general provisions/loss reserves' will be admitted as Tier II capital up to a
maximum of 1.25 per cent of the total risk-weighted assets.
(f) Tier II elements should be limited to a maximum of 100 percent of total Tier I
elements for the purpose of compliance with the norms.

(g) A bank's aggregate investment in Tier II bonds issued by other banks and financial
institutions shall be permitted up to 10 percent of the investing banks total capital.
The total capital for this purpose will be the same as reckoned for the purpose of
Capital Adequacy.
2. Capital funds of foreign banks operating in India: For foreign banks, 'capital funds' would
include the following elements:
(a) Elements of Tier I capital
(i) Interest-free funds from Head Office kept in a separate account in Indian books
specifically for the purpose of meeting the capital adequacy norms.
(ii) Statutory reserves kept in Indian books.
(iii) Remittable surplus retained in Indian books which is not repatriable so long
as the bank functions in India.
Important:
The foreign banks are required to furnish to Reserve Bank, (if not already
done), an undertaking to the effect that the banks will not remit abroad the
remittable surplus retained in India and included in Tier I capital as long as
the banks function in India.
These funds may be retained in a separate account titled as 'Amount Retained
in India for Meeting Capital to Risk-weighted Asset Ratio (CRAR)
Requirements' under 'Capital Funds'.
An auditor's certificate to the effect that these funds represent surplus remittable
to Head Office once tax assessments are completed or tax appeals are decided
and do not include funds in the nature of provisions towards tax or for any
other contingency may also be furnished to Reserve Bank.
It should be noted that once the banks treat any part of the remittable profits
as capital funds for capital adequacy purposes, these funds cannot be hedged.
(iv) Capital reserve representing surplus arising out of sale of assets in India held
in a separate account and which is not eligible for repatriation so long as the
bank functions in India.
(v) Interest-free funds remitted from abroad for the purpose of acquisition of
property and held in a separate account in Indian books.
(vi) The net credit balance, if any, in the inter-office account with Head Office/
overseas branches will not be reckoned as capital funds. However, any debit
balance in Head Office account will have to be set-off against the capital.
(b) Elements of Tier II capital
(i) To the extent relevant, elements of Tier II capital as indicated above in respect
of Indian banks will be eligible.

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