Page 159 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes (c) The elements of Tier I & Tier II capital do not include foreign currency loans granted
to Indian parties.
Minimum requirement of capital funds

Banks were required to maintain a minimum Capital to Risk-weighted Assets Ratio (CRAR)
norm of 8 percent on an ongoing basis up to the year ending 31 March 1999. With effect
from the year ending 31 March 2000, banks are required to maintain a minimum CRAR of
9 percent on an ongoing basis.
Issue of subordinated debt for raising Tier II capital

(a) The Reserve Bank has given autonomy to Indian banks to raise rupee subordinated
debt as Tier II capital, subject to the terms and conditions given. It should be ensured
that the terms & conditions are strictly adhered to.
(b) Foreign banks also would not require prior approval of RBI for raising subordinated
debt in foreign currency through borrowings from Head Office for inclusion in Tier
II capital.
(c) The banks should submit a report to Reserve Bank of India giving details of the
Subordinated debt issued for raising Tier II capital, such as, amount raised, maturity
of the instrument, rate of interest together with a copy of the offer document, soon
after the issue is completed.
3. Risk adjusted assets and off-balance sheet items
(a) Risk adjusted assets would mean weighted aggregate of funded and non-funded
items. Degrees of credit risk expressed as percentage weightings, have been assigned
to balance sheet assets and conversion factors to off-balance sheet items.
(b) Banks' investments in all securities should be assigned a risk weight of 2.5 percent
for market risk. This will be in addition to the risk weights assigned towards credit
risk since, in line with best practices, some capital cushion should also be provided
for market risk in addition to credit risk.
(c) The value of each asset/item shall be multiplied by the relevant weights to produce
risk adjusted values of assets and off-balance sheet items. The aggregate will be
taken into account for reckoning the minimum capital ratio.
4. Reporting requirements

(a) Banks should furnish an annual return indicating:
(i) Capital funds,
(ii) Conversion of off-Balance Sheet/non-funded exposures,
(iii) Calculation of risk weighted assets, and

(iv) Calculations of capital to risk assets ratio.
(b) In the case of Indian banks having branches abroad, the break-up and aggregate in
respect of domestic and overseas operations will have to be furnished. Two officials
who are authorised to sign the statutory returns submitted to Reserve Bank should
sign the returns.

5. Capital Adequacy for Subsidiaries
(a) The Basel Committee on Banking Supervision has proposed that the New Capital
Adequacy Framework should be extended to include, on a consolidated basis, holding

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