Prudential Norms on Capital Adequacy – Basel I Framework
This Master Circular outlines the guidelines for capital adequacy under the Basel I framework.
The purpose of this circular is to consolidate previous instructions on capital adequacy and provide a single reference point for banks.
The application of these guidelines is mandatory for all commercial banks, including regional rural banks and local area banks.
Components of Capital
Capital funds consist of Tier I and Tier II capital.
Tier I Capital: includes common equity tier I, additional tier I, and tier I capital instruments.
Tier II Capital: includes undisclosed reserves, revaluation reserves, general provisions and loss reserves, hybrid debt capital instruments, subordinated debt, and investment reserve account.
Deductions from Computation of Capital Funds
Deductions are made from Tier I and Tier II capital, including equity/non-equity investments in subsidiaries and credit enhancements pertaining to securitization.
The circular provides detailed guidelines on the computation of capital adequacy, including the treatment of various components of capital and deductions.
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Download: Master Circular – Prudential Norms on Capital Adequacy – Basel I Framework