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What is Understanding Tier 1 and Tier 2 Capital about?

Tier I capital consists of paid up capital, reserves, and retained earnings. Tier II capital includes debt and long term loans. According to Basel II accords, banks must maintain a minimum total capital ratio of 8% to account for credit risk. However, the Reserve Bank of India stipulates a minimum of 9% for banks in India, with at least 6% consisting of Tier I capital. Most banks prefer to exceed this and hold a 12% capital ratio to reduce costs.

Author

Arun kumar

Language

EN