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    Question

    Which among the following will not be considered a

    constituent of Tier 2 capital of AIFI according to BASEL III capital framework? A.    Revaluation Reserves B.    General Loan-loss Reserves C.   Capital Reserve D.   Statutory Reserves
    A A and B Correct Answer Incorrect Answer
    B B and C Correct Answer Incorrect Answer
    C C and D Correct Answer Incorrect Answer
    D A and D Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    Tier 2 capital must be at least 2% of RWAs on an ongoing basis. Tier 2 Capital : represents “supplementary capital”. The Tier 2 capital for AIFI would include general loan-loss reserves, debt capital instruments issued by AIFI, preference share capital instruments issued by AIFI, stock surplus (share premium) from issue of instruments included in Tier 2 capital, revaluation reserves (at 55% discount), and any other instrument notified by RBI for inclusion as Tier II capital. Tier 2 Capital is generally less reliable or secure than Tier 1 capital, and therefore must be considered separately when evaluating the riskiness of a bank/AIFI. Capital reserve and statutory reserve form a part of the Tier I capital of the AIFI.

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