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As a matter of prudence, RBI has stipulated that scheduled commercial banks operating in India shall maintain a minimum total capital (MTC) of 9% of total risk weighted assets (RWAs) i.e., capital to risk weighted assets (CRAR). This will be further divided into different components I. Common Equity Tier 1 (CET1) capital must be at least 5.5% of risk-weighted assets (RWAs) i.e., for credit risk + market risk + operational risk on an ongoing basis. II. Tier 1 capital must be at least 7% of RWAs on an ongoing basis. Thus, within the minimum Tier 1 capital, Additional Tier 1 capital can be admitted maximum at 1.5% of RWAs. III. Total Capital (Tier 1 Capital plus Tier 2 Capital) must be at least 9% of RWAs on an ongoing basis. Thus, within the minimum CRAR of 9%, Tier 2 capital can be admitted maximum up to 2%. IV. If a bank has complied with the minimum Common Equity Tier 1 and Tier 1 capital ratios,then the excess Additional Tier 1 capital can be admitted for compliance with the minimum CRAR of 9% of RWAs. V. In addition to the minimum Common Equity Tier 1 capital of 5.5% of RWAs, banks are also required to maintain a capital conservation buffer (CCB) of 2.5% of RWAs6 in the form of Common Equity Tier 1 capital
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