TIER I Capital:

Paid up Capital
Statutory Reserves
Other disclosed free reserves
Capital Reserves which represent surplus arising out of the sale proceeds of the assets.
Investment Fluctuation Reserves
Innovative Perpetual Debt Instruments (IPDIs)
Perpetual Noncumulative Preference Shares.

Minus:
Equity Investment in subsidiaries.
Intangible assets.
Losses (Current period + past carried forward)

TIER II Capital:
Undisclosed reserves and cumulative perpetual preference shares.
Revaluation Reserves
General Provisions and loss reserves
Hybrid debt capital instruments such as bonds.
Long term unsecured loans
Debt Capital Instruments.
Redeemable cumulative Preference shares
Perpetual cumulative preference shares.

Basel Committee:
As a response to the cross-jurisdictional implications of the Herstatt debacle, the G-10 countries, Spain
and Luxembourg formed a standing committee in 1974 under the auspices of the Bank for
International Settlements (BIS), called the Basel Committee on Banking Supervision. Since BIS is
headquartered in Basel, this committee got its name from there

Basel I:
Focused only on credit (default risk)- the risk of counter party failure
Assets of banks were classified and grouped in five categories according to credit risk, carrying risk
weights of 0%, 10, 20, 50 and100% and no rating.
Banks with an international presence are required to hold capital equal to 8% of their risk-weighted
assets (RWA) - At least, 4% in Tier I Capital (Equity Capital + retained earnings) and more than 8% in
Tier I and Tier II Capital. Target for this was the year 1992.
Didnt take into account risks other than credit risk like market risks, operational risks, liquidity risks etc.

Basel II:
Introduced in 2004
Laid down guidelines for capital adequacy (with more refined definitions), risk management (Market
Risk and Operational Risk) and disclosure requirements.
Use of external ratings agencies to set the risk weights
As per the Basel II accords, the banks have to maintain the Minimum Total CAR of 8%, with minimum
Tier I capital of 4%
The RBI has stipulated 9% for India and within that the Tier I Capital would be 6%
CAR For New Private Sector Banks : 10%
It covered Credit Risk, Market Risk, Operational Risk

Basel III:
Basel II did not have any explicit regulation on the debt that banks could take on their books, and
focused more on individual financial institutions, while ignoring systemic risk.
To ensure that banks dont take on excessive debt, and that they dont rely too much on short term
funds, Basel III norms were proposed in 2010.
Requirements for common equity and Tier 1 capital will be 4.5% and 6%, respectively.
The total Capital adequacy ratio (CAR) requirement has been maintained at 8%
The liquidity coverage ratio(LCR) will require banks to hold a buffer of high quality liquid assets
sufficient to deal with the cash outflows encountered in an acute short term stress scenario as
specified by supervisors. The minimum LCR requirement will be to reach 100% on 1 January 2019.
A new measure called leverage ratio is introduced. It measures the proportion of Tier 1 capital to the
total exposure of the bank (not the RWA). A minimum ratio of 3% is to be maintained.