TYPES OF CAPITAL

For the purposes of CRAR, the capital of the banks is classified as Tier 1 Capital and Tier 2 capital

TIER 1 CAPITAL

• Also called ‘Core Capital’ it majorly constitutes the investment by the owners of the bank. (Shareholders)

• Thus it majorly represents equity and disclosed reserves 

TIER 2 CAPITAL

It represents “supplementary capital” such as undisclosed reserves, revaluation reserves, general loan-loss reserves, hybrid (debt/equity) capital instruments, and subordinated debt of the financial institution. etc.

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