Essay about Evaluating Basel

10388 Words Oct 12th, 2015 42 Pages
END TERM PROJECT
COMMERCIAL BANK MANAGEMENT

TOPIC 5
BANK CAPITAL MANAGEMENT- CAPITAL ADEQUACY FRAMEWORK

Submitted to:

Submitted by: Group 5

Prof. D.N. Panigrahi

Abhishek Singh (2014013)
Anisha jain (2014042)
Bakul Malik (2014072)
Gurusha Godwani (2014100)
Ketki Chaturvedi (2014133)

CHAPTER 1
BANK CAPITAL MANAGEMENT- CAPITAL ADEQUACY FRAMEWORK

INTRODUCTION
Bank capital is often defined in tiers or categories that include shareholders' equity, retained earnings, reserves, hybrid capital instruments, and subordinated term debt. Capital ratios are commonly measured as a percent of bank assets or risk-weighted bank assets.
Bank capital serves as an important cushion against unexpected losses. It creates a strong
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A bank must maintain a professional level of risk management and sound lending practice to attract the capital that acts as its first line of defense against loss, both expected and unforeseen.
Components of Capital:
Tier I Capital: The elements of Tier I capital includes paid-up capital (ordinary shares), statutory reserves, disclosed free reserves, Perpetual Non-cumulative Preference Shares
(PNCPS) subject to laws in force from time to time, Innovative Perpetual Debt Instruments
(IPDI) and capital reserves representing surplus arising out of sale proceeds of asset. It is generally referred as the core capital which absorbs losses without a bank required to cease trading and thus provides more of protection to its depositors.
Tier II Capital: The elements of Tier II capital include undisclosed reserves, revaluation reserves, general provisions and loss reserves, hybrid capital instruments, subordinated debt and investment reserve account. It is the supplementary capital which absorbs losses in the event of winding up and thus provides lesser degree of protection to its depositors.
Tier II items qualify as regulatory capital to the extent that they absorb losses arising from bank’s activities.

Tier III Capital: This is arranged to meet part of market risk, viz. changes in interest rate,

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