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Mahatma Education Society's Pillai College of Arts, Commerce and Science (Autonomous) New Panvel ISO 9001:2015 Certified
Mahatma Education Society's Pillai College of Arts, Commerce and Science (Autonomous) New Panvel ISO 9001:2015 Certified
PROJECT REPORT
ON THE TOPIC
“CAPITAL ADEQUACY NORMS AND ITS IMPORTANCE IN
BANKING”
SUBMITTED BY-
ABIZER ZUZER KACHWALA
ROLL NO- 8421
TYBAF-A
TO-
PROF. DR. KAVITA KATHARE
AS A PART OF CONTINUOUS ASSESMENT –II FOR THE
SUBJECT –
FINANCIAL ACCOUNTING -VI
(SEM-V)
A.Y-2020-21
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INDEX
SR NO NAME OF THE PAGE NO.
TOPIC
1 Introduction to Capital 3-4
Adequacy norms and
Capital adequacy ratio
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INTRODUCTION TO CAPITAL ADEQUACY RATIO NORMS
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With a view to adopting the Basel Committee on Banking Supervision
(BCBS) framework on capital adequacy which takes into account the
elements of credit risk in various types of assets in the balance sheet as
well as off-balance sheet business and also to strengthen the capital
base of banks, Reserve Bank of India decided in April 1992 to
introduce a risk asset ratio system for banks (including foreign banks)
in India as a capital adequacy measure.
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CAPITAL FUND
TIER I TIER II
1.Consists of share capital 1.Consists of other reserves and
and disclosed reserves. other subordinate reserves.
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DEDUCTIONS FROM GROSS CAPITAL FUND
Deductions from Tier I and Tier II Capital
a) Equity/non-equity investments in subsidiaries
The investments of a bank in the equity as well as non-equity capital
instruments issued by a subsidiary, which are reckoned towards its
regulatory capital as per norms prescribed by the respective regulator,
should be deducted at 50 per cent each, from Tier I and Tier II capital
of the parent bank, while assessing the capital adequacy of the bank
on 'solo' basis, under the Basel I Framework.
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v) Underwriting by third party service providers: If the bank has
underwritten securities issued by SPVs devolved and held by banks
which are below investment grade the same will be deducted from
capital at 50% from Tier I and 50% from Tier II.
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RISK WEIGHTED ASSETS
To calculate Capital Adequacy Ratio (CAR) purposes the entire assets
side of the Bank Balance Sheet is recalculated on the basis of risk
weights assigned to each category of assets. The principle of
conservatism is followed by considering assets at their Risk Adjusted
Values rather than their face value in calculating the Capital
Adequacy Ratio.
Example-Cash balances do not have any risks whereas advances
may have credit risks.
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WHAT ARE CAPITAL ADEQUACY NORMS IN INDIA?
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CONCLUSION AND REFERENCES
This project highlights the vitalness of the capital adequacy
norms and its importance in banking industry.
This rules are necessary for the strengthening the soundness
and stability of the banking system and to ensure financial
stability and consistency.
This project helped me to understand various things related to
banking norms and risk weighted assets.
References:
Websites-
1.www.rbi.org
2.www.icai.org
3.www.economictimes.com
Books referred-
1.T.S.grewal advance accountancy- Sultan Chand publications-New
Delhi.
2.Financial Accountancy –VI ,Sem-5,TYBAF ,Manan Prakashan
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