What forms Tier II Capital?
While Paid up Capital, Statutory Reserves, Other Disclosed free serves, Capital Reserves, which represent the surplus arising out of the sale proceeds of assets, as also Non cumulative preference shares less the losses incurred and equity investment in subsidiaries form Tier I capital, following form the Tier II Capital.
Undisclosed Reserves, Cumulative perpetual preference shares, Revaluation Reserves, General Provisions and Loss reserves, Hybrid Debt Capital instruments like Bonds, Long Term Unsecured Loans Debt Capital instruments, Losses (Present and carried over) and Redeemable cumulative preference shares.
Basel II accord stipulates that banks should maintain a minimum CRAR (Capital to Risk Weighted Assets) of 8% and RBI stipulates the same to be 9% for India and banks normally have a preference to maintain CRAR atleast to the tune of 12% since a lower CRAR would end up increase in their cost of funds. Fitch Ratings report states that Indian Banks require USD 140 billion of capital, to comply with the Basel III norms by 2018-19 which is aimed at banks’ resilience (power to withstand). Our country is in the process of implementing Basel III accord since April 1, 2013 in a phased manner.
The raising of these bonds by SBI will be helpful to the bank in augmenting its strengthening the capital base and edge towards becoming Basel III compliant.