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Banking Term: Capital Funds

Jan 12, 2015 16:03 IST

    The capital funds are the equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument.

    Types of Capital

    • Tier I Capital

    It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses

    • Tier II Capital

    it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities.

    Question

    All the Venture Capital Funds must be registered and should get a grant of certificate from which of the following?

    A. SEBI

    B. RBI

    C. Industrial Finance Corporation of India Limited (IFCI)

    D. Industrial Investment Bank of India Limited (IIBI)

    Ans. A

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