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.