Examine the operational features of Basel III capital adequacy frameworks implemented across Indian scheduled commercial banks. Which component constitutes Tier 1 Capital under these norms?

💡 Solution & Explanation

Tier 1 capital under Basel III norms comprises Common Equity Tier 1 capital, which includes paid-up equity shares, statutory reserves, and retained earnings, plus additional Tier 1 instruments that meet strict loss-absorbency criteria on a going-concern basis. This capital layer represents the highest quality and most permanent form of capital available to absorb unexpected financial losses. Subordinated debt and general loan loss provisions form part of Tier 2 capital, which functions on a gone-concern basis. The Reserve Bank of India mandates strict adherence to these global capital standards to ensure banking sector resilience.