HELLO EVERYONE!! MYSELF SANKET KALYANI AND I AM STUDYING CA FINAL. I AM 80% PHYSICALLY CHALLENGED AND I NEED YOUR ASSISTANCE AT ONE PLACE.. PLEASE DO GUIDE ME HOW TO CALCULATE THE CAPITAL ADEQUACY FOR NBFC? THE CONTENT GIVEN IN THE MODULE CHAPTER 8 OF STUDY MATERIAL IS VERY CONFUSING. MOREOVER NO ILLUSTRATIONS GIVEN IN THE SAID REGARD. I AM HERE GIVING THE CONTENT OF STADY MATERIAL PLEASE DO GUIDE ME BY MAKING IT SIMPLER AND IF POSSIBLE DO GIVE ONE HYPOTHETICAL ILLUSTARTION SO I MIGHT UNDERSTAND IT PROPERLY!!!!
THANK YOU SO MUCH....
RELEVANT CONTENT OF STUDY MATERIAL:::
REQUIREMENT AS TO CAPITAL ADEQUACY:
• Every non-banking financial company shall maintain a minimum capital ratio consisting of Tier
I and Tier II capital which shall not be less than twelve per cent of its aggregate risk weighted
assets on balance sheet and of risk adjusted value of off-balance sheet items.
• The total of Tier II capital, at any point of time, shall not exceed 100% of Tier I capital.
“Tier I Capital” means owned fund as reduced by investment in shares of other non-banking
financial companies and in shares, debentures, bonds, outstanding loans and advances
including hire purchase and lease finance made to and deposits with subsidiaries and
companies in the same group exceeding, in aggregate, ten per cent of the owned fund;
• “Tier II capital” includes the following:
(a) Preference shares other than those which are compulsorily convertible into equity;
(b) Revaluation reserves at discounted rate of fifty five percent;
(c) General provisions and loss reserves to the extent these are not attributable to actual diminution in value or identifiable potential loss in any specific asset and are available to meet unexpected losses, to the extent of one and one fourth percent of risk weighted assets;
(d) Hybrid debt capital instruments; and
(e) Subordinated debt to the extent the aggregate does not exceed Tier I capital.
"Subordinated debt" means an instrument, which is fully paid up and is unsecured and is
subordinated to the claims of other creditors and is free from restrictive clauses and is not
redeemable at the instance of the holder or without the consent of the supervisory authority of
non-banking financial company. The book value of such instrument shall be subjected to
discounting as provided hereunder:
Remaining Maturity of the instruments Rate of discount
(a) Upto one year 100%
(b) More than one year but upto two years 80%
(c) More than two years but upto three years 60%
(d) More than three years but upto four years 40%
(e) More than four years but upto five years 20%
to the extent such discounted value does not exceed fifty per cent of Tier I capital;
CAclubindia
