Upper Tier Bond

Subject: Economy

Context:

Interest amounting to ₹6.15 crore on Basel II Upper Tier II bonds was not paid by the Yes bank as the capital adequacy ratio of the bank was lower than the minimum required.

Concept:

• Under Basel III, a bank’s tier 1 and tier 2 assets must be at least 10.5% of its risk-weighted assets.
• Tier 1 capital is the primary funding source of the bank and consists of shareholders’ equity and retained earnings.
• Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.
• Tier 2 capital is considered less reliable than Tier 1 capital because it is more difficult to accurately calculate and more difficult to liquidate.