The correct answer is: D. All of the above.
Tier I capital is a measure of a bank’s financial strength. It is calculated by taking the sum of a bank’s common equity and retained earnings, and then deducting intangible assets and losses. Securitisation exposures are also deducted from Tier I capital.
Option A is incorrect because intangible assets and losses are not deducted from Tier I capital. Option B is incorrect because any gain or loss arising at the time of securitisation of standard assets is not deducted from Tier I capital. Option C is incorrect because securitisation exposures are deducted from Tier I capital, not 50% from Tier I and 50% from Tier II capital.
Here is a more detailed explanation of each option:
- Option A: For computation of Tier I capital, intangible assets and losses in the current period and those brought forward from previous year, should be deducted from Tier I capital.
This is incorrect because intangible assets and losses are not deducted from Tier I capital. Intangible assets are assets that do not have a physical form, such as goodwill or patents. Losses are decreases in the value of assets or liabilities. Both intangible assets and losses are deducted from Tier II capital, not Tier I capital.
- Option B: Any gain or loss arising at the time of securitisation of standard assets, if recognised, should be deducted from Tier I capital.
This is incorrect because any gain or loss arising at the time of securitisation of standard assets is not deducted from Tier I capital. Securitisation is the process of selling loans or other assets to investors. When a bank securitises an asset, it creates a security that is backed by the asset. The security is then sold to investors, and the bank receives the proceeds of the sale. The gain or loss on the securitisation is recognised in the bank’s
income statement.- Option C: Securitisation exposures shall be deducted from regulatory capital and the deduction must be made 50% from Tier I and 50% from Tier II capital.
This is incorrect because securitisation exposures are deducted from Tier I capital, not 50% from Tier I and 50% from Tier II capital. Securitisation exposures are assets that are securitised. When a bank securitises an asset, it creates a security that is backed by the asset. The security is then sold to investors, and the bank receives the proceeds of the sale. The securitisation exposure is the amount of the asset that is backed by the security. Securitisation exposures are deducted from Tier I capital because they are considered to be risky assets.