Capital Guidelines of NBFC in India

The capital guidelines for NBFCs in India are set by the Reserve Bank of India (RBI). The main capital guidelines are:

• Minimum capital adequacy ratio (CAR): NBFCs are required to maintain a minimum capital adequacy ratio of 15%. This means that they must have capital in the amount of 15% of their risk-weighted assets.Capital conservation buffer (CCB): NBFCs are required to maintain a capital conservation buffer of 2.5%. This means that they must have capital in the amount of 2.5% of their risk-weighted assets above the minimum CAR of 15%.Additional Tier 1 (AT1) capital: NBFCs are allowed to issue AT1 capital, which is a type of hybrid capital that is lower in priority than ordinary equity capital. AT1 capital can be used to meet the CAR requirement.Tier 2 capital: NBFCs are allowed to issue Tier 2 capital, which is a type of subordinated debt that is lower in priority than AT1 capital. Tier 2 capital can be used to meet the CAR requirement.

MCQs on the capital guidelines of NBFCs in India

1. Which of the following is not a capital guideline for NBFCs in India?
   • Minimum CAR of 15%Capital conservation buffer of 2.5%AT1 capitalTier 2 capital
   What is the purpose of the minimum CAR?
   • To ensure that NBFCs have enough capital to absorb lossesTo protect depositors and investorsTo promote financial stabilityAll of the above
   What is the purpose of the capital conservation buffer?
   • To provide a cushion against unexpected lossesTo prevent NBFCs from becoming too riskyTo promote financial stabilityAll of the above