Question
Revaluation reserve are included as Tier II capital at a _______ discount for the purpose of capital adequacy ratio.
Solution
Revaluation reserves arise from revaluation of assets that are undervalued in the bank's books. Revaluation reserves at a discount of 55% when determining their value for inclusion in Tier II Capital i.e. only 45% of revaluation reserve should be taken for inclusion in Tier II Capital. Such reserves will have to be reflected on the face of the balance sheet as revaluation reserves.
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