A Deferred Tax Asset is an asset on an organisation’s balance sheet that may be used to reduce taxable income. The DTAs are associated with accumulated losses and other such assets. Such losses should be deducted in full from CET1 capital of the Banks. The Common Equity Tier 1 (CET1) is a component of Tier 1 capital that consists mostly of common stock* held by a bank or other financial institution. Nevertheless, the DTAs other than accumulated losses due to the timing difference may be recognised in the CET1 capital only up to 10% Bank’s CET1 capital instead of the full deduction.
The determination of banks’ regulatory capital is subject to the conditions that the external auditors of the bank have not expressed any qualified opinion on them. The review was carried out by RBI with a view to further aligning the definition of regulatory capital with the internationally adopted Basel III capital standards, issued by the Basel Committee on Banking Supervision (BCBS).
*Common stock of the bank refers to the following;
(1).Common shares (paid-up equity capital) issued by the bank which meet the criteria for, classification as common shares for regulatory purposes. (2). Stock surplus (share premium) resulting from the issue of common shares; (3). Statutory reserves; (4). Capital reserves representing surplus arising out of sale proceeds of assets; (5). Other disclosed free reserves, if any; (6). Balance in Profit & Loss Account at the end of the previous financial year; etc.
