Common Equity Tier 1 (CET1)

## What CET1 is Common Equity Tier 1 is the purest form of bank capital. It consists of paid-up equity shares, share premium, statutory and revenue reserves, and retained earnings, minus regulatory deductions like goodwill, intangibles and certain deferred-tax assets. Because it is permanent, fully loss-absorbing and carries no obligation to repay, it is the capital that takes the first hit if a bank's loans go bad. The CET1 ratio divides this by the bank's risk-weighted assets (RWA).

## The Basel III framework in India CET1 is the bedrock of the Basel III capital rules, which the RBI implements for Indian banks. The minimum CET1 is 5.5% of RWA, on top of which sits a Capital Conservation Buffer of 2.5%, taking the effective floor to 8% CET1. Total capital (CET1 + Additional Tier 1 + Tier 2) must be at least 9% in India (higher than Basel's global 8%), plus the conservation buffer. Domestic Systemically Important Banks (D-SIBs) — SBI, HDFC Bank and ICICI Bank — carry an additional surcharge.

## Why investors and depositors watch it The CET1 ratio is the single best gauge of a bank's resilience. A bank comfortably above the minimum can absorb a credit shock, keep lending, and pay dividends; one near the floor may need to raise equity (diluting shareholders), cut growth, or face RBI restrictions under Prompt Corrective Action. Most large Indian banks today run CET1 well above the requirement, a marked improvement from the NPA-stress years.

## How to read it When analysing a bank stock, check the CET1 ratio in the quarterly investor presentation and track its trend. Rising CET1 with growing loans is healthy; falling CET1 may foreshadow a capital raise. Also note that AT1 bonds (the next layer) can be written down to protect CET1 — as Indian AT1 holders learned in the Yes Bank episode — so CET1 strength directly affects the safety of a bank's riskier securities too.