To raise $200 million through a private placement while adhering to the International Financial Services Centres Authority (IFSCA) and Basel III capital adequacy norms, here’s a structured approach to our capital raise:
1. Capital Adequacy Requirements
Under Basel III, All India Financial Institutions (AIFIs) are mandated to maintain a minimum total capital ratio of 9%, with a minimum Tier-I capital ratio of 7% and a Common Equity Tier-I (CET-1) capital ratio of 5.5%.
IFSCA regulations stipulate a minimum capital ratio of 8% of regulatory capital to risk-weighted assets for finance companies.
2. Proposed Capital Structure
Given your current capital structure:
- Regulatory Capital: $3 million
- Subscribed Capital: $4 million
- Incurred Costs: $0.5 million
To raise an additional $200 million while maintaining an 8% capital adequacy ratio:
Capital Adequacy Ratio (CAR) Formula
Capital Adequacy Ratio (CAR)=Regulatory Capital/Risk-Weighted Assets (RWA)×100
IFSCA requires minimum 8% CAR, which means:
We must maintain regulatory capital equal to at least 8% of our risk-weighted assets (RWA).
Calculation
Required Regulatory Capital=RWA×8%=200,000,000×0.08=16,000,000
So, to support $200 million in assets that are fully risk-weighted, we need $16 million in regulatory capital,
Step-by-Step Breakdown: Capital Structure to Support $200M Lending
- Raise capital to support $200 million in lending (fully risk-weighted assets assumed).
Maintain a minimum Capital Adequacy Ratio (CAR) of 8%.
Total Required Regulatory Capital
This $16 million required eligible regulatory capital to support the exposure.
Basel III Composition Rules
Under Basel III, regulatory capital is divided into:
Component | Description | Minimum Requirement |
Tier-1 Capital | Core capital (equity, reserves) | At least 6% of RWA |
– CET-1 | Common Equity Tier 1 (pure equity) | At least 4.5% |
– AT-1 | Additional Tier 1 (perpetual hybrid instruments) | Optional |
*Supplementary capital (subordinated debt, etc.) Max 100% of Tier-1
Tier-2 Capital
IFSCA generally follows Basel III standards — so if we apply the standard rules here.
Minimum Capital Structure to Raise $200M
To support $200M in risk-weighted assets (RWA):
Capital Type | % of RWA | USD Amount |
Tier-1 Capital | 6% | $12M |
Tier-2 Capital | 2% | $4M |
Total Capital | 8% | $16M |
Note: While Tier-2 is optional, it cannot exceed Tier-1 — so if you plan to raise more Tier-2, you must increase Tier-1 correspondingly.
| Tier | Allowed Instruments | Notes |
| Tier-1 | – Paid-up equity capital – Retained earnings – Perpetual non-cumulative preference shares (AT-1) | Equity must be permanent and loss-absorbing |
| Tier-2 | – Subordinated debt (min 5-year maturity) – Cumulative preference shares – Hybrid capital instruments | Must be unsecured and subordinated, with no incentives to redeem early |
Our Current Capital Position
- Subscribed Capital: $4M
- Regulatory Capital (net of expenses): $3M
- Expenses incurred: $0.5M (not eligible as capital)
How Much More to Raise?
To reach the required $16M regulatory capital:
- Already Have: $3M (Tier-1)
- Need Additional: $13M
We can meet this by raising:
Capital Type | Amount | How to Raise |
Tier-1 | $9M | Equity, AT-1 perpetual hybrid bonds |
Tier-2 | $4M | Subordinated debt (5+ year tenure) |
We can’t raise Tier-2 more than Tier-1, so if we only raise $6M Tier-1 total (adding $3M more), then Tier-2 is capped at $6M.
Optional Enhanced Capital Plan (if we want cushion)
We may choose to raise more than $16M to have a buffer — e.g., raise $20M, and deploy more over time. Basel and IFSCA regulators look favourably upon capital buffers.
Summary Table
| Capital Category | Existing | To Raise | Total |
| Tier-1 Capital | $3M | $9M | $12M |
| Tier-2 Capital | $0 | $4M | $4M |
| Total Regulatory | $3M | $13M | $16M |