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Prudential Regulations: Regulation means a rule or restriction made

by an authority.

Prudential means acting with or showingcare and thought for the future. So Prudential Regulations here means those

regulations issued by a regulator, (who has

got the authority to issue it) with a view tohave a safe and sound nancial system inthe country.

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Issuance of such regulations for the banksand nancial institutions are reuiredbecause! "anks #lay an im#ortant role in the

economy $heir safety and soundness is very

much reuired for a sound nancialsystem and

 $hey #lay with other #eo#le%s moneyand such money must be made safeand secure.

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 $he areas covered by such PrudentialRegulations can be summari&ed as follows!

'.ow much ca#ital they must

have..*hat should be included insuch +a#ital

.ow should their assets beclassied

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-. nder what circumstances banksmust be reuired to make loanloss #rovision

/. ow much such loan loss#rovision they must make0. *hat should be the #arameter for

banks to book interest income

1. *hat ty#e of risk managementsystem banks must have

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2. Should banks be allowed ordebarred from makingconnected lending

3. ow to make sure that bankse4#osure is not concentratedin one borrower.

'5.ow to com#ly banks withregard to cor#orate socialres#onsibility.

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2. What should be included in such Capital A. Core Capital

') Paid6u# +a#ital) Share Premium) 7on Redeemable Preference Share

-) 8eneral Reserve 9und/) +umulative Prot:(;oss) (# to ;ast <ear)0) +urrent <ear Prot:(;oss)1) +a#ital Redem#tion Reserve2) +a#ital =d>ustment 9und

3) ?ther 9ree Reserves'5) @ividend Auali&ation 9und

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B. Supplementary Capital') 8eneral ;oan ;oss Provision) =sset Revaluation Reserve) ybrid +a#ital Instruments

-) nsecured Subordinated $erm @ebt/) A4change Auali&ation 9und0) =dditional ;oan ;oss Provision1) Investment =d>ustment Reserve2) Interest S#read Reserve3) +ontingent Reserves'5) Provision for ;oss on Investment

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