Tier 2 Capital is a bank’s supplementary capital that provides an additional buffer to absorb losses, but is less secure than Tier 1 Capital.
Tier 2 Capital includes instruments that help banks strengthen their financial position, but these are considered less reliable than core capital.
It is used along with Tier 1 Capital to calculate the Capital Adequacy Ratio (CAR), ensuring banks can withstand financial stress. Regulations are guided by Basel norms and implemented in India by the Reserve Bank of India.
"A bank issues subordinated bonds to raise funds—this amount is counted as Tier 2 Capital."