Consider the following statements: 1) Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues. 2) CAR is decided by each individual bank. Which of the statements given above is/are correct?

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CollectorBabu · Accepted Answer

Correct Answer: 1 only. ● Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk-weighted assets and current liabilities. ● CAR formula is decided by BASEL-III Committee on Banking Supervision and implemented by the central bank of individual member-country. In India, RBI decides the CAR to prevent commercial banks from taking excess leverage and becoming insolvent in the process.

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