BANKING GENERAL KNOWLEDGE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is a thermometer of Bank’s Health.
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It is the ratio of its Capital to its Risk.
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It can indicate the Capacity of the Bank’s ability to absorb the possible losses.
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A good CAR makes vulnerable to the Depositors and lose faith in the banking system.
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Detailed explanation-1: -The correct answer is 1 only. The Capital Adequacy Ratio (CAR) is a measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposures.
Detailed explanation-2: -The Basel III norms stipulated a capital to risk weighted assets of 8%. However, as per RBI norms, Indian scheduled commercial banks are required to maintain a CAR of 9% while Indian public sector banks are emphasized to maintain a CAR of 12%.
Detailed explanation-3: -The calculation of economic capital, which estimates the amount of capital a bank needs to have on hand to ensure its ability to handle its current outstanding risk, is based on the bank’s financial health, credit rating, expected losses and confidence level of solvency.
Detailed explanation-4: -The capital adequacy ratio (CAR), also known as capital to risk-weighted assets ratio, measures a bank’s financial strength by using its capital and assets. It is used to protect depositors and promote the stability and efficiency of financial systems around the world.