Full formBanking & Finance
CARstands forCapital Adequacy Ratio
Full Form of CAR
What is CAR?
The Capital Adequacy Ratio (CAR) is a key financial metric that measures a bank's available capital relative to its risk-weighted assets. It ensures that banks have enough capital to absorb a reasonable amount of losses before becoming insolvent, thereby protecting depositors and maintaining financial stability. In India, the Reserve Bank of India (RBI) mandates that all scheduled commercial banks maintain a minimum CAR as per Basel III norms, typically around 9% to 11.5%, depending on the bank's classification. The ratio is calculated by dividing a bank's Tier 1 and Tier 2 capital by its risk-weighted assets. CAR is used by regulators, auditors, and analysts to assess the soundness of individual banks and the banking system as a whole. It is a critical concept for banking exams like RBI Grade B, IBPS PO, and JAIIB/CAIIB, where questions often test understanding of capital components, risk weights, and regulatory requirements. A higher CAR indicates stronger financial health and greater resilience against economic shocks. The RBI periodically reviews and adjusts CAR requirements to align with global best practices and domestic conditions.
CAR का फुल फॉर्म
पूंजी पर्याप्तता अनुपात
Example
The bank maintained a Capital Adequacy Ratio of 14.5%, well above the RBI’s regulatory minimum of 11.5% for private sector banks.
CAR — frequently asked questions
What is the full form of CAR?
The full form of CAR is Capital Adequacy Ratio. It is a measure of a bank's capital compared to its risk-weighted assets.
What is the minimum CAR requirement set by RBI for Indian banks?
The RBI requires Indian scheduled commercial banks to maintain a minimum CAR of 9% as per Basel III norms. For public sector banks, it may be higher, typically around 11.5%.
How is Capital Adequacy Ratio calculated?
CAR is calculated by dividing Tier 1 and Tier 2 capital by the total risk-weighted assets. The formula is: (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets.