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Question

Q. Consider the following statements in reference to Capital Adequacy Ratio:

Which of the statements given above is/are correct?


A
1 only
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B
2 only
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C
Both 1 and 2
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D
Neither 1 nor 2
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Solution

The correct option is D Neither 1 nor 2

Explanation:

Statement 1 is incorrect. The Basel III Norms have prescribed a CAR of 8%. In India, the Reserve Bank of India mandates the CAR for scheduled commercial banks to be 9%, and for public sector banks, the CAR to be maintained is 12%.

Statement 2 is incorrect. The risk-weighted assets take into account credit risk, market risk, and operational risk. These assets are used to fix the least amount of capital that should be possessed by banks to lower the insolvency risk. The capital requirement for all types of bank assets depends on the risk assessment.


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