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Question

Q. With reference to Capital Adequacy Ratio, which of the following statements is/are correct?

Select the correct answer using the code given below:


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 A 1 only

Explanation:

Statement 1 is correct. Capital Adequacy Ratio is the ratio of a bank’s capital to its risk. The CAR or the CRAR is computed by dividing the capital of the bank with aggregated risk-weighted assets for credit risk, operational risk, and market risk. Hence, a high CAR helps in better crisis management.

Statement 2 is incorrect. In India, the Reserve Bank of India mandates the CAR for scheduled commercial banks to be 9%. The CAR for public sector banks is 12%.


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