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 ?
Show answer
Answer: A. Statement 1 is correct in broad terms: Capital Adequacy Ratio is the bank's own capital kept as a cushion against losses when borrowers default. Statement 2 is wrong: CAR is fixed by the regulator (RBI, following Basel norms), not by each bank. So only 1.
Watch for: Students know banks hold their own capital and assume they also set the ratio.
Why the other options are wrong
- B. Wrong because the RBI, not each bank, decides the minimum CAR.
- C. Wrong because statement 2 is false.
- D. Wrong because statement 1 broadly describes CAR.
Source to check: RBI Master Circular 'Basel III Capital Regulations'; NCERT Class 12 Macroeconomics, Chapter 3 'Money and Banking'
Answer from the official UPSC key. Written and fact-checked by AI against the official key. Spotted a mistake? Report it.