Question
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?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Answer:
A
To suggest corrections, send feedback using feedback button in top menu.
To suggest corrections, use feedback icon on top menu.
Explanation:
Statement 1 is correct. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any losses that may occur due to various risks, such as credit risk, operational risk, and market risk. It acts as a cushion for banks to absorb losses and ensure the stability of the banking system.
Statement 2 is incorrect. The Capital Adequacy Ratio (CAR) is not decided by each individual bank. It is determined by regulatory authorities, such as the Reserve Bank of India (RBI) in India, based on international standards and guidelines. The regulatory authorities set minimum CAR requirements for banks to ensure their financial soundness and stability.