What is the capital adequacy ratio?



What is the capital adequacy ratio?..

Answer / Gaurav Singh

The Capital Adequacy Ratio (CAR) is a regulatory requirement that measures a bank's ability to absorb losses. It is calculated as a percentage of a bank's Tier 1 capital (common equity, retained earnings, and disclosed reserves) divided by its risk-weighted assets. The purpose of CAR is to ensure the stability and safety of the banking sector.

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