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What is Capital Adequacy Ratio for banks?

Capital Adequacy Ratio (CAR), also known as Capital to Risk Weighted Assets Ratio (CRAR), is the measure of a bank's capital and is expressed as a percentage of a bank's risk weighted credit exposures.

CAR = Total Capital

Total Risk weighted assets

Total capital comprises of the banks Tier I and Tier II capital

Total risk weighted assets takes into account credit risk, market risk and operational risk.

Currently, RBI mandates minimum CRAR of 9%, but the Government of India has mandated total CRAR of 12%, with 8% Tier I capital.

Source: sptulsian.com

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