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      Question

      Which is incorrect about CAR (Capital Adequacy

      Ratio)?
      A CAR is the ratio of total capital and total risk weighted assets of a financial institution Correct Answer Incorrect Answer
      B The risk weighted assets includes both fund based and non-fund based exposures Correct Answer Incorrect Answer
      C Capital includes Tier I and Tier II capital Correct Answer Incorrect Answer
      D Ministry of Finance prescribes the CAR requirement for banks and other financial institutions Correct Answer Incorrect Answer
      E All are correct Correct Answer Incorrect Answer

      Solution

      CAR = Capital / Risk weighted assets Capital Adequacy Ratio (CAR) is also known as Capital to Risk (Weighted) Assets Ratio (CRAR) is the ratio of a bank's capital to its risk weighted credit exposures. This ratio is used to protect depositors and promote stability and efficiency. RBI prescribes the CAR requirement for banks and other financial institutions. Current norms under Basel III require banks to maintain a minimum capital adequacy of 9% and a Tier-I ratio of 7%

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