The capital adequacy ratio (CAR) is a measure of how much capital a bank has available, reported as a percentage of a bank's risk-weighted credit exposures. The purpose is to establish that banks have enough capital on reserve to handle a certain amount of losses, before being at risk for becoming insolvent.
What is capital adequacy ratio for banks in India?
In India, the Reserve Bank of India (RBI) mandates the CAR for scheduled commercial banks to be 9%, and for public sector banks, the CAR to be maintained is 12%.
Which bank has highest capital adequacy ratio?
In India, currently Bandhan Bank has the highest capital adequacy ratio.
Why is capital adequacy ratio important for banks?
CAR is important to ensure that banks have enough room to bear a reasonable number of losses before they become insolvent and lose depositors' funds. The CAR ensures the efficiency and stability of a country's financial system by diminishing the risk of banks becoming insolvent.
What is a good Tier 1 capital ratio for a bank?
The tier 1 capital ratio has to be at least 6%. Basel III also introduced a minimum leverage ratio—with tier 1 capital, it must be at least 3% of the total assets—and more for global systemically important banks that are too big to fail.