CAR is a crucial prudential regulation for banks, ensuring they have sufficient capital to absorb potential losses from risks like loan defaults (credit risk). This minimum ratio is set by the banking regulator, not individual banks.
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 ?
Asked in UPSC IAS 2018 · Topic: Money & Banking (Banking Sector Reforms: Basel Norms, Asset Quality Review (AQR), and NPA Management)
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