Economics • Banking & FinanceMedium
What does the 'Capital to Risk-Weighted Assets Ratio' measure for a commercial bank under Basel norms?
A. The proportion of non performing loans compared to total agricultural advances
B. The adequacy of a bank's capital relative to its risk weighted credit and market exposures✓ Correct Answer
C. The percentage of daily cash reserves deposited with the central bank
D. The ratio of short term liquid assets to maturing wholesale liabilities
💡 Solution & Explanation
Capital to Risk Weighted Assets Ratio measures bank solvency by comparing regulatory capital against risk weighted assets, ensuring institutions absorb unexpected losses. Non performing loan ratios measure asset quality rather than capital solvency. Cash reserve ratio governs mandatory liquid deposits held with the central bank. Basel III norms enforce higher capital buffers and stricter definitions of Tier 1 capital to safeguard financial stability.
More Economics Banking & Finance questions
- What is the primary function of the 'Repo Rate' managed by the Reserve Bank of India?
- Which of the following financial instruments is classified as a negotiable, short-term unsecured promissory…
- How do microfinance institutions and Self-Help Groups interact with commercial banks under the linkage…
- What does the abbreviation 'ATM' stand for in the context of modern banking services and automated financial…
- Which of the following entities is authorized to set up and operate 'Trade Receivables Discounting System…