Economics • Banking & FinanceMedium
What does the term 'Capital Adequacy Ratio' (CAR) measure for a commercial bank?
A. The proportion of loans given to agricultural priority sectors.
B. A bank's capital in relation to its risk-weighted assets.✓ Correct Answer
C. The ratio of cash reserves held with the central bank to total deposits.
D. The proportion of non-performing assets to total advances.
💡 Solution & Explanation
The Capital Adequacy Ratio evaluates a bank's capital strength by measuring its available capital against its risk-weighted credit exposures as mandated by Basel norms. Metrics focusing on cash reserves relate instead to the Cash Reserve Ratio rather than overall capital health.
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