[Solved] Basel III norms require banks to maintain a minimum Capital Adequacy Ratio (CAR) primarily to: — Ans: Ensure banks have enough capital to absorb losses | Financial Awareness

Financial Awareness - Risk, Stability & Emerging Finance

Basel III norms require banks to maintain a minimum Capital Adequacy Ratio (CAR) primarily to:

APromote mergers among banks

BIncrease lending to priority sectors

CReduce interest rates on loans

DEnsure banks have enough capital to absorb losses

Step-by-Step Solution

Step 1: Understand Basel III CAR requirement
Basel III mandates banks to hold sufficient capital to absorb unexpected losses and protect depositors.
Step 2: Analyze options
Ensuring capital to absorb losses is the core purpose. Increasing priority sector lending, reducing interest rates, or promoting mergers are unrelated to CAR.
Final Answer:
Ensure banks have enough capital to absorb losses → Option D
Quick Check:
Basel III CAR = capital buffer for loss absorption ✅

Quick Trick: CAR protects banks against financial shocks.

Common Mistakes:

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Basel III norms require banks to maintain a minimum Capital Adequacy Ratio (CAR) primarily to: