Financial Awareness - Risk, Stability & Emerging Finance
A bank has Tier 1 Capital of Rs. 1,000 crore, Tier 2 Capital of Rs. 400 crore, and Risk Weighted Assets of Rs. 14,000 crore. What is the bank's Capital Adequacy Ratio (CAR)?
A bank has Tier 1 Capital of Rs. 1,000 crore, Tier 2 Capital of Rs. 400 crore, and Risk Weighted Assets of Rs. 14,000 crore. What is the bank's Capital Adequacy Ratio (CAR)?
hard Q9 of 15
Step-by-Step Solution
Step 1: Recall CAR formula
CAR = (Tier 1 Capital + Tier 2 Capital) ÷ Risk Weighted Assets × 100%Step 2: Calculate numerator and denominator
Sum of capitals = 1,000 + 400 = 1,400 crore; RWA = 14,000 crore.Step 3: Calculate CAR
CAR = (1,400 ÷ 14,000) × 100% = 0.1 × 100% = 10%.Step 4: Re-examine options
Precisely 10%; Tier 2 (400 crore) < Tier 1 (1,000 crore), so fully included (Tier 2 cap = Tier 1).Step 5: Final calculation
10% confirmed.Final Answer:
10% → Option BQuick Check:
CAR calculation = (Tier 1 + Tier 2) ÷ RWA × 100% ✅
Quick Trick: Add Tier 1 and Tier 2, divide by RWA, multiply by 100
Common Mistakes:
- Misapplying Tier 2 limits or calculation errors
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