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 ?

The correct answer is option A (Statement 1 only).

**Statement 1 is correct:** CRAR is defined as the proportion of bank's total risk-weighted assets that are held in the form of shareholders' equity and certain other defined class of capital.[1] This capital serves as a buffer to offset losses when account-holders fail to repay dues. Higher the capital to risk weighted asset ratio (CRAR), higher is the safety of bank deposits.[2]

**Statement 2 is incorrect:** CAR is not decided by individual banks but is prescribed by regulatory authorities. It prescribed minimum capital requirement at 8 per cent of the Risk Weighted Assets (RWA) for banks.[1] In India's context, Under Basel-I, the RBI issued guidelines to maintain a CRAR (Capital to Risk Assets Ratio) or CAR (Capital Adequacy Ratio) of 9 per cent by every SCB.[1] This clearly shows that the central bank (RBI), not individual banks, sets the CAR requirement based on international Basel norms.

1. [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 8: Financial Market > Basel-I Norms > p. 234
2. [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2 Money and Banking- Part I > p. 94