What is capital ratio formula?

It shows the ratio between current assets and current liabilities. The working capital ratio formula is calculated as: Working Capital Ratio = Current Assets / Current Liabilities.

What if the capital adequacy ratio is low?

When this ratio is high, it indicates that a bank has an adequate amount of capital to deal with unexpected losses. When the ratio is low, a bank is at a higher risk of failure, and so may be required by the regulatory authorities to add more capital.

What is capital adequacy ratio in India?

Definition: Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities. However, as per RBI norms, Indian scheduled commercial banks are required to maintain a CAR of 9\% while Indian public sector banks are emphasized to maintain a CAR of 12\%.

What is capital risk Adequacy Ratio (CAR)?

What is Capital Risk Adequacy Ratio? The capital adequacy ratio (CAR) is a measurement of a bank’s available capital expressed as a percentage of a bank’s risk-weighted credit exposure.

What is the purpose of the capital adequacy ratio?

It is used to protect depositors and promote the stability and efficiency of financial systems around the world. The capital adequacy ratio (CAR) is a measure of how much capital a bank has available, reported as a percentage of a bank’s risk-weighted credit exposures.

How do you calculate the car ratio?

As shown below, the CAR Ratio formula is: CAR = (Tier 1 Capital + Tier 2 Capital) / Risk Weighted Assets. The Bank of International Settlements separates capital into Tier 1 and Tier 2 based on the function and quality of the capital.

How do you calculate the capital adequacy of a bank?

Calculating CAR The capital adequacy ratio is calculated by dividing a bank’s capital by its risk-weighted assets. The capital used to calculate the capital adequacy ratio is divided into two tiers. CAR = dfrac {Tier~1~Capital + Tier~2~Capital} {Risk~Weighted~Assets} C AR = Risk W eighted AssetsT ier 1 C apital +T ier 2 C apital