{"id":14405,"date":"2026-05-27T07:42:30","date_gmt":"2026-05-27T07:42:30","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/capital-adequacy-ratio-car\/"},"modified":"2026-05-27T07:42:30","modified_gmt":"2026-05-27T07:42:30","slug":"capital-adequacy-ratio-car","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/capital-adequacy-ratio-car\/","title":{"rendered":"Capital Adequacy Ratio CAR"},"content":{"rendered":"

Capital Adequacy Ratio (CAR), also known as Capital to Risk-Weighted Assets<\/a> Ratio (CRAR), is a measure of a bank’s financial strength that compares its capital to its risk-weighted assets. It is a key regulatory requirement ensuring that banks maintain sufficient capital to absorb losses and protect depositors.<\/p>\n

What Is Capital Adequacy Ratio?<\/h2>\n

CAR = (Tier 1 Capital<\/a> + Tier 2 Capital<\/a>) \/ Risk-Weighted Assets x 100<\/p>\n

Risk-Weighted Assets (RWA) are calculated by assigning different risk weights to different types of assets:
\n– Cash and government securities: 0% risk weight (risk-free)
\n– Home loans: 35-50% risk weight
\n– Corporate loans: 100% risk weight
\n– Unse<\/a>cured consumer loans: 125-150% risk weight<\/p>\n

RBI’s CAR Requirements<\/h2>\n

Under Basel III norms, RBI requires Indian banks to maintain:
\n– Minimum CAR: 9% (RBI mandates an additional 0.625% above the Basel III minimum of 8%)
\n– Capital Conservation Buffer (CCB): 2.5%
\n– Effective minimum CAR including CCB: 11.5%<\/p>\n

Public sector<\/a> banks must additionally maintain CAR requirements set under their recapitalisation plans.<\/p>\n

Why CAR Matters<\/h2>\n

– **Depositor protection**: higher capital means the bank can absorb larger losses before becoming insolvent
\n– **Systemic stability**: regulators set CAR floors to prevent bank failures from cascading
\n– **Credit rating**: banks with higher CAR get better ratings and lower borrowing costs
\n– **Growth constraint**: a bank with low CAR cannot grow its loan book without raising more capital<\/p>\n

Practical Example<\/h2>\n

Bank A has Tier 1 capital of Rs 500 crore and Tier 2 capital of Rs 200 crore. Risk-weighted assets are Rs 5,000 crore. CAR = (500 + 200) \/ 5,000 = 14%. This exceeds RBI’s 9% minimum requirement comfortably, meaning the bank is well-capitalised.<\/p>\n

Key Takeaways<\/h2>\n

– CAR = (Tier 1 + Tier 2 Capital) \/ Risk-Weighted Assets; measures a bank’s capital buffer
\n– RBI requires Indian banks to maintain a minimum 9% CAR (plus 2.5% conservation buffer)
\n– Higher CAR means the bank can absorb more losses; lower CAR is a regulatory risk
\n– Risk weights vary by asset type: government securities are risk-free; unsecured loans carry 100-150% weights
\n– CAR is the primary capital adequacy metric used by RBI to assess bank health<\/p>\n","protected":false},"excerpt":{"rendered":"

Capital Adequacy Ratio (CAR), also known as Capital to Risk-Weighted Assets Ratio (CRAR), is a measure of a bank’s financial strength that compares its capital to its risk-weighted assets. It is a key regulatory requirement ensuring that banks maintain sufficient capital to absorb losses and protect depositors. What Is Capital Adequacy Ratio? CAR = (Tier […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14405","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"Capital Adequacy Ratio (CAR), also known as Capital to Risk-Weighted Assets Ratio (CRAR), is a measure of a bank’s financial strength that compares its capital to its risk-weighted assets. It is a key regulatory requirement ensuring that banks maintain sufficient capital to absorb losses and protect depositors. What Is Capital Adequacy Ratio? CAR = (Tier…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14405","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14405\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14405"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}