Capital Adequacy Ratio
Capital Adequacy Ratio (CAR), also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank’s capital to its risk. Capital adequacy ratios (CARs) are a measure of the amount of a bank’s core capital expressed as a percentage of its risk-weighted asset.
TIER 1 CAPITAL = (paid up capital + statutory reserves + disclosed free reserves) – (equity investments in subsidiary + intangible assets + current & b/f losses)
TIER 2 CAPITAL = A) Undisclosed Reserves + B) General Loss reserves + C) hybrid debt capital instruments and subordinated debts
|CAR||Capital Adequacy Ratio (dimensionless)|
|T1||Tier 1 capital (dimensionless)|
|T2||Tier 2 capital (dimensionless)|
|αr||Risk weighted assets (dimensionless)|