Are you looking to know about CRAR full form in banking? If yes then you came to the article.
In this article we will know about CRAR. It’s also called as Capital Adequacy Ratio. Now a days it has become very important because the central government is holding some discussions with the Reserve Bank of India in order to persuade the RBI to dilute the capital requirements for the Indian banks. The Reserve Bank of India or the RBI is the decision-making authority with regard to the capital adequacy ratio of the banks. So the Central Government is pressurising the Reserve Bank of India in order to bring down the capital requirements for capital adequacy requirements for the Indian banks. This article is written after referring to more than 17 articles related to this topic.
CRAR full form is CAPITAL TO RISK WEIGHTED ASSET RATIO. In other words, its ratio of Banks Capital to its Risk. So, the bank would be having certain capital and the bank will also have certain risk. So, the ratio between this capital and the risk is known as Capital Adequacy Ratio.
Now we need to understand why is capital adequacy ratio very important? The capital adequacy ratio will help the banks, in order to absorb a reasonable amount of the loss for the banks, loss in the form of bad debts. So the banks would face certain loss in the form of bad debts and this Capital Adequacy Ratio will help the banks in order to absorb a reasonable amount of loss and also it will help in comply with the Statutory Capital requirements of the bank. Now a days Indian Public and Private sector banks need to maintain minimum CRAR is 9 percent as per Reserve Bank of India guidelines. In view of this Capital Adequacy Ratio (CAR) is very important.
CRAR CALCULATION FORMULA
CRAR is calculated by adding Tier I Capital of the Bank + Tier II Capital of the Bank divided by Banks total Risk Weighted Assets.
CRAR = (TIER 1 CAPITAL + TIER 2 CAPITAL)/
TOTAL RISK WEIGHTED ASSETS
CRAR LIMIT IN INDIA
As per Master Direction issued by RBI on Prudential Norms on Capital Adequacy for Local Area Banks (Directions) 2021 Indian Banks need to maintain CRAR (Capital to Risk Weighted Assets Ratio ) of 9 percent.
Dear reader, in this article you get to know about CRAR full form, CRAR meaning, CRAR calculation formula, Capital Adequacy Ratio etc. and other details related to it. If banks can not be able to maintain proper CRAR, PCA will be applicable on banks. Hope you understood the things better. If you have any questions regarding this article, kindly contact us from contact page in this website.
What is minimum CRAR?
As per RBI guidelines at present minimum CRAR is 9 percent.
What is the maximum limit of CRAR?
CRAR should not less than 9 percent as per RBI guidelines.
Is high CRAR good for banks?
Yes high CRAR is very good for banks.
What is the latest capital adequacy ratio?
Latest adequacy ratio is 9 Percent.