Capital adequacy ratio
CAR
Credit & DebtA bank's capital measured against its risk-weighted assets. It shows how much cushion the bank has to absorb loan losses and how much further lending it can support.
Formula
CAR (%) = (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets x 100
Why it matters
A loan that goes bad destroys capital and lowers CAR, which in turn caps loan growth. Around 17 percent and above is very good; around 12 percent or below is a danger sign. Banks keep CAR healthy by controlling NPAs and attracting deposits.
Indian example
Related terms
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