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CAIIB ABM Module A & C By Ashish Sir Class 10
What does the Capital Adequacy Ratio (CAR) measure in banking?
CAR measures a bank's capital in relation to its risk-weighted assets, ensuring the bank can absorb a reasonable amount of loss before becoming insolvent. Under Basel III, Indian banks must maintain a minimum CAR of 9%.
What is the Leverage Ratio under Basel III and its minimum requirement?
Non-risk-based measure; minimum 3% of Tier 1 capital to total exposure.
What is the difference between Tier 1 and Tier 2 capital under Basel III norms?
Tier 1 capital (core capital) includes paid-up equity capital, retained earnings, and other disclosed reserves, while Tier 2 capital (supplementary capital) includes revaluation reserves, subordinated debt, and undisclosed reserves. Tier 1 is considered more loss-absorbing than Tier 2.
What is the Capital Conservation Buffer (CCB) required under Basel III?
Additional 2.5% of RWA held as common equity Tier 1 capital.
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