What is Capital Adequacy Ratio (CAR)? Describe different elements that comprise Tier-I and Tier-II Capital of Indian Banks.

Capital Adequacy Ratio (CAR) is a key financial ratio that measures a bank's capital adequacy and its ability to absorb potential losses arising from various risks, such as credit risk, market risk, and operational risk. It is a critical aspect of banking regulations and is used by banking regulators worldwide to ensure that banks have sufficient capital to safeguard depositors and maintain financial stability.

The CAR is expressed as a percentage and is calculated by dividing a bank's total capital by its risk-weighted assets (RWA). The total capital comprises Tier-I and Tier-II capital, as defined by the regulatory guidelines.

Elements of Tier-I Capital:

Tier-I capital is the core capital of a bank and represents the highest quality capital that can absorb losses without the bank being required to cease trading. It includes the following elements:

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