Correct answer: (a) 1 only
Explanation
- A
1 only
(a) 1 only. (a) Official key: Capital Adequacy Ratio is the bank’s own capital as a buffer against losses, including credit losses when borrowers do not repay. Statement 2 is false: CAR minima are set by the Basel framework as implemented by RBI, not by each bank at will. Only statement 1 is correct.
- B
2 only
(b) 2 only. Banks do not decide their own regulatory CAR. This letter is not the key.
- C
Both 1 and 2
(c) Both 1 and 2. Statement 2 fails, so both-correct is not the key.
- D
Neither 1 nor 2
(d) Neither 1 nor 2. Statement 1 correctly describes CAR as loss-absorbing own funds, so ‘neither’ is not the key.
Summary. Official key is (a) 1 only. CAR (CRAR in Indian usage) is own capital relative to risk-weighted assets so that losses do not wipe out depositors. RBI, following Basel, sets the floor; individual banks cannot invent a lower ratio. Honour the stored letter (a).
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