What is CRAR System ?
- CRAR is the acronym for Capital to Risk Weighted Assets Ratio, a standard metric to measure balance sheet strength of banks.
- BASEL I and BASEL II are global capital adequacy rules that prescribe a minimum amount of capital a bank has to hold given the size of its risk weighted assets.
- The old rules mandate banks to back every Rs. 100 of commercial loans with Rs.9 of capital irrespective of the nature of these loans.
- The new rules suggest the amount of capital needed depends on the credit rating of the customer.