CRAR FSR.txt

Risk Weighted Assets

It is the minimum amount of capital a bank must hold in relation to the risk
profile of its lending activities and other assets. 
The capital requirement is based on risk assessment of each type of asset.
After 2007 financial crisis, Basel III norms were set to avoid such situations again.
according to these rules, regulators insist that each bank must group their asset together by risk
category so that the amount of required capital is matched with risk level of each asset. 
It uses credit rating for each asset to categorise according to risk level. 



what is CRAR for NBFC?
it stands for capital to risk weighter assets ratio of NBFC which they are 
exprected to hold regulatory capital of 15% of their risk - weighted assets
undet the current regulatory framework for NBFC. At present, NBFFC 
shall maintain 12-15% CRAR. 

A bank’s capital structure consists of several tiers. These include:
Tier 1 Capital: Known as going concern or core capital, Tier 1 is used to fund a financial institution's 
business activities. It includes Common Equity Tier 1 (CET1) capital and Additional Tier 1 (AT1) capital.
Tier 2 Capital: This is often called gone concern or supplementary capital. This category is made up of 
things like hybrid capital instruments and subordinated term debt.
Tier 3 Capital: This type of capital includes market risk, commodities risk, and foreign currency risk and 
is the lowest quality of the three.


situations of financial institutions according to Financial Stability Report
“The resilience of the non-banking financial companies (NBFCs) sector improved with CRAR at 27.6 per cent,
 GNPA ratio at 4.6 per cent and return on assets (RoA) at 2.9 per cent, respectively, in September 2023,” said 
the RBI’s Financial Stability Report (FSR).
Macro stress tests for credit risk reveal that SCBs would be able to comply with minimum capital requirements, 
with the system-level CRAR in September 2024 projected at 14.8 per cent, 13.5 per cent and 12.2 per cent,
 respectively, under baseline, medium and severe stress scenarios,