What is the CRAR Full Form?

CRAR full form is one of the abbreviations used in the finance and accounting field. The CRAR term represents the ratio of a bank’s capital to its risk-weighted assets and liabilities. It is also referred to as CAR, but now you would wonder what does CRAR stand for? This blog will provide you with detailed information regarding the full form of CRAR, and its formula. Read the entire blog to learn more about CRAR!

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CRAR Full Form

The full form of CRAR is the Capital to Risk (weighted) Assets Ratio. It is also referred to by Capital Adequacy Ratio i.e. (CAR). 

CRAR is the maximum loss that any bank may withstand without becoming insolvent. Insolvent indicates that the bank’s liabilities prevent it from repaying the depositor. The ratio protects depositors while also improving financial stability. 

Central banks and bank regulators influence the ratios. The high ratio is an indication of a measure of the bank’s safety. When the process of winding up a bank begins, depositors’ funds take precedence.

In simple words, CRAR is the measure of the bank’s financial stability and capital adequacy. This ratio accesses the risk linked with the assets.

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Formula of CRAR

The formula to calculate CRAR is given below:

CRAR= (Tier 1 Capital + Tier 2 Capital) / Risk-Weighted Assets

Here, 

• Tier 1 is core capital components such as disclosed reserves and common equity.
• Tier 2 is the supplementary components such as hybrid instruments, subordinated debt, and other elements.
• Risk-weighted assets are the entire assets of the bank.

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We hope this has helped you understand CRAR full form and everything related to it. Do you want to know more abbreviations like this? In the world of short forms, you can rely on the Leverage edu page! Connect with us study abroad experts to achieve your international dream today!