Does the bank have enough of its own money to absorb losses?
Capital Adequacy Ratio
Bank numbers
Capital adequacy is the bank's own capital for every ₹100 of loans and investments, weighted by how risky they are.
In everyday life
Before lending to friends, you keep your own emergency cash. The riskier the friends, the bigger the cushion you need. That cushion is capital.
How it's worked out
Example: Lotus Bank, a made-up company that takes deposits and gives loans.
In words: ₹15.6 of its own money for every ₹100 of risk-weighted loans.
Try it yourself
Move the sliders and watch the answer, the picture and the verdict change together.
₹15.6 of its own money for every ₹100 of risk-weighted loans.
- Bank's own capital
- The rest
Each dot is 1 of every 100 in “risk-weighted loans”.
Rough guide
- Below minimum
- Adequate
- Comfortable
What's a good number?
- Below minimum
Up to 11.5%
- Adequate
11.5% to 15%
- Comfortable
Above 15%
RBI asks most banks to keep at least 11.5%, including a safety buffer; the largest banks need a little more.
Key number in the sector guides for Banks.
How to read it
Good signs
- Comfortably above the minimum, so the bank can grow without raising new money.
Watch out for
- Close to the minimum: the bank may need to issue new shares, which shrinks each existing owner's slice.
Read it with
For learning only. Example companies are made up, and the rough guides are rules of thumb, not targets. Nothing here is advice to buy or sell any stock.