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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.

Bank's own capital
the bank's own money, its cushion against losses
₹1,400 Cr
Risk-weighted loans
loans and investments, counted more heavily when they're riskier
₹9,000 Cr
× 100
Capital adequacy
15.6%

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.

₹ Cr
₹0 Cr₹5,000 Cr
₹ Cr
₹500 Cr₹50,000 Cr
Capital adequacyComfortable
15.6%

₹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

Capital adequacy 15.6%
  • 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.
All lessons

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.