Explanation:

A bank's failure has the potential of creating chaos in an economy. This is why governments of the world pay special attention to the regulatory aspects of the banks.

Every regulatory provision for banks tries to achieve a simple equation, i.e. balancing returns with risks.

CAR, a measure of a bank's capital, is expressed as a percentage of a bank's risk weighted credit exposures.

Also known as 'Capital to Risk Weighted Assets Ratio (CRAR)' this ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world.

Basel norms provide for a CAR, and in India RBI also mandates CAR to banks.