Statement (I): Capital adequacy norms help banks in strengthening their capital base.
Statement (II): Capital adequacy norms help banks in sanctioning more loans.
Code:

Correct option is C

The correct answer is (c) Statement (I) is correct but (II) is incorrect.
Statement (I) is correct because capital adequacy norms (such as the Basel Accords) require banks to maintain a minimum ratio of capital to their risk-weighted assets. This ensures that banks have a "cushion" to absorb a reasonable amount of losses, thereby strengthening their capital base and ensuring financial stability.
Statement (II) is incorrect because capital adequacy norms often act as a limit on the volume of loans a bank can sanction, rather than a tool to help them sanction more. Since every new loan increases the bank's "risk-weighted assets," the bank must have enough capital to back those loans. If a bank's capital is stretched thin, these norms actually force the bank to restrict lending until they can raise more capital.
Information Booster
· Capital Adequacy Ratio (CAR): Also known as Capital-to-Risk Weighted Assets Ratio (CRAR), it is calculated as:

· Tier 1 Capital: The core capital, including equity capital and disclosed reserves (the most reliable form of capital).
· Risk-Weighted Assets: Assets (like loans) weighted by their risk of default. For example, a loan to the government has a lower risk weight than a loan to a startup.
· Basel III: The current international regulatory framework that sets higher standards for capital adequacy to prevent global financial crises.