Consider the following statements: 1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues. 2. CAR is decided by each individual bank. Which of the statements given above is/are correct?

1. Statement 1 is correct. Capital Adequacy Ratio (CAR) is indeed the ratio of a bank's capital (or own funds) in relation to its risk-weighted assets and current liabilities. It represents the amount banks must maintain to absorb potential losses, including those arising when account-holders fail to repay dues (credit risk). 2. Statement 2 is incorrect. CAR is not decided by each individual bank. It is prescribed by the central banking regulator (like the Reserve Bank of India) based on international standards (such as Basel norms) to ensure the stability and solvency of the banking system. Individual banks are required to meet or exceed the mandated CAR.