UPSC Prelims 2018— Question 16

**Concept and analysis:** Capital Adequacy Ratio measures a bank's capital relative to its risk-weighted assets and is designed to provide a buffer against losses. Regulatory authorities prescribe the applicable capital requirements; individual banks cannot unilaterally determine the regulatory CAR applicable to themselves. Thus the first statement captures the protective role of capital, while the second incorrectly treats a regulatory standard as an individual bank's choice. The question is testing precise UPSC-level identification rather than a broad association. The key is to distinguish the exact institutional, constitutional, historical, geographical, economic or scientific feature being asked. **Option-wise evaluation** **Option A:** Correct. It selects statements 1; these are the statements supported by the relevant constitutional, economic, historical, scientific or geographical facts. **Option B:** Incorrect. It selects 2 only, but that combination does not match the verified statement-level assessment; it either includes a false statement or omits a true one. **Option C:** Incorrect. It selects Both 1 and 2, but that combination does not match the verified statement-level assessment; it either includes a false statement or omits a true one. **Option D:** Incorrect. It selects Neither 1 nor 2, but that combination does not match the verified statement-level assessment; it either includes a false statement or omits a true one. **UPSC takeaway:** The safest way to solve this type of question is to anchor the answer in the defining feature of the concept and then test every option against that feature. Closely related institutions or terms are often used as distractors. In statement-based questions, do not judge the option as a whole before checking each statement independently. In factual questions, compare the wording of each option with the exact definition, location, institutional role, chronology or scientific property. The correct answer follows from that verification rather than from familiarity with a keyword.