Statement 1 is correct. Capital Adequacy Ratio (CAR) is a measure of a bank's capital in relation to its risk-weighted assets. It represents the minimum amount of capital a bank must hold to absorb potential losses, including those arising from loan defaults by account-holders. This ensures the bank's solvency and protects depositors.
Statement 2 is incorrect. The Capital Adequacy Ratio (CAR) is not determined by individual banks. It is mandated by financial regulators, such as the Reserve Bank of India (RBI) in India, based on international frameworks like the Basel Accords (e.g., Basel III norms). These regulatory requirements ensure financial stability and a standardized level of capital across the banking system. Options (2), (3), and (4) are incorrect as they include or solely rely on the incorrect Statement 2.