RBI extends deadline for last tranche of capital conservation buffer

The Reserve Bank of India on Friday extended the deadline for meeting the last tranche of capital conservation buffer (CCB) by another six months till October this year due to continuing stress on account of COVID-19 pandemic.

As part of the regulatory measures taken in the wake of COVID-19, the implementation of the last tranche of the CCB of 0.625 per cent, which was scheduled to take effect from April 1, 2020, was deferred till April 1, 2021.

"Considering the continuing stress on account of COVID-19, and in order to aid in the recovery process, it has been decided to defer the implementation of the last tranche of the CCB of 0.625 per cent from April 1, 2021 to October 1, 2021," RBI Governor Shaktikanta Das said.

The capital conservation buffer ensures that banks have an additional layer of usable capital that can be drawn down when losses are incurred.

As per Basel standards, the CCB was to be implemented in tranches of 0.625 per cent and the transition to full CCB of 2.5 per cent was set to be completed by March 31, 2019. It was introduced after the 2008 global financial crisis to improve the ability of banks to withstand adverse economic conditions.

It was one of the sore points between RBI and the government during 2018. Following the change of guard at the central bank, it was decided to defer it by a year till March 2020.

Besides, it was also decided to defer the implementation of Net Stable Funding Ratio (NSFR).

The NSFR, which reduces funding risk by requiring banks to fund their activities with sufficiently stable sources of funding over a time horizon of a year in order to mitigate the risk of future funding stress, was required to be introduced by banks from April 1, 2021.

"While banks are comfortably placed on the liquidity front, in view of the continued stress on account of COVID-19, it has been decided to defer the implementation of NSFR to October 1, 2021," he said.

The Reserve Bank on September 1, 2020, increased the limits under Held to Maturity (HTM) category from 19.5 per cent to 22 per cent of net demand and time liabilities (NDTL) in respect of statutory liquidity ratio (SLR) eligible securities acquired on or after September 1, 2020, up to March 31, 2021.

"This dispensation was made available up to March 31, 2022. In order to provide certainty to the market participants in the context of the borrowing programme of the centre and states for 2021-22, it has now been decided to extend the dispensation of enhanced HTM of 22 per cent up to March 31, 2023 to include securities acquired between April 1, 2021 and March 31, 2022," he said.

The HTM limits would be restored from 22 per cent to 19.5 per cent in a phased manner starting from the quarter ending June 30, 2023.

It is expected that banks will be able to plan their investments in SLR securities in an optimal manner with a clear glide path for restoration of HTM limits, he added.