 "RBI unveils countercyclical capital buffer norms for banks")
The Reserve Bank today issued guidelines with the two-fold aim of ensuring capital buffer for difficult times and restricting banks from indiscriminate lending during the periods of excess credit growth.
The Countercyclical Capital Buffer (CCCB), RBI said, may be maintained in the form of Common Equity Tier 1 capital.
"While the framework for CCCB takes immediate effect, the activation of CCCB will take place when circumstances warrant. Currently, circumstances do not warrant activation," said the Reserve Bank's guidelines for implementation of the buffer.
The report made recommendations in areas such as indicators that may be used for CCCB decisions, thresholds for activating the buffer and lead time for announcement of buffer.
The aim of the CCCB regime is twofold, RBI said.
Firstly, it requires banks to build up a buffer of capital in good times which may be used to maintain flow of credit to the real sector in difficult times.
Secondly, it achieves the broader macro-prudential goal of restricting the banking sector from indiscriminate lending in the periods of excess credit growth that have often been associated with the building up of system-wide risk.
"The credit-to-GDP gap shall be the main indicator in the CCCB framework in India. However, it shall not be the only reference point and shall be used in conjunction with GNPA (Gross Non-Performing Advances) growth," the guidelines said.
Credit-to-GDP gap is difference between credit-to-GDP ratio and the long term trend value of credit-to-GDP ratio at any point in time.
In the backdrop of 2008 global financial crisis, the Group of Central Bank Governors and Heads of Supervision (GHOS), the overseeing body of the standards set by the Basel Committee, had envisaged introduction of a framework on countercyclical capital measures.
Their press release dated September 7, 2009 included a commitment to introduce a framework for CCCB above the minimum capital requirement.
The RBI guidelines said the CCCB may be maintained in the form of Common Equity Tier 1 (CET 1) capital or other fully loss absorbing capital only, and the amount of the CCCB may vary from 0 to 2.5 per cent of total risk weighted assets (RWA) of the banks.
It further said the CCCB decision would normally be pre-announced with a lead time of 4 quarters. However, depending on the CCCB indicators, the banks may be advised to build up requisite buffer in a shorter span of time.
The Countercyclical Capital Buffer (CCCB), RBI said, may be maintained in the form of Common Equity Tier 1 capital.
"While the framework for CCCB takes immediate effect, the activation of CCCB will take place when circumstances warrant. Currently, circumstances do not warrant activation," said the Reserve Bank's guidelines for implementation of the buffer.
Also Read
An internal working group of the RBI had submitted the final report on the implementation of CCCB in July last year.
The report made recommendations in areas such as indicators that may be used for CCCB decisions, thresholds for activating the buffer and lead time for announcement of buffer.
The aim of the CCCB regime is twofold, RBI said.
Firstly, it requires banks to build up a buffer of capital in good times which may be used to maintain flow of credit to the real sector in difficult times.
Secondly, it achieves the broader macro-prudential goal of restricting the banking sector from indiscriminate lending in the periods of excess credit growth that have often been associated with the building up of system-wide risk.
"The credit-to-GDP gap shall be the main indicator in the CCCB framework in India. However, it shall not be the only reference point and shall be used in conjunction with GNPA (Gross Non-Performing Advances) growth," the guidelines said.
Credit-to-GDP gap is difference between credit-to-GDP ratio and the long term trend value of credit-to-GDP ratio at any point in time.
In the backdrop of 2008 global financial crisis, the Group of Central Bank Governors and Heads of Supervision (GHOS), the overseeing body of the standards set by the Basel Committee, had envisaged introduction of a framework on countercyclical capital measures.
Their press release dated September 7, 2009 included a commitment to introduce a framework for CCCB above the minimum capital requirement.
The RBI guidelines said the CCCB may be maintained in the form of Common Equity Tier 1 (CET 1) capital or other fully loss absorbing capital only, and the amount of the CCCB may vary from 0 to 2.5 per cent of total risk weighted assets (RWA) of the banks.
It further said the CCCB decision would normally be pre-announced with a lead time of 4 quarters. However, depending on the CCCB indicators, the banks may be advised to build up requisite buffer in a shorter span of time.