RBI's relaxation for banks to lend Rs 3.5 trillion extra set to end

The headroom will not be available in FY21, unless public sector banks are adequately recapitalised

The Reserve Bank of India (RBI) may not extend the relaxation given last year to banks to comply with its capital conservation buffer (CCB) norm of 2.5 per cent by the end of 2019-20 (FY20). The Centre has to take this aspect into account when it pencils in the recapitalisation amount for state-run banks for FY21. The amount was about Rs 70,000 crore in FY20.

The buffer, introduced after the global financial crisis of 2008, is the amount banks have to set aside to absorb losses during times of stress. The deferment of the CCB’s last tranche of an additional 0.625