The framework envisages credit-to-GDP gap as the main indicator, which may be used in conjunction with other supplementary indicators.
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FRANCIS MASCARENHAS
The Reserve Bank of India (RBI) on Tuesday said that it is not necessary to activate countercyclical capital buffer (CCyB) for banks at this point in time.
The aim of the CCyB regime is two-fold. 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 framework on CCyB was put in place by the Reserve Bank in terms of the guidelines issued on February 5, 2015, wherein it was advised that this buffer would be activated as and when circumstances warranted, and that the decision would normally be pre-announced.
The framework envisages credit-to-GDP gap as the main indicator, which may be used in conjunction with other supplementary indicators.
“Based on review and empirical analysis of CCyB indicators, it has been decided that it is not necessary to activate CCyB at this point in time,” RBI said.
If CCyB is activated, it can slowdown credit growth, which in turn will impact GDP growth, say banking experts. By not activating this buffer, the RBI is ensuring that there are no hurdles in the flow of credit to the productive sectors of the economy.
Published on April 15, 2025
