RBI extends deadline for meeting last tranche of capital conservation buffer by 6 mths

In view of hardship faced by outbreak of COVID-19, the Reserve Bank of India on Friday extended the deadline for meeting last tranche of capital conservation buffer (CCB) by another six months.

The move would leave about Rs 35,000 crore capital in the hands of banks for lending to on-lending to productive sectors of the economy.

This would help banks increase lending by over Rs 3.5 lakh crore by leveraging ten times of the capital.

"Considering the potential stress on account of COVID-19, it has been decided to further defer the implementation of the last tranche of 0.625 per cent of the CCB from March 31 to September 30, 2020," RBI Governor Shaktikanta Das said while unveiling a slew of measures to fight the impact of the pandemic on the economy.

Currently, the CCB of banks stands at 1.875 per cent of the core capital.

Sharing the decisions of RBI's seventh bi-monthly monetary policy review, the governor said the CCB is designed to ensure that banks build up capital buffers during normal times, that are outside periods of stress which can be drawn down, as losses are incurred during a stressed period.

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.

"Consequently, the pre-specified trigger for loss absorption through conversion/write-down of Additional Tier 1 instruments (PNCPS and PDI) shall remain at 5.5 per cent of risk-weighted assets (RWAs) and will rise to 6.125 per cent of RWAs on September 30, 2020," he said.

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, 2020.

"It has now been decided to defer the implementation of NSFR by six months to October 1, 2020," Das said.