RBI decides against imposing additional capital buffer on banks

The Reserve Bank of India said prevailing systemic risk conditions do not warrant activating the countercyclical capital buffer for banks at this stage

The Reserve Bank of India (RBI) on Monday said it has decided against activating the countercyclical capital buffer (CCyB), saying prevailing conditions do not warrant the move at this stage.

 

Under the framework on CCyB laid out in the RBI (Commercial Banks – Prudential Norms on Capital Adequacy) Directions, 2025, the buffer is to be activated when systemic risks arising from excess credit growth begin to build up. The central bank said such decisions would normally be pre-announced.

 

“The framework envisages the 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,” the RBI said in a statement.

 

 

The RBI said the CCyB framework serves two broad objectives. First, it requires banks to build additional capital buffers during periods of economic expansion, which can later be drawn down to maintain the flow of credit during periods of stress. Second, it seeks to curb indiscriminate lending during phases of excessive credit growth that could lead to the build-up of systemic risks in the banking sector.

 

The concept of countercyclical capital measures emerged in the aftermath of the 2008 global financial crisis, when the Group of Central Bank Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision, proposed the framework as part of broader post-crisis banking reforms.