BackRBI decided against activating countercyclical capital buffer
The framework envisages the credit-to-GDP gap as the main indicator, which may be used in conjunction with other supplementary indicators.
PremiumThe Reserve Bank of India (RBI) has decided not to activate countercyclical capital buffer, according to an official statement on Tuesday. The
"Based on the review and empirical analysis of the countercyclical capital buffer indicators, it has been decided that it is not necessary to activate countercyclical capital buffer at this point in time," the Central Bank said
The framework on countercyclical capital buffer was put in place by the Reserve Bank in February 2015 wherein it was advised that it would be activated as and when the circumstances warranted, and that the decision 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.
According to the Reserve Bank, the aim of the countercyclical capital buffer regime is two-fold.
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.
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