The Reserve Bank of India has said it will not activate the countercyclical capital buffer (CCyB) as the measure is not required in the current circumstances. In a statement issued from Mumbai today, RBI said the system can be activated as a pre-announced measure under warranted circumstances.
RBI, after a review and empirical analysis of CCyB indicators, including the credit-to-GDP gap as the main indicator, has said that it is not necessary to activate CCyB at this point in time.
The aim of the Countercyclical Capital Buffer is twofold. Firstly, it requires a bank to build up a buffer of capital in good times, which may be used to maintain the flow of credit 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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