RBI Holds Off on Countercyclical Capital Buffer Activation

The Reserve Bank of India (RBI) has announced that it will not activate the countercyclical capital buffer (CCyB) at present. The buffer is designed to ensure banks maintain credit flow during economic downturns and prevent reckless lending during periods of excessive credit growth.

The Reserve Bank of India (RBI) declared on Tuesday its decision not to activate the countercyclical capital buffer (CCyB), citing current circumstances as unsuitable for such a move. The measure, introduced in 2015, is intended to be triggered when warranted by economic conditions.

The CCyB framework relies on the credit-to-GDP gap as a primary indicator, among others, to determine activation needs. Following a thorough review and empirical analysis, the RBI concluded that activating the CCyB is unnecessary at this juncture.

Initiated in the aftermath of the 2008 global financial crisis, the CCyB aims to ensure banks build capital reserves during prosperous times to safeguard credit flow during downturns and curb excessive lending practices that contribute to systemic risk.

(With inputs from agencies.)