Review of Requirement of Counter-Cyclical Capital Buffer

The Reserve Bank of India has decided to keep the counter-cyclical capital buffer (CCCB) requirement for banks at 0 per cent of risk-weighted assets, the central bank announced on 4 June 2024.

The decision was taken by the RBI’s Monetary Policy Committee after its bi-monthly review concluded that the banking system’s capital buffers remain “comfortably above” regulatory minimums. The central bank had last activated the CCCB in February 2020 at 0.625 per cent but reduced it to zero in March 2020 as the pandemic hit. The framework, introduced in 2015, allows the RBI to vary the buffer between 0 and 2.5 per cent depending on systemic risk indicators such as credit-to-GDP gap and bank balance-sheet growth, according to rbi.org.in.

By keeping the buffer at zero, the RBI frees an estimated ₹1.4 trillion in capital that lenders can deploy for fresh credit, brokerage Motilal Oswal calculated. The move aligns with peer central banks: the Bank of England also maintains its CCyB at zero, while the European Central Bank raised its guidance to 2 per cent only last month. Indian banks’ common-equity Tier-1 ratio stood at 13.9 per cent in March 2024, well above the 8 per cent minimum plus the 2.5 per cent capital-conservation buffer, RBI data show.

The RBI said it will review the CCCB stance every six months and will give banks a 12-month notice before any increase. Analysts at Nomura expect the buffer to stay at zero through FY25 unless credit growth accelerates beyond 15 per cent or macro-stress tests reveal fresh vulnerabilities. The next scheduled review is due in December 2024.