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The framework on the countercyclical capital buffer (CCyB) was put in place by the Reserve Financial institution of India (RBI) when it comes to pointers in February 2015 whereby, it was suggested that the CCyB can be activated as and when the circumstances warranted and that the choice would usually be pre-announced.
The framework envisages the credit-to-GDP hole as the principle indicator, which can be used along with different supplementary indicators.
“Based mostly on the evaluation and empirical evaluation of the CCyB indicators, it has been determined that it’s not essential to activate CCyB at this cut-off date,” the central financial institution stated in a press release.
As per the RBI, the intention of the CCyB regime is two-fold.
Firstly, it requires banks to construct up a buffer of capital in good instances, which can be used to keep up the move of credit score to the true sector in tough instances.
Secondly, it achieves the broader macroprudential aim of limiting the banking sector from indiscriminate lending in intervals of extra credit score progress which have usually been related to the increase of system-wide danger.
Within the backdrop of the 2008 international monetary disaster, the Group of Central Financial institution Governors and Heads of Supervision (GHOS), the overseeing physique of the requirements set by the Basel Committee, envisaged the introduction of a framework on countercyclical capital measures.
