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The Reserve Bank of India (RBI), on Monday, said it is not necessary to activate Counter-Cyclical Capital Buffer (CCyB) for banks at this point in time
The aim of CCyB regime is two-fold. First, 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.
Second, 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.
The CCCB framework envisages the credit-to-GDP gap as the main indicator, which may be used in conjunction with other supplementary indicators – the Credit-Deposit (C-D) ratio for a moving period of three years (given its correlation with the credit-to-GDP gap and GNPA growth), industrial outlook (IO) assessment index (with due note of its correlation with GNPA growth), and interest coverage ratio (noting its correlation with the credit-to-GDP gap).
Last April, too, the RBI did not to activate CCyB (framework for which was put in place in terms of guidelines issued on February 5, 2015, with pre-announcement of the decision to activate it as and when circumstances warranted) for a period of one year or earlier, as may be necessary.
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