Money & Banking

RBI offers relief on buffer, stable funding ratio norms

Our Bureau Mumbai | Updated on September 29, 2020

The Reserve Bank of India (RBI) has decided to defer the implementation of the last tranche of the Capital Conservation Buffer (CCB) and the Net Stable Funding Ratio (NSFR) guidelines for all commercial banks by six months to April 1, 2021.

The central bank cited the continuing stress on account of Covid-19 for the deferment.

The RBI said that the implementation of the last tranche of 0.625 per cent of CCB for all commercial banks (excluding Small Finance Banks, Payment Banks, Regional Rural Banks and Local Area Banks) has been deferred from September 30, 2020 to April 1, 2021.

If CCB had not been deferred then it would have had to go up to 2.5 per cent from October 1, 2020 from the 1.875 per cent currently, necessitating banks to raise capital.

Including CCB, the total capital ratio of a bank would have go up to 11.5 per cent from October 1, 2020 due to increase in CCB as against the 10.875 per cent now.

CCB ensures that banks build up capital buffers during normal times (outside periods of stress), which can be drawn down as losses are incurred during a stressed period.

Considering the potential stress on account of Covid-19, the RBI had earlier deferred the implementation of the last tranche of CCB from March 31, 2020 to September 30, 2020.

The RBI said the implementation of NSFR guidelines has been deferred by a further period of six months. These guidelines are applicable to all commercial banks (excluding Regional Rural Banks, Local Area Banks and Payments Banks).

As per the Basel III Framework on Liquidity Standards, the objective of NSFR is to ensure that banks maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities.

NSFR limits reliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability.

On March 27, the RBI had deferred the implementation of NSFR guidelines by six months and it was to take effect from October 1.

Published on September 29, 2020

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