RBI extends CCB deadline by 6 months; Rs 56,000-cr boost to sector, says Icra

Published: March 28, 2020 2:05:59 AM

The CCB is designed to ensure that banks build up capital buffers during normal times, which can be drawn down as losses are incurred during a stressed period.

The RBI governor also announced to defer the implementation of Net Stable Funding Ratio (NSFR) by six months to October 1.The RBI governor also announced to defer the implementation of Net Stable Funding Ratio (NSFR) by six months to October 1.

By Ankur Mishra

The Reserve Bank of India (RBI) has extended the deadline for meeting last tranche of capital conservation buffer (CCB) by another six months, which in turn could lower regulatory capital requirement for the sector by around Rs 56,000 crore as per rating firm Icra. “Considering the potential stress on account of Covid-19, it has been decided to further defer the implementation of the last tranche of 0.625% of the CCB from March 31 to September 30,” RBI governor Shaktikanta Das said in a statement on Friday.

The CCB is designed to ensure that banks build up capital buffers during normal times, which can be drawn down as losses are incurred during a stressed period. Currently, the CCB of banks stands at 1.875% of the core capital. The RBI governor also announced to defer the implementation of Net Stable Funding Ratio (NSFR) by six months to October 1.

Anil Gupta, vice-president, sector head, financial ratings, Icra, said the deferment of scheduled increase in regulatory capital requirements by 6 months shall aid banks’ ability to support credit requirements in the short term. He said this would give banks more time to raise new capital given the sharp correction in the current environment. “It will imply that the regulatory capital requirements for the sector is lower by around Rs 56,000 crore,” Gupta said.

Kajal Gandhi, analyst at ICICI Direct, said the public sector banks will be more relieved compared to private banks after the announcement of capital conservation buffer relaxation, as private banks were adequately capitalised.

As per Basel-III standards, the CCB was to be implemented in tranches of 0.625% and the transition to full CCB of 2.5% was set to be completed by March 31, 2019. It was introduced after the 2008 global financial crisis to improve the ability of banks to withstand adverse economic conditions. It was one of the sore points between RBI and the government during 2018. Following the change of guard at the central bank, it was decided to defer it by a year till March 2020.

The governor also announced deferment in the implementation of NSFR by six months to October 1. It was supposed to be introduced from April 1. NSFR reduces funding risk by requiring banks to fund their activities with sufficiently stable sources of funding over a time horizon of a year in order to mitigate the risk of future funding stress.

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