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  1. RBI issues norms on capital buffer

RBI issues norms on capital buffer

RBI released norms for maintenance of countercyclical capital buffer by banks, but said additional capital need not be maintained immediately.

By: | New Delhi | Published: February 6, 2015 2:18 AM

The Reserve Bank of India (RBI) on Thursday released norms for maintenance of countercyclical capital buffer by banks, but said additional capital need not be maintained immediately.

Indian banks must maintain additional capital of up to 2.5% of risk-weighted assets in the form of common equity as a countercyclical buffer to tide over rough times, the RBI said a notice on Thursday.

The RBI would recommend maintenance of a level of the buffer capital depending on the credit-to-GDP ratio, the level of gross non-performing loans of the banking system as well as the credit/deposit ratio of the system, the central bank said.

The counter-cyclical buffer will be activated when the credit-to-GDP gap is at a threshold of 3 percentage points, the RBI said. The upper threshold for the same would be 15 percentage points.

“In between 3 and 15 percentage points of credit-to-GDP gap, the buffer capital shall increase gradually from 0 to 2.5% of the RWA of the bank but the rate of increase would be different based on the level or position of credit-to-GDP gap between 3 and 15 percentage points,” the RBI said.

If banks fail to keep the additional capital, the RBI could restrict the distribution of their profits such as dividend payments, share buybacks and staff bonus payments.

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