Activation Framework
RBI says banks need not activate countercyclical capital buffer at this point
This story was originally published at 14:14 IST on 15 April 2025
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--RBI: Banks need not activate countercyclical capital buffer at this point
NEW DELHI – Banks do not need to activate the countercyclical capital buffer they are required to maintain at this point in time, the Reserve Bank of India said in a release on Tuesday. The framework for activation envisages the credit-to-GDP ratio as a trigger, along with other supplementary indicators, the release said.
The countercyclical capital buffer, notified in February 2015, has not been activated since its introduction. The RBI has annually announced the review for requiring the buffer at the beginning of the financial year in April.
As per the 2015 guidelines issued by the RBI, the countercyclical capital buffer regime aims to firstly make banks build up a buffer of capital in good times which may be used to maintain the flow of credit to the real sector in difficult times. It would also achieve the goal of restricting the banking sector from indiscriminate lending in periods of excess credit growth that have often been associated with the building up of system-wide risk.
The buffer is to be maintained in the form of common equity tier-I capital or other fully loss-absorbing capital, and the amount may be up to 2.5% of banks' total risk weighted assets. The decision to active the buffer is to be normally announced in advance, the RBI release said. Supplementary indicators for activation include the industrial outlook assessment index, asset quality, and interest coverage ratio of firms. End
Reported by Aaryan Khanna
Edited by Avishek Dutta
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