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14-Jan2019

RBI defers implementation of last tranche of CCB by a year

With an aim to reduce the burden of public sector banks (PSBs), the Reserve Bank of India (RBI) has deferred the implementation of the last tranche of Capital Conservation Buffer (CCB) by a year. This move will leave about estimated Rs 37,000 crore capital in the hands of banks. This will help PSBs increase lending by over Rs 3.5 lakh crore by leveraging ten times of the capital.

The Central Bank deferred the implementation of the last tranche of 0.625 percent of CCB from March 31, 2019 to March 31, 2020.  As a result, minimum capital conservation ratios of 2.5 percent will be applicable from on March 31, 2020. Currently, the CCB of banks stands at 1.875 percent of the core capital.

The RBI further highlighted that the pre-specified trigger for loss absorption through conversion or write-down of additional tier 1 instruments will remain at 5.5 percent of risk-weighted asset (RWA) and will rise to 6.125 percent of RWAs on March 31, 2020. However, it decided to retain the capital adequacy ratio or CRAR at 9 percent.

Besides, the CCB is the capital buffer that banks have to accumulate in normal times to be used for offsetting losses during periods of stress. It was introduced after the 2008 global financial crisis to improve the ability of banks to withstand adverse economic conditions.


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