The Reserve Bank on Tuesday said it has decided against activating countercyclical capital buffer (CCyB) as it is not needed in the present circumstances. The framework on CCyB was put in place by the Reserve Bank of India (RBI) in terms of guidelines in February 2015, wherein, it was advised that the CCyB would be activated as and when the circumstances warranted and that the decision would normally be pre-announced.

The framework envisages the credit-to-GDP gap as the main indicator, which may be used in conjunction with other supplementary indicators. “Based on review and empirical analysis of CCyB indicators, it has been decided that it is not necessary to activate CCyB at this point in time,” the RBI said in a statement. The provision has not been used by the RBI since it was introduced in 2015. As per the RBI, the aim of the CCyB regime is two-fold. Firstly, it requires banks to 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.

Secondly, it achieves the broader macroprudential 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.

In the backdrop of the 2008 global financial crisis, the Group of Central Bank Governors and Heads of Supervision (GHOS), the overseeing body of the standards set by the Basel Committee, envisaged the introduction of a framework on countercyclical capital measures.