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RBI Guidelines for implementation of Countercyclical Capital Buffer (CCCB)

1. The aim of the Countercyclical Capital Buffer (CCCB) regime is twofold. Firstly, it
requires banks to build up a buffer of capital in good times which may be used to
maintain flow of credit to the real sector in difficult times. Secondly, it achieves the
broader macro-prudential goal of restricting the banking sector from indiscriminate
lending in the periods of excess credit growth that have often been associated with the
building up of system-wide risk.

2. The CCCB may be maintained in the form of Common Equity Tier 1 (CET 1) capital
or other fully loss absorbing capital only, and the amount of the CCCB may vary from 0
to 2.5% of total risk weighted assets (RWA) of the banks. If, as per the Reserve Bank of
India directives, banks are required to hold CCCB at a given point in time, the same
may be disclosed at table DF-11 of Annex 18 as indicated in Basel III Master Circular.

3. The CCCB decision would normally be pre-announced with a lead time of 4 quarters.
However, depending on the CCCB indicators, the banks may be advised to build up
requisite buffer in a shorter span of time.

4. The credit-to-GDP gap1 shall be the main indicator in the CCCB framework in India.
However, it shall not be the only reference point and shall be used in conjunction with
GNPA growth. The Reserve Bank of India shall also look at other supplementary
indicators for CCCB decision such as incremental C-D ratio for a moving period of three
years (along with its correlation with credit-to-GDP gap and GNPA growth), Industry
Outlook (IO) assessment index (along with its correlation with GNPA growth) and
interest coverage ratio (along with its correlation with credit-to-GDP gap). While taking
the final decision on CCCB, the Reserve Bank of India may use its discretion to use all
or some of the indicators along with the credit-to-GDP gap.

5. The CCCB framework shall have two thresholds, viz., lower threshold and upper
threshold, with respect to credit-to-GDP gap.

a. The lower threshold (L) of the credit-to-GDP gap where the CCCB is activated
shall be set at 3 percentage points, provided its relationship with GNPA remains
significant. The buffer activation decision will also depend upon other
supplementary indicators as detailed in paragraph 4.

b. The upper threshold (H) where the CCCB reaches its maximum shall be kept at
15 percentage points of the credit-to-GDP gap. Once the upper threshold of the
credit-to-GDP gap is reached, the CCCB shall remain at its maximum value of
2.5 per cent of RWA, till the time a withdrawal is signaled by the Reserve Bank of
India.

c. In between 3 and 15 percentage points of credit-to-GDP gap, the CCCB shall
increase gradually from 0 to 2.5 per cent of the RWA of the bank but the rate of
increase would be different based on the level/position2 of credit-to-GDP gap
between 3 and 15 percentage points. If the credit-to-GDP gap is below 3
percentage points then there will not be any CCCB requirement.

6. The same set of indicators that are used for activating CCCB (as mentioned in
paragraph 4) may be used to arrive at the decision for the release phase of the CCCB.
However, discretion shall be with the Reserve Bank of India for operating the release
phase of CCCB. Further, the entire CCCB accumulated may be released at a single
point in time but the use of the same by banks will not be unfettered and will need to be
decided only after discussion with the Reserve Bank of India.

7. For all banks operating in India, CCCB shall be maintained on a solo basis as well as
on consolidated basis.

8. All banks operating in India (both foreign and domestic banks) should maintain capital
for Indian operations under CCCB framework based on their exposures in India.

9. Banks incorporated in India having international presence have to maintain adequate
capital under CCCB as prescribed by the host supervisors in respective jurisdictions.
The banks, based on the geographic location of their RWA, shall calculate their bank
specific CCCB requirement as a weighted3 average of the requirements that are being
applied in respective jurisdictions. The Reserve Bank of India may also ask Indian
banks to keep excess capital under CCCB framework for exposures in any of the host
countries they are operating if it feels the CCCB requirement in host country is not
adequate.

10. Banks will be subject to restrictions on discretionary distributions (may include
dividend payments, share buybacks and staff bonus payments) if they do not meet the
requirement on countercyclical capital buffer which is an extension of the requirement
for capital conservation buffer (CCB). Assuming a concurrent requirement of CCB of
2.5% and CCCB of 2.5% of total RWAs, the required conservation ratio (restriction on
discretionary distribution) of a bank, at various levels of CET1 capital held is illustrated
in Table-1.

Table 1: Individual bank minimum capital
conservation ratios, assuming a requirement of 2.5%
each of capital conservation buffer and CCCB
Common Equity Tier 1
Ratio bands
Minimum Capital
Conservation Ratios
(expressed as a percentage
of earnings)
>5.5% – 6.75% 100%
>6.75% – 8.0% 80%
>8.0% – 9.25% 60%
>9.25% – 10.50% 40%
>10.50% 0%

The CET 1 ratio bands are structured in increments of 25% of the required CCB and
CCCB prescribed by the Reserve Bank of India at that point in time4. A separate
illustrative table is given at Appendix 1 with an assumption of CCCB requirement at 1%.

11. Banks must ensure that their CCCB requirements are calculated and publicly
disclosed with at least the same frequency as their minimum capital requirements as
applicable in various jurisdictions. The buffer should be based on the latest relevant
jurisdictional CCCB requirements that are applicable on the date that they calculate
their minimum capital requirement. In addition, when disclosing their buffer requirement,
banks must also disclose the geographic breakdown of their RWAs used in the
calculation of the buffer requirement.

12. The CCCB decisions may form a part of the first bi-monthly monetary policy
statement of the Reserve Bank of India for the year. However, more frequent
communications in this regard may be made by the Reserve Bank of India, if warranted
by changes in economic conditions.

13. The indicators and thresholds for CCCB decisions mentioned above shall be subject
to continuous review and empirical testing for their usefulness and other indicators may
also be used by the Reserve Bank of India to support CCCB decisions.
Appendix 1
Individual bank minimum capital conservation
standards, when a bank is subject to a 2.5% CCB
and 1% CCCB

Common Equity Tier 1
Ratio bands
Minimum Capital
Conservation Ratios
(expressed as a percentage
of earnings)
> 5.5% – 6.375%* 100%
> 6.375% – 7.25% 80%
> 7.25% – 8.125% 60%
> 8.125% – 9.00% 40%
> 9.00% 0%

As the total requirement of CCB and CCCB is 2.5% and 1% respectively, at each band,
0.625% and 0.250% of RWA are being added for CCB and CCCB respectively.

*(6.375=5.50+0.625+0.250)

1 Credit-to-GDP gap is the difference between credit-to-GDP ratio and the long term trend value of
credit-to-GDP ratio at any point in time.

2 The CCCB requirement shall increase linearly from 0 to 20 basis points when credit-to-GDP gap
moves from 3 to 7 percentage points. Similarly, for above 7 and up to 11 percentage points range of
credit-to-GDP gap, CCCB requirement shall increase linearly from above 20 to 90 basis points.
Finally, for above 11 and up to 15 percentage points range of credit-to-GDP gap, the CCCB
requirement shall increase linearly from above 90 to 250 basis points. However, if the credit-to-GDP
gap exceeds 15 percentage points, the buffer shall remain at 2.5 per cent of the RWA.
3 Weight = (bank’s total RWA in a jurisdiction)/ (bank’s total RWA across all jurisdictions).

4 First CET 1 ratio band = Minimum CET 1 ratio + 25% of CCB + 25% of applicable CCCB. For
subsequent bands, starting point will be the upper limit of previous band. However, it may be
mentioned that CET 1 ratio band may change depending on various capital/buffer requirements (e.g.
D-SIB buffer) as prescribed by the Reserve Bank of India from time to time. Accordingly, lower and
upper values of the bands as given in Table-1 will undergo changes.