The Reserve Bank of India has deferred the implementation of two provisions under the Basel-III capital rules to avoid adding to strain faced by lenders due to the Covid-19 crisis.
In two separate notifications, the RBI said it would push back the final tranche of the capital conservation buffer and the implementation of the net stable funding ratio by six months.
Capital Conservation Buffer
The capital conservation buffer, by definition, is an additional pool that banks are expected to build in normal times for use during periods of stress. As such, it acts as a counter-cyclical support to banks.
The RBI had asked banks to build up the capital conservation buffer to the required 2.5% in stages. The last stage of 0.625% was to kick in starting Sept. 30, 2020. This has now been deferred to April 1, 2021. The RBI had earlier deferred the implementation by six months from March 31, 2020.
Net Stable Funding Ratio
The net stable funding ratio requires banks to fund their activities with sufficiently stable sources of funding over a time horizon of a year. This is intended to reduce future funding risk for banks.
As per the prescribed timeline, banks in India were required to maintain NSFR of 100% from April 1, 2020. The RBI has now deferred it for a second time to April 1, 2021.
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