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Novel RBI way to buy peace with FinMin

By IndianMandarins- 21 Nov 2018


The RBI is said to have bought peace with the desperately hawkish FinMin by relieving the pressure on the Centre government finances by way of capital infusion.


If it had continued with the capital conservation buffer (CCB) mandate of 2.5 percent by March 2019, the Centre would have had to provide an additional Rs 36,000-odd crore for banks' capital infusion (based on Common Equity Tier CET levels as of September 2018).


This burden is now reduced by about Rs14,000 crore by the RBI board's decision to tinker only with the CCB and not the much-debated higher capital requirement of 9 percent for banks.


It is argued that CCB relief will only benefit very few banks that currently maintain the CCB higher than the mandated requirement of 1.875 percent. One rudimentary calculation shows that the move has relieved the pressure on the Centre’s fiscal by about Rs14,000 crore, it is unlikely to boost lending by freeing up capital for PSU banks.

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