RBI's CCCB Guidelines Credit Positive for Domestic Lenders: Moody's

By Religare
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    RBI's recent guidelines on the countercyclical capital buffer (CCCB) are credit positive for the domestic lenders though the norms are unlikely to be activated in the current year, said the rating agency Moody's.

    "The guidelines are credit positive for Indian banks because they make clear that banks will be required to hold the additional capital amid periods of rapid credit growth," Moody's said in a report.

    RBI's CCCB Guidelines Credit Positive for Domestic Lenders: Moody's
    According to RBI's guidelines, issued last week, the key trigger for activating the CCCB will be when the credit/GDP ratio has risen relative to its long-term trend," it said.

    The RBI said it would require banks to hold the full 2.5 per cent buffer when the gap between the credit/GDP ratio and the long-term trend exceeds 15 percentage points.

    The central bank would implement a CCCB of less than 2.5 per cent when the gap is between three and 15 percentage points, with the size of the required CCCB increasing on a graduated scale.

    "Although the credit/GDP ratio will be the key trigger, the RBI said it will maintain its discretion when reducing the CCCB, and will also look at other indicators, including banks' ratios of loans to deposits, non-performing assets and interest coverage," Moody's said.

    CCCB-activation guidelines from other countries such as Hong Kong, Switzerland and Norway focus not only on the level of credit/GDP, but also on household debt indicators such as banks' mortgage assets and property prices.

    India's domestic credit/GDP ratio has consistently gone up over the years to touch at 80.2 per cent at the end of March 2014.

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