Module: | MODULE B: RISK MANAGEMENT
Q326: Consider the following statements regarding the Countercyclical Capital Buffer (CCyB) under the Basel III framework:
1. It is designed to be accumulated during periods of excessive credit growth to protect the banking sector from the build-up of systemic risk.
2. The primary indicator used by regulators to activate the buffer is the gap between the credit-to-GDP ratio and its long-term trend.
3. According to the RBI review in April 2025, the CCyB for Indian banks was actively invoked and currently stands at a mandatory 2.5 percent.
Which of the statements given above is/are correct?
2. The primary indicator used by regulators to activate the buffer is the gap between the credit-to-GDP ratio and its long-term trend.
3. According to the RBI review in April 2025, the CCyB for Indian banks was actively invoked and currently stands at a mandatory 2.5 percent.
Which of the statements given above is/are correct?
✅ Correct Answer: A
The correct answer is A. Statement 1 is correct: The Countercyclical Capital Buffer (CCyB) is explicitly designed to restrict indiscriminate lending.
It requires banks to build up a capital buffer during periods of excessive credit growth (boom phases) so it can be drawn down during economic downturns.
Statement 2 is correct: The Basel Committee mandates that the primary empirical indicator to determine the activation and scaling of the CCyB is the credit-to-GDP gap (the difference between the current credit-to-GDP ratio and its long-term historical trend). Statement 3 is incorrect: As per the explicit RBI review published on April 15, 2025, the central bank assessed the supplementary indicators and the credit-to-GDP gap, concluding that conditions did not warrant the activation of the CCyB.
Therefore, the CCyB requirement for Indian banks currently remains deactivated at 0%.
It requires banks to build up a capital buffer during periods of excessive credit growth (boom phases) so it can be drawn down during economic downturns.
Statement 2 is correct: The Basel Committee mandates that the primary empirical indicator to determine the activation and scaling of the CCyB is the credit-to-GDP gap (the difference between the current credit-to-GDP ratio and its long-term historical trend). Statement 3 is incorrect: As per the explicit RBI review published on April 15, 2025, the central bank assessed the supplementary indicators and the credit-to-GDP gap, concluding that conditions did not warrant the activation of the CCyB.
Therefore, the CCyB requirement for Indian banks currently remains deactivated at 0%.