Counter Cyclical Capital buffer is the capital to be kept by a bank to meet business cycle related risks. It is aimed to protect the banking sector against losses from changes in economic conditions.
Banks may face difficulties in phases like recession when the loan amount doesn’t return. To meet such situations, banks should have own additional capital. This is an important theme of the Basel III norms.
According to the RBI regulations, universal banks in India have to maintain a counter cyclical capital conservation buffer of 1 2.5% by 2019.
