As G-20 nations came out with a declaration on strengthening the financial system to counter global crisis, the Reserve Bank has advised banks to create buffers in good times to avail them in adverse circumstances.
In this connection, RBI will come out with detailed measures later this year to combat adverse financial situation after the global financial stability forums like Financial Stability Forum (FSF), Basel Committee on Banking Supervision (BCBS) and Committee on Global Financial System (CGFS) work out detailed measures on the issue.
The central bank, in a statement, has asked banks to understand importance of building buffers, such as floating provisions (which are in excess of mandatory requirements) in this regard to mitigate "procyclicality". "RBI would also continue to take measures to mitigate procyclicality.It is necessary that banks do realise the importance of building buffers such as floating provisions in good times, so that they are able to use them in adverse circumstances," RBI said.
Besides, the central bank suggested to all the banks to build floating provisions as a buffer for the possible stress on asset quality later.