The Contingent Risk Buffer (CRB) is a financial concept and a component of the Reserve Bank of India's (RBI) Economic Capital Framework (ECF), acting as a reserve to cover unexpected risks and losses. It is a specific provision fund maintained by the central bank to be used during unforeseen contingencies, such as depreciation of securities values, risks from monetary policy changes, or systemic financial crises.
The formal mechanism for the CRB was established following the recommendations of the Expert Committee to Review the Extant Economic Capital Framework of the Reserve Bank of India, chaired by Dr. Bimal Jalan, which submitted its report in August 2019. The problem it solved was providing a clear, structured methodology for determining the appropriate level of risk provisioning and the distribution of the RBI's surplus to the Government of India, as mandated by Section 47 of the RBI Act, 1934.
The CRB is a part of the RBI's "realized equity," built up from retained earnings, and is distinct from volatile revaluation balances. The Bimal Jalan Committee initially recommended that the CRB be maintained within a range of 5.5 per cent to 6.5 per cent of the RBI's balance sheet. The mechanism works by requiring the RBI's Central Board to allocate a portion of its annual net income to the CRB before transferring the remaining surplus to the government. A higher CRB enhances the central bank's financial stability but results in a lower surplus transfer to the government, and vice-versa.
The CRB connects directly to the Economic Capital Framework (ECF), which is the overall risk management policy of the RBI. Recently, the ECF was revised, providing flexibility to maintain the CRB in a wider range of 4.5 per cent to 7.5 per cent of the balance sheet. For the accounting year 2025-26, the RBI's Central Board decided to maintain the CRB at 6.5 per cent of the balance sheet, which is within the revised ECF range. This decision followed a year where the CRB was maintained at 7.5 per cent of the balance sheet.