RBI to review framework on Liquidity Coverage Ratio

  • Depositors are quickly withdrawing or transferring deposits during times of stress, using digital banking channels, RBI governor says

Gopika Gopakumar
First Published5 Apr 2024, 06:20 PM IST
A draft circular is expected to be issued shortly, the bank said in its statement on development and regulatory policies.
A draft circular is expected to be issued shortly, the bank said in its statement on development and regulatory policies.(Mint)

Mumbai: The Reserve bank of India is likely to review the framework on Liquidity Coverage Ratio for better management of liquidity risk by banks and a draft circular is expected to be issued shortly, RBI Governor Shaktikanta Das said on Friday.

"The recent episodes in some jurisdictions have demonstrated the increased ability of the depositors to quickly withdraw or transfer deposits during times of stress, using digital banking channels. Such emerging risks may require a revisit of certain assumptions under LCR framework," Das said.

Banks covered under the LCR framework are required to maintain a stock of high-quality liquid assets (HQLA) to meet 30 days' net outgo under stressed conditions. These assets include cash, short-term bonds, and other cash equivalents.

The requirement also includes excess (over the mandatory requirement) Statutory Liquidity Ratio (SLR) and Marginal Standing Facility (MSF), which is an emergency window made available by the RBI through which banks can obtain liquidity overnight.

Banks are required to maintain LCR of 100% with effect from 1 January 2019.

All SLR-eligible assets held by banks are now permitted to be reckoned as HQLAs for meeting LCR.

Bankers feel a need to redefine LCR after US-based banks Silicon Valley and Signature Bank faced massive withdrawal of funds within hours by clients using digital channels. 

"We don't expect the 100% LCR limit to get tweaked. But we could expect RBI to discount and allowances on various asset classes by either relaxing them or tightening them depending on the outcome of the review," said Ashutosh Khajuria, chief mentor, Federal Bank

"Therefore there is a need for periodic review of LCR stipulations," he added.

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First Published:5 Apr 2024, 06:20 PM IST
HomeIndustryBankingRBI to review framework on Liquidity Coverage Ratio

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