Reserve Bank of India (“RBI”) has released a circular dated April 18, 2022 (“Circular”) on “Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR)”.
The RBI had previously released a circular dated April 17, 2020 on “Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR)”.
In terms of the aforementioned circular, the assets allowed as Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the LCR, inter alia, included (a) Government securities in excess of the mandatory SLR requirement and (b) within the mandatory SLR requirement, Government securities to the extent allowed under (i) Marginal Standing Facility (MSF) and (ii) Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) 15 % of the banks’ Net Demand and Time Liabilities (NDTL).
Since from January 1, 2022, the MSF has been reduced to 2 % from 3 % of NDTL, the total HQLA carve out from the mandatory SLR, which can be reckoned for meeting LCR requirement, has reduced to 17 % of NDTL (2 % MSF plus 15 % FALLCR) from 18 %.
RBI has now decided to permit banks to reckon Government securities as Level 1 HQLA under FALLCR within the mandatory SLR requirement up to 16 % of their NDTL. Accordingly, the total HQLA carve out from the mandatory SLR, which can be reckoned for meeting LCR requirement will be 18 % of NDTL (2 % MSF plus 16 % FALLCR).
This circular is applicable to all Commercial Banks other than Regional Rural Banks, Local Area Banks and Payments Banks.
These directives shall come into force with immediate effect.