The Reserve Bank of India vide its circular dated 18th April 2022, has revised the Base-III framework on liquidity standards for reckoning liquidity coverage ratio. This circular is applicable to all Commercial Banks other than Regional Rural Banks, Local Area Banks and Payments Banks.
RBI has decided to permit banks to reckon Government securities as Level 1 High Quality Liquid Assets (HQLA) under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) within the mandatory Statutory Liquidity Ratio (SLR) requirement up to 16 per cent of their NDTL.
Accordingly, the total HQLA carve out from the mandatory SLR, which can be reckoned for meeting LCR requirement will be 18 per cent of Net Demand and Time Liabilities (NDTL) (2 per cent MSF plus 16 per cent FALLCR).
RBI in its earlier notification introduced Liquidity Coverage Ratio (LCR), which requires banks to maintain High Quality Liquid Assets (HQLAs) to meet 30 days net outgo under stressed conditions. Further, as per Banking Regulation Act, 1949, the banks in India are required to hold liquid assets to maintain Statutory Liquidity Ratio (SLR). In view of the fact that liquid assets under SLR and HQLAs under LCR are largely the same, RBI have been allowing banks to use a progressively increasing proportion of the SLR securities for being considered as HQLAs for LCR so that the need to maintain liquid assets for both the requirements is optimised.
At present the assets allowed as Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the LCR, inter alia, include (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 per cent of the banks’ Net Demand and Time Liabilities (NDTL)].
Since MSF has been reduced to 2 per cent from 3 per cent of NDTL from January 1, 2022, the total HQLA carve out from the mandatory SLR, which can be reckoned for meeting LCR requirement, has reduced to 17 per cent of NDTL (2 per cent MSF plus 15 per cent FALLCR) from 18 percent.
However, through this notification it has been decided that the total HQLA carve out from the mandatory SLR, which can be reckoned for meeting LCR requirement shall be 18 per cent of NDTL (2 per cent MSF plus 16 per cent FALLCR).
