RBI eases liq­uid­ity cov­er­age ra­tio norms

The Pak Banker - - FRONT PAGE -

MUM­BAI: The Re­serve Bank of In­dia (RBI) gave bankers more flex­i­bil­ity in main­te­nance of liq­uid­ity cov­er­age ra­tio (LCR) un­der Basel III by tweak­ing cer­tain norms and al­low­ing some cor­po­rate bonds to be in­cluded in the cal­cu­la­tions.

In a cir­cu­lar on Wed­nes­day, RBI said banks can in­clude cor­po­rate bonds and com­mer­cial pa­pers for reck­on­ing level 2B high-qual­ity liq­uid­ity as­sets (HQLA) pro­vided these cor­po­rate pa­pers have a long-term rat­ing be­tween "BBB-" and "A+" from a rec­og­nized credit rat­ing agency, are traded fre­quently in the cash or repo mar­kets and have a track record as a re­li­able source of liq­uid­ity even dur­ing stressed con­di­tions.

Level 2B HQLA se­cu­ri­ties are sub­ject to a hair­cut of 50% of their mar­ket value. Cor­po­rate bonds rated "AA-" and above are al­ready in­cluded in Level 2A of HQLA un­der the LCR norms of the cen­tral bank. How­ever, RBI said banks will have to ex­clude from LCR de­posits that have been used as col­lat­eral for a loan hav­ing ma­tu­rity of more than 30 days.

Un­der LCR norms, banks have to pro­vide state­ments of struc­tural liq­uid­ity for dif­fer­ent buck­ets. RBI tweaked these buck­ets on Wed­nes­day by split­ting the 29 days to up to three months bucket into a sep­a­rate 31 days and up to two months seg­ment and above two months and up to three months bucket.

Un­der a stated road map to adopt in­ter­na­tional Basel III stan­dards, RBI had no­ti­fied draft guide­lines for main­tain­ing LCR in April 2012 and sub­se­quently fi­nal norms in June 2014. Since then LCR norms have been tweaked twice to in­clude a part of the se­cu­ri­ties held un­der statu­tory liq­uid­ity ra­tio (SLR).

Cur­rently, banks can in­clude 7% of their SLR se­cu­ri­ties for the pur­pose of cal­cu­lat­ing LCR. Banks have to main­tain 70% LCR cur­rently and have to reach 100% LCR by Jan­uary 2019 un­der Basel III guide­lines.

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