Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standard

RBI/2017-18/36 DBR.BP.BC.No. 81/21.04.098/2017-18 August 02, 2017 All Scheduled Commercial Banks (excluding RRBs) Dear Sir/Madam, Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standard Please refer to our circular DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 9, 2014 “Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards” read along with amendments introduced by following circulars: i) DBR.BP.BC.No.52/21.04.098/2014-15 dated November 28, 2014 on “Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards.” ii) DBR.No.BP.BC.80/21.06.201/2014-15 dated March 31, 2015 on “Prudential Guidelines on Capital Adequacy and Liquidity Standards – Amendments.” iii) DBR.BP.BC.No.86/21.04.098/2015-16 dated March 23, 2016 on “Liquidity Risk Management & Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards.” ____________________________________________________________________________________ ब��कंग �व�नयमन �वभाग, क�द्र�य कायार्लय, 12वी ं और 13वी ं मंिज़ल, क�द्र�य कायार्लय भवन, शह�द भगत �सहं माग,र् मंबु ई 400001 टेल�फोन /Tel No: 22661602, 22601000 फैक्स/Fax No: 022-2270 5670, 2260 5671, 5691 2270, 2260 5692 Department of Banking Regulation, Central Office, 12th & 13th Floor, Central Office Bhavan, Shahid Bhagat Singh Marg, Mumbai - 400001 Tel No: 22661602, 22601000 Fax No: 022-2270 5670, 2260 5671, 5691 2270, 2260 56922. In view of feedback received from the stakeholders and experience gained, it has been decided to amend certain provisions of these guidelines. The amendment to specific instructions of the above-mentioned circulars are given in the Annex. Yours faithfully, (S. S. Barik) Chief General Manager-in-charge Encls: as aboveAnnex Amendment to DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 9, 2014 “Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards. Sr. Para Existing Amended 1 5.4 5.4 Level 1 assets of banks 5.4 Level 1 assets of banks would would comprise of the following comprise of the following and these and these assets can be assets can be included in the stock of included in the stock of liquid liquid assets without any limit as also assets without any limit as also without applying any haircut: without applying any haircut: i. Cash including cash reserves in i. Cash including cash reserves excess of required CRR. in excess of required CRR. i(a). For banks incorporated in India, ii. Government securities in • Reserves held with foreign excess of the minimum SLR Central Banks in excess of the requirement. reserve requirement1, where a iii. Within the mandatory SLR foreign sovereign has been requirement, Government assigned a 0% risk weight as securities to the extent allowed per rating by an international by RBI, under Marginal rating agency. Standing Facility (MSF). • Reserves held with foreign iv. Marketable securities issued Central Banks in excess of the or guaranteed by foreign reserve requirement, to the sovereigns satisfying all the extent these balances cover the following conditions: bank’s stressed net cash outflows in that specific (a) assigned a 0% risk currency, in cases where a weight under the Basel II foreign sovereign has been standardized approach for assigned a non-0% risk weight credit risk; as per rating by an international rating agency, but a 0% risk (b) Traded in large, deep weight has been assigned at and active repo or cash national discretion under Basel markets characterised by a II Framework. low level of concentration; and proven record as a ii. Government securities in excess of reliable source of liquidity in the minimum SLR requirement. the markets (repo or sale) iii. Within the mandatory SLR even during stressed requirement, Government securities to market conditions. the extent allowed by RBI2, under (c) not issued by a Marginal Standing Facility (MSF). 1 Central bank’s reserves would include banks overnight deposits with central banks, and term deposits with the central banks that: (i) are explicitly and contractually repayable on notice from the depositing bank; or (ii) that constitute a loan against which the bank can borrow on a term or on an overnight basis but automatically renewable basis (only where the bank has existing deposit with the relevant central bank). Other term deposits with central banks are not eligible for the stock of HQLA. However, if the term expires within 30 days, the term deposits could be considered as an inflow. 2 Government securities to the extent of 2 per cent of NDTL may be included i.e. currently allowed under marginal standing facility (MSF).bank/financial institution/ iv. Marketable securities issued or NBFC or any of its affiliated guaranteed by foreign sovereigns3 entities. satisfying all the following conditions: (a) assigned a 0% risk weight under the Basel II standardized approach for credit risk; (b) Traded in large, deep and active repo or cash markets characterised by a low level of concentration; and proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions. (c) not issued by a bank/financial institution/NBFC or any of its affiliated entities. 3 These securities will include only marketable securities which attract a 0% risk-weight in terms of paragraph 5.3.1 of RBI’s Master Circular on ‘Basel III Capital Regulations’ dated July 1, 2013. In cases where a foreign sovereign has been assigned a non-0% risk weight as per rating by an international rating agency, but a 0% risk-weight has been assigned at national discretion under Basel II Framework, marketable securities issued or guaranteed by that foreign sovereign within its domestic jurisdiction will be allowed to the extent those securities cover a bank’s stressed net cash outflows in that specific foreign currency stemming from the bank’s operations in the jurisdiction where the bank’s liquidity risk is being taken.