**Policy Summary: RBI Directive on Liquidity Coverage Ratio (LCR) – September 27, 2018**
This circular, RBI20181951 DBR.BP.BC.No.421.04.098201819, issued by the Reserve Bank of India (RBI) on September 27, 2018, addresses the Basel III framework concerning liquidity standards, specifically the Liquidity Coverage Ratio (LCR), liquidity risk monitoring tools, and LCR disclosure standards for all Scheduled Commercial Banks (excluding RRBs and Small Finance Banks (SFBs)).
The circular amends the definition of Level 1 High Quality Liquid Assets (HQLAs) for LCR calculation. Effective October 1, 2018, banks are permitted to include Government securities up to an additional 2% of their Net Demand and Time Liabilities (NDTL) under the Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) within the mandatory Statutory Liquidity Ratio (SLR) requirement, as Level 1 HQLA for LCR calculation.
Consequently, the total permissible carve-out from SLR under FALLCR increases to 13% of NDTL. Combined with the existing allowance under Marginal Standing Facility (MSF), this raises the total carve-out from SLR available to banks to 15% of their NDTL.
The directive reiterates that for LCR purposes, Government securities reckoned as HQLA should be valued at an amount not exceeding their current market value, irrespective of their categorization (Held to Maturity (HTM), Available for Sale (AFS), or Held for Trading (HFT)).
Contact: Saurav Sinha, Chief General Manager-in-Charge.
Key Entities Referenced
Basel III Framework on Liquidity Standards: International regulatory framework for banks concerning liquidity risk management, including the Liquidity Coverage Ratio (LCR).
Liquidity Coverage Ratio (LCR): A key component of Basel III, requiring banks to hold sufficient high-quality liquid assets to cover net cash outflows over a 30-day stress period.
Scheduled Commercial Banks: Banks included in the Second Schedule to the Reserve Bank of India Act, 1934, excluding Regional Rural Banks (RRBs) and Small Finance Banks (SFBs).
High Quality Liquid Assets (HQLAs): Assets that can be easily and immediately converted into cash at little or no loss of value, used for LCR calculation. Includes Level 1 assets like government securities.
Statutory Liquidity Ratio (SLR): The minimum percentage of deposits that a commercial bank must maintain in liquid assets like government securities.
Marginal Standing Facility (MSF): A facility under which scheduled commercial banks can borrow overnight funds from the Reserve Bank of India (RBI) against their SLR securities.
Net Demand and Time Liabilities (NDTL): The difference between the sum of demand and time liabilities (deposits) of a bank and its interbank assets.
Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR): A facility that allows banks to use government securities held under SLR to meet LCR requirements.
RBI/2018-19/51
DBR.BP.BC.No.4/21.04.098/2018-19 September 27, 2018
All Scheduled Commercial Banks
(Excluding RRBs) & Small Finance
Banks (SFBs)
Dear Sir,
Basel III Framework
on Liquidity Standards - Liquidity Coverage Ratio (LCR),
Liquidity Risk Monitoring Tools and LCR Disclosure Standards
Please refer to our circular DBR.BP.BC.No.114/21.04.098/2017-18 dated June 15,
2018 and other associated circulars on the captioned subject.
2. Presently, the assets allowed as the Level 1 High Quality Liquid Assets
(HQLAs) for the purpose of computing the LCR of banks, inter alia, include (a)
Government securities in excess of the minimum SLR requirement and, (b) within
the mandatory SLR requirement, (i) Government securities to the extent allowed by
RBI under Marginal Standing Facility (MSF) [presently 2 per cent of the bank's
NDTL] and (ii) under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR)
[presently 11 per cent of the bank's NDTL].
3. It has been decided to permit banks with effect from October 1, 2018, to
reckon Government securities held by them up to another 2 per cent of their NDTL,
under FALLCR within the mandatory SLR requirement, as Level 1 HQLA for the
purpose of computing their LCR. Hence, the carve-out from SLR, under FALLCR will
now be 13 per cent, taking the total carve out from SLR available to banks to 15 per
cent of their NDTL.
4. For the purpose of LCR, banks shall continue to value such government
securities reckoned as HQLA at an amount not greater than their current market
value (irrespective of the category under which the security is held, i.e., HTM, AFS or
HFT).
Yours faithfully,
(Saurav Sinha)
Chief General Manager-in-Charge