Date: 2022-01-06Category: Not ApplicableState: Union GovernmentCountry: India
Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards and Net Stable Funding ratio – Small Business Customers
Executive Summary:
This circular from the Reserve Bank of India (RBI) revises guidelines on liquidity standards, specifically concerning the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). It increases the threshold limit for deposits and other extensions of funds made by non-financial Small Business Customers. The changes aim to align guidelines with BCBS standards and improve liquidity risk management for banks and are effective from the date of the circular, January 06, 2022.
Key Points / Main Content:
Revised Threshold for Small Business Customers:
* The threshold limit for deposits and other extensions of funds made by non-financial Small Business Customers is increased from ₹5 crore to ₹7.5 crore for LCR maintenance.
* This modification applies to deposits and other extensions of funds received from Small Business Customers as referred to in circular DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018, on NSFR Final Guidelines.
Applicability:
* The circular applies to all Commercial Banks, excluding Regional Rural Banks, Local Area Banks, and Payments Banks.
Effective Date:
* The instructions are effective from January 06, 2022.
Impact Analysis:
Commercial Banks (excluding Regional Rural Banks, Local Area Banks, and Payments Banks):
Impact:
* Must adhere to the revised threshold of ₹7.5 crore for deposits and other extensions of funds from non-financial Small Business Customers when maintaining LCR and NSFR.
* Need to incorporate the changes into their liquidity risk management practices.
Action Required:
* Update internal systems and processes to reflect the new threshold.
* Ensure compliance with the revised guidelines from the effective date.
Key Entities Referenced
Basel III Framework on Liquidity Standards: A set of international regulatory accords that address liquidity risk management for banks.
Liquidity Coverage Ratio (LCR): A key component of the Basel III framework, requiring banks to hold sufficient high-quality liquid assets to cover net cash outflows over a 30-day stress period.
Net Stable Funding Ratio (NSFR): Another key component of the Basel III framework, requiring banks to maintain a stable funding profile in relation to their assets and off-balance sheet activities.
Reserve Bank of India (RBI): The central bank of India, responsible for regulating the banking sector and monetary policy.
Small Business Customers: A specific category of bank customers, whose deposits and other extensions of funds are subject to particular regulatory treatment under liquidity standards.
Usha Janakiraman: Chief General Manager at Reserve Bank of India
Mumbai, Maharashtra: City in India, location of Central Office of Department of Regulation, Reserve Bank of India
Commercial Banks: Banks to which the circular is applicable, excluding Regional Rural Banks, Local Area Banks and Payments Banks.
भारतीय �रज़व� ब�क
_________________________RESERVE BANK OF INDIA ______________________
www.rbi.org.in
RBI/2021-22/151
DOR.No.PRD.LRG.79/21.04.098/2021-22 January 06, 2022
Dear Sir/Madam,
Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR),
Liquidity Risk Monitoring Tools and LCR Disclosure Standards and Net Stable
Funding ratio – Small Business Customers
Please refer to the following instructions:
i. Circular DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 09, 2014 on
‘Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio
(LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards’;
ii. Circular DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018 on
‘Standards – Net Stable Funding Ratio (NSFR) – Final Guidelines’;
iii. Circular DBR.No.BP.BC.80/21.06.201/2014-15 dated March 31, 2015 on
‘Prudential Guidelines on Capital Adequacy and Liquidity Standards –
Amendments’; and,
iv. Circular DOR.No.BP.BC.23/21.06.201/2020-21 dated October 12, 2020 on
‘Regulatory Retail Portfolio – Revised Limit for Risk Weight’.
2. With the objective to better align our guidelines with the BCBS standard and enable
banks to manage liquidity risk more effectively, it has been decided to increase the
threshold limit for deposits and other extensions of funds made by non-financial Small
Business Customers from ₹ 5 crore to ₹ 7.5 crore for the purpose of maintenance of
Liquidity Coverage Ratio (LCR).
िविनयमन िवभाग,क��ीय कायार्लय, 12 व� और 13 व� मंिजल, क��ीय कायार्लय भवन, शहीद भगत �संह माग,र्फोटर्,मुंबई-400001
दरू भाष: 022-22601000 फैक्स: 022-22705691 ई-मेल: cgmicdor@rbi.org.in
_____________________________________________________________________________________________________________________________________
Department of Regulation, Central Office, 12th and 13th Floor, Central Office Building, Shahid Bhagat Singh Marg, Fort, Mumbai- 400 001
Tel: 022- 2260 1000 Fax: 022-2270 5691 email: cgmicdor@rbi.org.in
�हदं ी आसान ह ै इसका �योग बढ़ाइए3. The above modification is also applicable to deposits and other extensions of funds
received from Small Business Customers referred to in the circular
DBR.BP.BC.No.106/21.04.098/2017-18 dated May 17, 2018 on ‘Basel III Framework
on Liquidity Standards – Net Stable Funding Ratio (NSFR) – Final Guidelines’.
4. The revised paragraphs after incorporating the above changes in the relevant
circulars is given in Annex.
Applicability
5. This circular is applicable to all Commercial Banks other than Regional Rural Banks,
Local Area Banks and Payments Banks.
6. These instructions come into effect from the date of the circular.
Yours faithfully
(Usha Janakiraman)
Chief General Manager
2ANNEX
Sr. Original RBI Existing Text in RBI Circulars Revised Text
No. Reference Paragraphs
1 Explanatory Note (v) to (v) Small Business Customers: This (v) Small Business Customers: This category
BLR-1) of circular category consists of deposits and other consists of deposits and other extensions of
DBOD.BP.BC.No.120/2 extensions of funds made by non- funds made by non-financial small business
1.04.098/2013-14 dated financial small business customers, as customers, as defined in para 5.9.3 (i) of RBI
June 09, 2014 defined in para 5.9.3 (i) of RBI Master Master Circular on Basel III Capital Regulations
amended vide circular Circular on Basel III Capital Regulations dated July 1, 2015, that are managed as retail
DBR.No.BP.BC.80/21.0 dated July 1, 2013, that are managed exposures and are generally considered as
6.201/2014-15 dated as retail exposures and are generally having similar liquidity risk characteristics to
March 31, 2015 considered as having similar liquidity retail accounts provided total aggregated
risk characteristics to retail accounts funding from any such Small Business
provided total aggregated funding from Customer is upto ` 7.5 crore (on a consolidated
any such Small Business Customer is basis where applicable).
upto Rs.5 crore (on a consolidated “Aggregated funding” means the gross amount
basis where applicable). (i.e. not netting any form of credit extended to
“Aggregated funding” means the gross the legal entity) of all forms of funding (e.g.
amount (i.e. not netting any form of deposits or debt securities or similar derivative
credit extended to the legal entity) of all exposure for which the counterparty is known to
forms of funding (e.g. deposits or debt be a small business customer). Notwithstanding
securities or similar derivative exposure the definition of small business customer as
for which the counterparty is known to defined in para 5.9.3 (i) of RBI Master Circular
be a small business customer). on Basel III Capital Regulations dated July 1,
Notwithstanding the definition of small 2015, a bank may include a deposit in this
business customer as defined in para category provided that the total aggregate
5.9.3 (i) of RBI Master Circular on Basel funding raised from the customer is upto ` 7.5
III Capital Regulations dated July 1, crore (on an aggregate basis where applicable)
2013, a bank may include a deposit in and the deposit is managed as a retail deposit.
this category provided that the total This means that the bank treats such deposits
aggregate funding raised from the in its internal risk management systemscustomer is upto Rs.5 crore (on an consistently over time and in the same manner
aggregate basis where applicable) and as other retail deposits, and that the deposits
the deposit is managed as a retail are not individually managed in a way
deposit. This means that the bank treats comparable to larger corporate deposits.
such deposits in its internal risk
management systems consistently over
time and in the same manner as other
retail deposits, and that the deposits are
not individually managed in a way
comparable to larger corporate
deposits.
2 Paragraph 7.4 of our Liabilities receiving a 90% ASF factor Liabilities receiving a 90% ASF factor comprise
circular comprise “less stable” (as defined in the “less stable” (as defined in the ‘Explanatory
DBR.BP.BC.No.106/21. ‘Explanatory Notes’ to BLR-1 in Circular Notes’ to BLR-1 in Circular on LCR dated June
04.098/2017-18 dated on LCR dated June 9, 2014) non- 9, 2014) non-maturity (demand) deposits and/or
May 17, 2018 on Net maturity (demand) deposits and/or term term deposits with residual maturities of less
Stable Funding Ratio deposits with residual maturities of less than one year provided by retail and small
than one year provided by retail and business customers as defined in the
small business customers as defined in ‘Explanatory Note’ to BLR-1 of Circular dated
the ‘Explanatory Note’ to BLR-1 of June 9, 2014 and modified vide circulars
Circular dated June 9, 2014 and DBR.No.BP.BC.80/21.06.201/2014-15 dated
modified vide circular dated March 31, March 31, 2015 and DOR.No.PRD.LRG.
2015. 79/21.04.098/2021-22 dated January 06, 2022