April 04, 2019

RBI amended the requirement of Level 1 High Quality Liquid Assets (HQLA) for computing the liquidity coverage ratio (LCR) of banks. The LCR computation is a part of the RBI's Basel III framework on liquidity standards, which covers LCR, liquidity risk monitoring tools, and LCR disclosure standards.

At present, the assets allowed as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing the LCR of banks include government securities in excess of the minimum Statutory Liquidity Ratio (SLR) requirement. Within the mandatory SLR requirement, Level 1 HQLA also includes government securities to the extent allowed by RBI under Marginal Standing Facility (MSF) [presently 2% of the bank's Net Demand and Time Liabilities (NDTL)] and under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [presently 13% of the bank's NDTL].

It has been decided to permit banks to reckon an additional 2.0% government securities held by them under FALLCR within the mandatory SLR requirement as Level 1 HQLA for the purpose of computing LCR, in a phased manner. 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—that is, Held to Maturity/HTM, Available for Sale/AFS, or Held for Trading/HFT). The RBI Circular also specifies the incremental transitional requirements for the use of additional 2% of government securities as Level 1 HQLA between April 04, 2019 and April 01, 2020.

 

Keywords: Asia Pacific, India, Banking, Liquidity Risk, Basel III, LCR, HQLA, Statutory Liquidity Ratio, RBI

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