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June 15, 2018

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. The change is effective from the date of this circular—that is, June 15, 2018.

At present, the assets allowed as the Level 1 HQLA 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 include (i) 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 (ii) under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [presently 9% of the bank's NDTL]. It has been decided to permit banks, with effect from the date of this circular, to reckon government securities held by them up to another 2% 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 11%, taking the total carve out from SLR available to banks to 13% of their NDTL. 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).

 

Effective Date: June 15, 2018

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

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