RBI issued a statement that sets out various developmental and regulatory policy measures for strengthening regulation and supervision and for broadening and deepening the financial markets. These include measures related to leverage ratio for banks, licensing of small finance banks, and liquidity management framework. Additionally, the statement also sets out developmental and regulatory policy measures for improving payment and settlement systems.
Leverage Ratio for Banks—In terms of the leverage ratio framework of RBI, banks have been monitored against an indicative leverage ratio of 4.5%. These guidelines have served the purpose of disclosures and as the basis for parallel run by banks. BCBS had finalized, in December 2017, that banks must meet a minimum 3% leverage ratio requirement at all times. Both the capital measure and the exposure measure are to be calculated on a quarter-end basis. However, banks may, subject to the supervisory approval, use more frequent calculations (for example, daily or monthly average) as long as they do so consistently. Keeping in mind financial stability and with a view to moving further toward harmonization with Basel III standards, RBI has decided that the minimum leverage ratio should be 4% for domestic systemically important banks (D-SIBs) and 3.5% for other banks. The instructions in this regard shall be issued soon.
On-Tap Licensing of Small Finance Banks—It has been proposed to issue the draft guidelines for on-tap licensing of small finance banks by the end of August 2019. It has also been decided that more time is needed to review the performance of Payments Banks before considering the licensing of this category of banks to be put on tap.
Internal Working Group to Review Liquidity Management Framework—Liquidity management framework of RBI was last reviewed in 2014. While the current liquidity management framework has worked well, it has become somewhat complex. An assessment of liquidity position by different market participants has varied markedly and is not always in synchronization with the actual systemic liquidity position in the economy. Accordingly, RBI has been decided to constitute an Internal Working Group to comprehensively review the existing liquidity management framework and suggest measures, among others, to simplify the current liquidity management framework and clearly communicate the objectives, quantitative measures, and toolkit of liquidity management by RBI. The Group is expected to submit its report by mid-July 2019.
Keywords: Asia Pacific, India, Banking, Securities, Leverage Ratio, Small Finance Banks, Regulation and Supervision, Liquidity Management, Basel III, BCBS, RBI
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