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To help banks meet the liquidity coverage ratio (LCR) norm, the Reserve Bank of India on Thursday said government securities up to 9 per cent of their deposits under the Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) will be reckoned as High Quality Liquid Assets (HQLA) as against 8 per cent hitherto.
The objective of the LCR is to promote short-term resilience of the liquidity risk profile of banks. It does this by ensuring that banks have adequate stock of unencumbered HQLA that can be converted easily and immediately into cash in private markets to meet their liquidity needs for a 30 calendar day liquidity stress scenario.
The LCR is aimed at improving the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy
Besides the FALLCR, the assets allowed as Level 1 HQLAs for the purpose of computing the LCR of banks, inter alia, include government securities in excess of the minimum statutory liquidity ratio (SLR) requirement and G-Secs to the extent allowed by the RBI under the Marginal Standing Facility (currently, 2 per cent of the bank’s deposits).
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