Money & Banking

RBI ups threshold for LCR maintenance by banks on funds received from non-financial small biz customers

Our Bureau | | | Updated on: Jan 06, 2022
A security guard's reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai, India, June 6, 2019. REUTERS/Francis Mascarenhas/File Photo

A security guard's reflection is seen next to the logo of the Reserve Bank Of India (RBI) at the RBI headquarters in Mumbai, India, June 6, 2019. REUTERS/Francis Mascarenhas/File Photo | Photo Credit: FRANCIS MASCARENHAS

All commercial banks should maintain LCR if they receive deposits of ₹7.5 crore and above

The Reserve Bank of India has upped the threshold limit for Banks to maintain Liquidity Coverage Ratio (LCR) on deposits and other extension of funds received from non-financial small business customers from ₹5 crore to ₹7.5 crore.

So, henceforth, all commercial banks (other than regional rural banks, local area banks and payments banks) will be required to maintain LCR if they receive deposits of ₹ 7.5 crore and above from non-financial small business customers against ₹5 crore earlier.

High quality liquid assets

LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days.

Banks are required hold a stock of HQLA at least as large as the expected total net cash outflows over the stress period.

Also read: Liquidity flush: Banks seek to park more than the notified amount at VRRR auction

The central bank said this upward revision in the threshold better aligns its guidelines with the Basel Committee on Banking Supervision (BCBS) standard and enable banks to manage liquidity risk more effectively.

So, to extent of the upward revision in the threshold, Banks may be able to lend instead of parking in HQLAs.

HQLAs include cash including cash reserves in excess of required cash reserve ratio; and government securities (G-Secs) in excess of the minimum statutory liquidity ratio requirement.

Further, such assets will also include, within the mandatory SLR requirement, G-Secs to the extent allowed by RBI under Marginal Standing Facility; marketable securities issued or guaranteed by foreign sovereigns.

Published on January 06, 2022
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