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RBI Defers Basel III provisions amid Covid Uncertainty; Borrowing Limit for Banks & States Extended till Mar 31, 2021

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RBI-defers-Basel-III-provisions-amid-covid-uncertaintyOn September 29, 2020, the Reserve Bank of India (RBI) deferred implementation of provisions made under Basel III capital due to uncertainty related to Covid crisis. In this regard, RBI will repel the final tranche of the capital conservation buffer (CCB) and the implementation of net stable funding ratio (NSFR) by six months i.e. April 1, 2021.

Capital Conservation Buffer:

The capital conservation buffer is an additional pool that banks build in normal times for its use during periods of stress.

  • The RBI had asked banks to build up the capital conservation buffer to the required 2.5% in stages. The last stage of 0.625% was to start on Sept. 30, 2020. This has now been deferred to April 1, 2021. The RBI had earlier deferred the implementation by six months from March 31, 2020.

Net Stable Funding Ratio (NSFR):

The net stable funding ratio requires banks to fund their activities with sufficiently stable sources of funding over a time of a year to reduce future funding risk for banks. 

  • As per the prescribed timeline, banks were required to maintain NSFR of 100% from April 1, 2020 but now this deferred it for a second time to April 1, 2021.

RBI increased timeline for additional market borrowing provided to states/UTs by 6 months

In April 2020, RBI increased the Ways and Means Advances (WMA) Limits and overdraft (OD) regulations for states and Union Territories (UTs) to provide additional flexibility for dealing with the Covid-19 crisis till  September 30, 2020. 

  • Now to further aid the state governments from financial problems, RBI extended this timeline by six months i.e. till March 31, 2021.
  • Notably, RBI decided to increase the number of days for which a state/ UT can be in overdraft continuously to 21 working days from 14. Also, the number of days for which a state/ UT can be in overdraft in a quarter was increased to 50 working days from 36.

RBI extends enhanced borrowing limit for banks under MSF till Mar 31, 2021

RBI also extended the enhanced borrowing facility provided to banks under the marginal standing facility (MSF) scheme by six months till March 31, 2021. It was initially available up to June 30, 2020 and was later extended up to September 30, 2020 due to economic disruptions amid COVID-19.

  • On March 27, this borrowing limit for scheduled banks was increased from 2% to 3% of their net demand and time liabilities (NDTL).
  • Marginal standing facility (MSF): It is a window for banks to borrow from RBI in an emergency situation by pledging government securities at a rate greater than the repo rate under LAF (liquidity adjustment facility).
  • Net Demand and Time Liabilities or NDTL: It shows the difference between the sum of demand and time liabilities (deposits) of a bank (with the public or the other bank) and the deposits in the form of assets held by the other bank.

Recent Related News:

i.On May 3, 2020, After the closure of Punjab and Maharashtra Co-operative (PMC) Bank, RBI cancelled the license granted to the 105-year-old CKP Co-operative Bank Ltd located in Mumbai (Maharashtra) to conduct banking business which includes acceptance of deposits and repayment of deposits as defined in Section 5 (b) read with Section 56 of the Banking Regulation Act, 1949 with immediate effect.

ii.On May 13, 2020, in a bid to provide a considerable relief to the exporters, RBI extended the interest subsidy period by one year to 31 March 2021 on export credit received before and after shipment of goods to exporters.

About Reserve Bank of India (RBI):
Headquarters– Mumbai, Maharashtra
Formation– 1 April 1935
Governor– Shaktikanta Das
Deputy Governors– 4 (Bibhu Prasad Kanungo, Mahesh Kumar Jain, Michael Debabrata Patra, one is yet to be appointed).