RBI makes it easier for banks to improve liquidity

The watchdog of the Indian Banking system, RBI has announced to soften the rules on Liquidity measurement there by providing a sigh of relief for the banks to be in accordance with the new Basel III norms.

Measures announced by RBI

• Liquidity Coverage Ratio need not include the retail deposits whose maturity value is beyond a month
• The calculation also excludes the pledged deposits over 30 days maturity date
• Cash outflows of retail term deposit whose residual maturity or withdrawal notice period of greater than 30 days can be excluded from cash outflows calculation
• Previously bulk deposits over 1 crore where earlier withdrawals were not permitted only can be excluded from calculations
• Corporate debt securities which are not issued by banks, NBFC’s, financial institution will be subject to 50% haircut which earlier was 20%
• The above can also be considered as Liquidity Risk Monitoring tool

Liquidity Coverage Ratio

• To strengthen the Banking sector following the 2008 crisis, RBI announced certain norms and regulations on Liquidity calculations
• Owing to the difficulties concerned over calculations, the RBI has relaxed some of its norms making it easier for banks to adopt to Basel III norms

Points to note

• RBI governor– Raghuram Rajan
• RBI headquarters- Mumbai
• RBI established in 1935
• Basel III norms to be implemented by 2017