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RBI makes it easier for banks to improve liquidity

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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 calculationsRBI
  • 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