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
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