The Reserve Bank of India has told domestic banks to start reporting aspects of Basel III liquidity strength measures from June this year – ahead of the 2013 reporting timetable outlined by the Basel Committee
Meanwhile, banks are awaiting confirmation from the RBI on how much of their current liquid assets will comprise the LCR following the RBI’s recent circular on liquidity risk management.
Indian banks must conform to two liquidity buffers: the statutory liquidity ratio (SLR) – a mandatory 24% of a bank’s net demand and time liabilities – and a cash reserve ratio (CRR) of 4.75%. The SLR is mainly government securities while the CRR is mainly cash. The Basel III LCR requires banks to hold enough unencumbered liquid assets to cover expected net outflows during a 30-day stress period.
“Banks are eagerly waiting to understand how much of the SLR qualifies as high quality liquid assets for the Basel III LCR but the circular is silent on this. The way RBI has defined Basel III liquidity it is more or less the same as defined in international standards. It will allow a part of the mandatory SLR to form the LCR,” says Sur.
When the Basel III guidelines were first announced two years ago, the Indian Banks’ Association, a national trade body, indicated that 100% of the SLR should be allowed to qualify for the LCR but banks have now conceded it will be lower.
“From the banks’ side it should be a minimum of 50%,” says Shah from Indian Bank. “If the RBI only allows 40% we may face liquidity problems particularly when market liquidity is tight. If 50% is allowed we would meet the LCR at a rate of 120%. We have SLR securities at 28,000 crores [$5.5 billion] at the moment – it’s a big amount.”
This article was first published on Risk
