The Reserve Bank of India has issued the final guidelines today for the Liquidity Coverage Ratio (LCR) framework.
The Reserve Bank issued a draft circular on July 25, 2024 on ‘Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR) – Review of Haircuts on High Quality Liquid Assets (HQLA) and Run-off Rates on Certain Categories of Deposits’. The draft circular proposed certain amendments to the LCR framework and invited comments from banks and stakeholders.
With the issuance of these guidelines, a bank shall assign additional run-off rates of 2.5 per cent to internet and mobile banking enabled retail and small business customer deposits. Furthermore, a bank shall adjust the market value of Government Securities (Level 1 HQLA) with haircuts in line with margin requirements under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF).
In addition, the final guidelines also rationalize the composition of wholesale funding from ‘other legal entities’. Consequently, funding from non-financial entities like trusts (educational, charitable and religious), partnerships, LLPs, etc. shall attract a lower run-off rate of 40 per cent as against 100 per cent currently.
Reserve Bank is sanguine that these measures will enhance the liquidity resilience of banks in India, and further align the guidelines with the global standards in a non-disruptive manner.
To give the banks adequate time to transition their systems to the new standards for LCR computation, the revised instructions shall become applicable w.e.f. April 01, 2026.