Reserve Bank of India seeks higher bank liquidity on course to meet tighter Basel III needs

New Delhi: The Reserve Bank of India (RBI) has proposed that banks must maintain higher liquid assets in order to prepare themselves for meeting the liquidity requirements under the new Basel III norms, which will come into effect later.

RBI has asked banks to file with it their liquidity returns under the Basel III framework from the quarter ending June 2012, the central bank said in its draft guidelines "Liquidity Risk Management and Basel III Framework on Liquidity Standards", released earlier Tuesday.

The Basel III rules on liquidity prescribe two minimum global regulatory standards, liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) for liquidity risk, which will become binding upon banks from January 1, 2015 and January 1, 2018, respectively.

The central bank's guidelines are pursuant to the recent global financial crisis, which has underlined the importance of sound liquidity risk management framework to the functioning of financial institutions and markets.

Banks are therefore expected to maintain "high-quality" liquid assets, both in cash and government bonds, which can be converted into cash to meet liquidity needs for a 30-day period under a stress situation, it said.

Currently, banks in India have to adhere to the RBI set norm on maintaining cash reserve ratio (CRR) and statutory liquidity ratio (SLR) at a particular level.

Banks have to maintain a CRR -- the portion of deposits that banks are required to keep with RBI -- at 5.5%, which was reduced by 50 basis points last month to inject Rs 320 billion of primary liquidity into the system.

While, SLR, the minimum amount of investments that banks need to make mostly in government securities, is 24% at present.

RELATED COMPANIES

Reserve Bank of India

The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. It was established on 1 April 1935 during the British Raj in accor ...

Read More..

RELATED STORIES

• Punjab National Bank sees no big pressure in moving to RBI's Basel III norms: chmn Kamath
• Central Bank of India will need Rs 140.67 bln fresh equity cap to meet RBI's Basel III norms: chmn
• Reserve Bank of India pegs minimum 7% tier I capital for banks under new Basel III norms
• RBI POLICY: Final norms on Basel III capital regulations implementation by Apr-end
• Reserve ratios must be cut gradually to make more funds available to lend: RBI Governor Subbarao