RBI lowers the requirement of Liquidity Coverage Ratio (LCR)

As part of Basel III Framework on Liquidity Standards, banks are required to maintain High Quality Liquid Assets (HQLAs) to meet 30 days net outgo under stressed conditions. Banks in India are also required to hold liquid assets of 18 percent of their NDTL from April 11, 2020 to maintain Statutory Liquidity Ratio (SLR). Although liquid assets under SLR and HQLAs under LCR are largely the same, the entire SLR-eligible assets held by banks are now permitted to be reckoned as HQLAs for meeting LCR. Till now, RBI has been allowing banks to use a progressively increasing proportion of the SLR securities for being considered as HQLAs for LCR so that the need to maintain liquid assets for both the requirements is optimised.

Further, to ensure that the repayment moratorium to help individuals and businesses to tide over the coronavirus-triggered disruptions do not land banks in a liquidity crisis, the RBI on Friday (April 17) lowered the liquidity coverage ratio (LCR) to 80 percent from 100 percent from April 17, 2020, to September 30, 2020. LCR from Oct 1, 2020, to March 31, 2021, lowered to 90 percent and from April 1, 2021 banks are required to maintain LCR of 100 percent.