RBI To Review Liquidity Coverage Ratio Framework For Banks
The RBI will also continue to undertake a review of regulations in line with the evolving financial landscape.
The Reserve Bank of India will review the liquidity coverage ratio framework for banks, Governor Shaktikanta Das said in his monetary policy address on Friday.
The regulator will soon issue a draft circular for stakeholder comments on this.
As per guidelines, banks that are covered under LCR framework are required to maintain a stock of high-quality liquid assets. This helps them cover the expected net-cash outflows in the next 30 days. They are also required to maintain LCR of 100% with effect from Jan. 1, 2019.
However, some recent instances have shown that depositors have an ability to quickly withdraw or transfer deposits, especially in times of stress, Das said.
In light of such emerging risks, the RBI will revisit some assumptions under the LCR framework. It will review the framework for banks and also receive feedback from the industry, the governor said.
Key indicators of capital and asset quality of scheduled commercial banks and non-banking financial companies continue to be in line with banking system, he said.
The RBI will also continue to undertake a review of regulations in line with the evolving financial landscape. This will be in pursuance of recommendations of the Regulations Review Authority 2.0, Das said.
The RRA 2.0 was an advisory group, comprising members from regulated entities, under Swaminathan J, former managing director of State Bank of India and the current deputy governor of RBI. The group's idea was to identify areas and regulations that could be simplified and rationalised for the system.
Apart from banks, the RBI also allowed small finance banks to enter into interest rate futures contracts only for hedging purposes.
This will expand avenues available to the SFBs for hedging interest rate risk in their balance sheet and commercial operations more effectively, with a view to provide them with greater flexibility, Das said.
India's Monetary Policy Committee kept the benchmark repo rate unchanged at 6.50% for the seventh straight meeting while being focused on the 'withdrawal of accommodation' to ensure that inflation progressively aligns with the target while supporting growth.
The committee had raised the benchmark repo rate by 250 basis points in the last cycle before opting for a pause in April last year.
