Mumbai: A recent revision in liquidity guidelines under the Basel-III framework by RBI will help lenders meet the 60 per cent liquidity coverage ratio (LCR) threshold set for January 2015, ratings agency Crisil said today.
“The revised norms allocate a greater share of bank investments in mandatory SLR (Statutory Liquidity Ratio) towards HQLA (high quality liquid assets). This will enhance the quantum of HQLA by an additional Rs 4.5 trillion for the entire system,” Crisil's senior director Pawan Agrawal said. He added that the revision in rules by the RBI will help most of the banks achieve the January 2015 target of upping their respective LCRs to 60 per cent.
The revision by the RBI, announced in the bi-monthly policy statement last month, allows banks to include a higher share (7 per cent of net demand and time liabilities, up from 2 per cent earlier) of their government security holdings under SLR as a part of HQLA.
The Basel-III capital framework, adopted to manage disruptive events like the 2008 financial crisis in a better way, requires banks to hold sufficient HQLA to cover potential cash outflows in a stress scenario lasting 30 days. However, in the note, Crisil said that though the revision takes care of the immediate requirements, this change will not be sufficient to attain the long term target of increasing the LCR to 100 per cent by January 2019.
The diversification of the country's corporate bond market will play an important role in making it possible, it said. “We estimate that less than 10 per cent of banks' HQLA is in the form of non-financial corporate bonds and commercial paper, as against the permissible 40 per cent. A deepening of the corporate bond market over the medium term will allow for more issuances from the corporate sector, and enable banks to meet their LCR requirements,” its director Rajat Bahl said.
