RBI recently issued the draft guidelines for banks on the Liquidity Coverage Ratio (LCR).

About Liquidity Coverage Ratio (LCR):

Definition:

Ratio of highly liquid assets to short-term obligations (30 days).

Purpose:

Ensure financial institutions can meet short-term liquidity needs.

30-Day Period:

Based on typical government and central bank response time during crises.

Origin:

Part of Basel III measures by the Basel Committee on Bank Supervision (BCBS).

Implementation in India:

RBI issued Basel III guidelines in 2012.

LCR implemented by RBI in January 2015.

2020 circular: Maintain sufficient HQLA for unexpected withdrawals.

Calculation:

Formula: LCR = (High Quality Liquid Assets (HQLA)) / (Total net cash outflows over 30 days).

HQLA: Easily and instantly convertible to cash at minimal/no cost.

Examples of HQLA: Cash, central bank reserves, central government bonds.

India-specific Note:

Excess SLR-eligible assets can be considered HQLA under LCR.