The Reserve Bank has revised certain rules on measuring liquidity for Basel-III norms, providing exemption to branches of foreign banks from submitting statement with regard to foreign currency.
- In view of developments since the issue of circulars regarding Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards, feedback received from the stakeholders and experience gained, it has been decided to amend certain provisions of these guidelines, RBI said in a notification.
- The revision also includes asking banks to exclude certain loans backed by deposits from liquidity coverage ratio calculations.
- As branches of foreign banks do not hold any foreign currency, they are exempted from submitting this statement with effect from the date of this circular, the revised guidelines said.
- All banks in India, including branches of foreign banks are required to report this on a monthly basis, going by the existing norms.
- The revised guidelines comes into effect from February 1, 2016.
Read more about BASEL III
- Basel III (or the Third Basel Accord) is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.
- It was agreed upon by the members of the Basel Committee on Banking Supervision in 2010–11, and was scheduled to be introduced from 2013 until 2015; however, changes from 1 April 2013 extended implementation until 31 March 2018 and again extended to 31 March 2019.
- The third installment of the Basel Accords (see Basel I, Basel II) was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08.
- Basel III is intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.