RBI raises share of govt bonds to meet liquidity norms

The Reserve Bank of India (RBI) on Tuesday increased the component of government bonds held by banks to qualify for high-quality liquid assets (HQLA) by another five per cent, to help them meet Basel-III liquidity norms.

RBI had issued the norms for liquidity coverage ratio (LCR) in June, permitting banks to reckon government securities as Level-1 HQLA under the LCR.

Now, banks will be allowed to include government securities held by them up to another five per cent of net demand and time liabilities (NDTL) within the mandatory statutory liquidity ratio (SLR) requirement as Level-1 HQLA for meeting the LCR norms.

RBI in its fourth bi-monthly monetary policy statement said it would issue detailed guidelines for this by the middle of next month.

This additional liquidity up to five per cent of NDTL will be available through a special facility. RBI will charge a rate higher than the marginal standing facility rate, taking into account the market conditions.

The government securities reckoned for the LCR should be valued at an amount not greater than their current market value, because HQLAs should be taken at their market value for the purpose of computing the LCR.

By allowing up to seven per cent of NDTL to be reckoned for LCR, the system is now better placed for compliance, said V R Iyer, chairman and managing director of Bank of India.

For Bank of India, it means that Rs 28,000 crore from SLR will be available for classification as high-quality liquid assets, the bank said in a statement.