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Informist, Saturday, Dec. 7, 2024

--Axis Bk Gambhir on new LCR norms:It is regulatory impounding on the system 
--Axis Bk Gambhir: New LCR norms may lead to discrimination among depositors 
--CONTEXT: Axis Bank treasury head Neeraj Gambhir at Rupee Money Conference 
--Axis Bank Gambhir: Fall in deposit growth not a structural issue in banks

--ICICI Bank Prasanna on liquidity: CRR cut good move but need to do more

MUMBAI – A day after Reserve Bank of India Governor Shaktikanta Das said the new norms on liquidity coverage ratio did not intend to disrupt business, Neeraj Gambhir, group executive and head - treasury, markets and wholesale banking products at Axis Bank Ltd, said the norms were a regulatory impounding on the system.

"For a very long period of time, we have a core principle in the regulation that you have to treat every depositor as equal...which basically means...you have to maintain the same level of CRR and the same level of LCR, but what (new) LCR (norm) has done is it has forced us to now discriminate," Gambhir said at the Rupee Money Conference Saturday. "So, it is a discriminatory regulatory regime."

On Jul. 25, the RBI issued draft guidelines that proposed that banks should assign an additional 5% run-off factor to internet and mobile banking-enabled retail deposits. Among other changes, it also proposed tighter norms to value high-quality liquid assets of banks. Comments on the draft norms were invited till Aug. 31. Currently, banks must maintain high-quality liquid assets worth 100% of their expected outflows for the next 30 days. According to bankers and analysts, the changes proposed by the RBI are seen pushing up expected outflows, increasing the requirement of high-quality liquid assets--which primarily includes government securities--and finally, lowering growth in bank loans.

Speaking at the conference, Gambhir termed the new guidelines on liquidity coverage norms as a very theoretical comfort for the banking system. He also questioned the timing of the implementation of such norms. "CRR (cash reserve ratio) + HQLA (high quality liquid assets), with these draft regulations, will go up to as high as 30%, or thereabouts. The last time we were at this range was in 2008. So the question, therefore, to ask is...do we really require a banking system at this stage of our economy to maintain 30% of its net demand and time liabilities as liquid assets?"

According to him, there is a need to find alternative solutions to risks for banks, rather than holding excess liquid assets. On the challenges banks are facing in mobilising deposits, Gambhir said this was not a structural issue. 

Speaking about liquidity conditions in the banking system, Prasanna Balachander, head of treasury, ICICI Bank Global Markets Group, said the cut in cash reserve ratio of banks by the RBI on Friday was a welcome move, but it wasn't sufficient in itself to support banking system liquidity. "On Oct. 12, the core liquidity surplus was 4 lakh crores (INR 4 trillion)...now, down to 1 lakh crores (INR I trillion). So this entire 3 lakh crores (INR 3 trillion) has happened just in these two months....I am saying that they at least reacted on CRR and gave the money, but they have to do more," Prasanna said. 

On Friday, Reserve Bank of India Governor Shaktikanta Das said the central bank projects liquidity to remain tight in the next few months. Citing seasonal factors such as tax outflows and increased currency in circulation, the central bank cut the cash reserve ratio by 50 basis points to 4.00% of banks' net demand and time liabilities.  End

US$1 = INR 84.6975

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Sourabh Kumar and Kabir Sharma

Edited by Avishek Dutta

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