Informist, Thursday, Jul 25, 2024

MUMBAI – In the draft norms on Basel-III framework on liquidity standards issued today, the Reserve Bank of India has proposed that banks assign an additional 5% run-off factor on retail deposits opened by customers using internet and mobile banking facilities. These draft guidelines are applicable to all commercial banks, excluding payments banks, regional rural banks, and local area banks. The guidelines will come into effect on Apr 1.

"Stable retail deposits enabled with IMB (internet and mobile banking facilities) shall have 10% run-off factor and less stable deposits enabled with IMB shall have 15% run-off factor," the release said.

Detailing the outcome of the Monetary Policy Committee's policy review on Apr 5, Reserve Bank of India Governor Shaktikanta Das had said that the central bank plans to come out with a framework on liquidity standards to negate the risks posed by depositors who withdraw large amounts of cash quickly during times of stress.

"Banks covered under liquidity coverage ratio framework are required to maintain a stock of high quality liquid assets to cover the expected net cash outflows in the next 30 calendar days. However, recent episodes in some jurisdictions have demonstrated the increased ability of depositors to quickly withdraw or transfer deposits during times of stress, using digital banking channels," according to the Statement of the Developmental and Regulatory Policies.

The draft norms also state that unsecured wholesale funding, which is provided by non-financial small business customers, will be treated as retail deposits.

The RBI has also proposed that level-1 high quality liquid assets, which include cash, cash equivalents and qualifying government bonds, will be valued at their current market value and will be adjusted for applicable haircuts in line with the margin requirements under the Liquidity Adjustment Facility and Marginal Standing Facility.

Currently, the margin requirements for government bonds being offered as collateral under the Liquidity Adjustment Facility and Marginal Standing Facility on the basis of residual maturity range from 0.5% to 4.0% in five different buckets of residual maturity.

The central bank has also proposed that if a deposit has been excluded while calculating the liquidity coverage ratio, then it is contractually pledged as collateral to a bank to secure a loan and will be treated as a callable deposit.

The RBI has sought comments on these draft guidelines by Aug 31. End

Reported by Kshipra Petkar

Edited by Ashish Shirke

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