RBI may allow partial SLR conversion to meet Basel-III norms
The Reserve Bank Monday hinted at allowing part of the statutory liquidity ratio (SLR) holdings of banks to be treated as liquid assets under the Basel-III guidelines, which will come into effect next fiscal.
Mumbai: The Reserve Bank Monday hinted at allowing part of the statutory liquidity ratio (SLR) holdings of banks to be treated as liquid assets under the Basel-III guidelines, which will come into effect next fiscal.
"We already have quite a bit of liquidity ratio requirement.... If you look at our SLR, it is supposed to be maintained continuously.
"Therefore, question arises whether we add some more liquidity on top of SLR, which will be definitely not good for our banks. So, we are looking at carving out SLR so that a part of it can become usable," RBI Deputy Governor Anand Sinha told reporters on the sidelines of an event here.
However, Sinha did not offer any details on how much of the SLR holdings can be converted. Currently, the SLR is pegged at 23 per cent, while the average industry holding is above 28 per cent.
The Basel III framework, which was adopted in the wake of the 2008 global financial crisis to safeguard banks in case of stress, seeks a higher liquidity coverage ratio that requires banks to hold marketable high quality liquid assets.
As per the RBI estimate, domestic banks need Rs 1.4-1.5 trillion for complying with the guidelines.
Referring to yesterday's Basel committee meeting, which extended the final implementation deadline by a year to March 2019, Sinha said now banks have to be 100 per cent compliant with the liquidity management from 2019, but he did not elaborate on its impact on the domestic banks.
On Sunday, banks got a respite when the global regulators extended deadline for Basel-III compliance by a year to 2019. They also broadened the definition of liquid assets to include shares, retail mortgage-backed securities, among others.
Referring to final new bank licence norms, Sinha said that the central bank would come up with new regulations soon. He, however, did not divulge any timeline.
Earlier, addressing a seminar on the proposed guidelines on non-banking finance companies (NBFCs), Sinha said the concerns of the industry would be taken into consideration but they could not be treated at par with banks.
Allaying fears regarding the new benchmark of Rs 25 crore for registration, the deputy governor said they would not be out of business due to this proposed norm as feared by many analysts.
He also stressed on the stringent liquidity management measures implemented for NBFCs to protect them against any systemic failure.
Talking about the proposed guidelines regarding maintaining higher tier-I capital by most NBFCs, Sinha said as per global standards, the gap between capital adequacy ratio between banks and NBFCs have to be shortened.
The apex bank released the final draft guidelines on NBFCs last month based on the recommendations of the Usha Thorat committee report.
The key recommendations of these reports are higher tier-I capital ratio, reduction of NPA recognition period, higher liquidity assets, among others.