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RBI allows 3% more of SLR for LCR

Posted by BrickAcres on February 12, 2016
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MUMBAI: The Reserve Bank of India has addressed the liquidity
issues of commercial banks by easing the regulations on the
liquidity coverage ratio.

On Thursday, it allowed banks to qualify 10% of SLR bonds as
Liquidity Coverage Ratio (LCR) from 7% earlier,a requirement
mandated under the Basel-III accounting norms from their
Statutory Liquidity Ratio (SLR) requirements. The move will
help banks to use an additional Rs 2.8 lakh crore of their
resources for lending.

The Reserve Bank had met banks on Tuesday to discuss their
liquidity woes. “We are an open central bank.” RBI governor
Raghuram Rajan said at CII conference referring to the l
meeting in which banks complained liquidity shortage
seeking a total of 15% of SLR be made eligible for
accounting LCR. “We will allow banks to use 3% more SLR
under LCR” Rajan said

In a circular issued to banks, the central bank said ” It
has been decided that …banks will be permitted to reckon
government securities held by them up to another 3 per cent
of their NDTL-net demand and time liabilities- within the
mandatory SLR requirement for the purpose of computing
their LCR.”

Banks have been facing tight market liquidity forcing them
to borrow from the Reserve Bank their daily liquidity
requirements and have been saying that because of tight
liquidity they have not been able to pass on the benefit
of interest rate cuts to the borrowers. They have borrowed
an average of Rs 1.3 lakh crore from the RBI in January.
The additional resources released will come in handy in
the fourth quarter when conventionally credit demand is
high.

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