The Reserve Bank of India (RBI) on Tuesday said banks should fix a lower limit for their IBL (inter-bank liability).
“The IBL of a bank should not exceed 200
per cent of its net worth as on March 31 of the previous year. However,
individual banks may, with the approval of their board of directors, fix
a lower limit for their inter-bank liabilities, keeping in view their
business model,” RBI said in its final guidelines on liquidity risk management.
According to experts, this would result in banks reworking their exposure limits.
RBI also
said banks whose capital to risk-weighted assets ratio (CRAR) was at
least 11.25 per cent (25 per cent more than the minimum CRAR of nine per cent) as on March 31 of the previous year, can have a higher limit of up to 300 per cent of net worth for IBL.
Besides, RBI allowed the limit on the
call money borrowings as prescribed by the central bank for call/notice
money market operations to operate as a sub-limit within the above IBL
limits.
At present, on a fortnightly average
basis, such borrowings should not exceed 100 per cent of bank’s capital
funds. However, banks are allowed to borrow a maximum of 125 per cent of
their capital funds on any day, during a fortnight.
The finance ministry had earlier asked
public sector banks to reduce their dependence on high cost volatile
bulk deposits. RBI said banks still having a high concentration of
wholesale deposits are expected to frame suitable policies to contain
the liquidity risk arising out of excessive dependence on such deposits.
Wholesale deposits for this purpose would be Rs 15 lakh or any such
higher threshold as approved by the banks’ board.
RBI has also tightened the reporting frequency of furnishing statement of structural liquidity.
RBI also told banks to focus on the
outcome of stress tests to identify and quantify sources of potential
liquidity strain and to analyse possible impacts on the bank’s cash
flows, liquidity position, profitability and solvency. According to RBI,
the results of stress tests should be discussed thoroughly by the
Asset-Liability Committee. “Remedial or mitigating actions should be
identified and taken to limit the bank’s exposures, to build up a
liquidity cushion and to adjust the liquidity profile to fit the risk
tolerance,” RBI said.
Banks have also been asked to formulate a
contingency funding plan (CFP) to respond to severe disruptions which
might affect the bank’s ability to fund some or all of its activities in
a timely manner and at a reasonable cost. “CFPs should prepare the bank
to manage a range of scenarios of severe liquidity stress that include
both bank-specific and market-wide stress and should be commensurate
with a bank’s complexity, risk profile, scope of operations,” RBI said.
Source: Business standard, Nov 08, 2012
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