RBI Update - Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR) – Review of haircuts on High Quality Liquid Assets (HQLA) and review of composition and run-off rates on certain categories of deposits-(Applicable -Commercial Banks )

In continuation of the guidelines issued under the Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools, and LCR Disclosure Standards, and pursuant to the draft circular dated July 25, 2024, feedback from stakeholders has been duly examined. Based on the review and analysis, the following final guidelines are issued:

1. Run-Off Factors for Retail Deposits with Internet and Mobile Banking (IMB) Facilities

Retail deposits enabled with internet and mobile banking (IMB) facilities shall attract an additional run-off factor of 2.5 per cent:

Stable deposits with IMB : 7.5% run-off (previously 5%)

Less stable deposits with IMB : 12.5% run-off (previously 10%)

2. Unsecured Wholesale Funding from Non-Financial Small Business Customers (SBCs)

Unsecured wholesale funding provided by non-financial SBCs shall be treated in line with the treatment of retail deposits specified in paragraph 1 above.

3. Valuation of Level 1 High Quality Liquid Assets (HQLA)

Level 1 HQLA in the form of Government securities shall be valued at no more than their current market value, after applying applicable haircuts in accordance with margin requirements prescribed under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF), as outlined in RBI circular FMOD.MAOG No.125/01.01.001/2017-18 dated June 06, 2018, and subsequent amendments.

4. Treatment of Pledged Deposits

Where a deposit—previously excluded from LCR computation (e.g., non-callable fixed deposit)—is contractually pledged as collateral for a credit facility or loan, it shall be treated as callable for LCR purposes. In such cases, the provisions under Sl. No. 9 of the annexure to circular dated March 23, 2016, shall apply.

5. Reclassification of Funding from Certain Entities

In modification of Sl. No. 10 of the annexure to the circular dated March 23, 2016, the following revised classification shall apply:

The ‘Other Legal Entities’ (OLE) category shall include all deposits and other funding from:

Banks

Insurance companies

Financial institutions

Entities engaged in the business of financial services

Funding from non-financial entities —including trusts (educational/religious/charitable), Associations of Persons (AoPs), partnerships, proprietorships, Limited Liability Partnerships (LLPs), and