RBI allows banks to reckon additional govt bonds as high-quality liquid assets to compute liquidity ratio

The Reserve Bank of India, on April 18, allowed banks to reckon additional government bonds as level one High Quality Liquid Assets (HQLA) to compute the liquidity coverage ratio.

Banks will be allowed to reckon bonds up to 16 percent of their net demand and time liabilities with immediate effect against 15 percent earlier, the RBI said in a release.

Accordingly, the total HQLA carve-out from the mandatory Statutory Liquidity Ratio, which can be reckoned for meeting LCR requirement will be 18 percent of banks’ Net Demand and Time Liabilities, according to the release.

In banking parlance, the liquidity coverage ratio refers to the proportion of highly liquid assets held by banks, to ensure their ability to meet short-term obligations. Statutory liquidity ratio is the reserve requirement that banks are required to maintain in the form of cash, gold reserves, and government bonds among others, before providing credit to customers.