RBI draft circular on review of haircuts on HQLA and run-off rates on certain categories of deposits

On 9 June 2014, The Reserve Bank of India (‘RBI’) issued a circular titled “Guidelines on Liquidity Coverage Ratio (‘LCR’), Liquidity Risk Monitoring Tools and LCR Disclosure Standards” wherein it stated that LCR will be introduced in a phased manner starting with minimum requirement of 60% from 1 January 2015 and reaching minimum 100% by 1 January 2019. LCR, as we all understand, is a regulatory requirement and a key component of the Basel III framework. This ratio seeks to establish that banks have adequate high quality liquid assets to withstand any acute stress scenario lasting for 30 days.
In addition to the LCR, banks are also required to comply with the Net Stable Funding Ratio (‘NSFR’), which focuses on the stability of a bank’s funding sources over a longer time horizon. Both LCR and NSFR work together to ensure banks have sufficient liquidity to meet their obligations under both normal and stressed conditions.
On 25 July 2024, the RBI issued a draft circular titled “Draft guidelines: Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (‘LCR’) – Review of Haircuts on High Quality Liquid Assets (‘HQLA’) and Run-off Rates on Certain Categories of Deposits” seeking feedback from Banks and other stakeholders. In this draft circular, the RBI has proposed changes to be considered in the existing LCR computations in order to enhance the short-term liquidity resilience of the banks.