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RBI expands Basel-III-compliant asset base of banks

Ahead of the implementation of the Basel III capital regulations in India from March 31, 2019, the Reserve Bank of India (RBI) has amended a slew of previous regulations on the same. This will help banks to shore up their capital buffers along with improve liquidity coverage ratios (LCR). Therefore, the new amendments widen the assets of banks such as the excess CRR; excess G-secs holdings in SLR, and also excess g-secs under marginal standing facility, which all would now be included in the stock of liquid assets without any limit as also without applying any haircut.

The central bank has stated that liquid stock will also include marketable securities issued/guaranteed by foreign sovereigns which have only zero percent risk weight under the Basel II standardized approach for credit risk; actively traded repo or cash markets operations with zero risks, reserves held with foreign central banks in excess of the reserve requirement.

The regulator further said that the RBI reserves would include banks' overnight deposits and term deposits with the central bank which are explicitly and contractually repayable on notice from the depositing bank or that constitute a loan against which the bank can borrow on a term or on an overnight basis but automatically renewable basis. It also noted that other term deposits with the central bank are not eligible for this. However, it pointed out that if the term expires within 30 days, the term deposits could be considered as an inflow.

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