“Frame The Basel-III liquidity standards -RBI

The Reserve Bank of India has mandated banks to frame a liquidity risk management policy and put in place funding strategies, prudential limits and assessment of liquidity risks under Basel-III to ensure there is no disruption in daily operations of banks.

In the final guidelines on liquidity risk management issued on Wednesday, RBI asked banks to monitor liquidity frequently and set a liquidity risk tolerance level.

RBI had issued draft guidelines of liquidity risk management in February and had asked for feedback. “The Basel-III liquidity standards are currently subject to an observation period/revision by the BCBS with a view to addressing any unintended consequences that the standard may have for financial market, credit extension and economic growth. Therefore, the final guidelines on Basel-III liquidity framework will be issued once BCBS revises the framework,” RBI said.

RBI has asked banks to disclose their liquidity information on a regular basis to enable market participants make sound judgements. RBI has also prescribed method to calculate liquidity indicators and monitor liquidity position but banks can use their own calculations as well. “Banks should endeavor to develop a process to quantify liquidity costs and benefits so that these same may be incorporated in the internal product pricing, performance measurement and new product approval process for all material business lines,” RBI said.