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MUMBAI:The Reserve Bank of India has allowed banks to consider a further 2 per cent of their government securities investments as high quality liquid assets (HQLAs) under the Basel-III calculations, reducing the pressure on them to raise short-term funds for these compulsory investments.
This move is likely to pull down interest rates on near-term certificates of deposit that lenders often use for short-term funds.
“Banks will be permitted to reckon as Level 1 HQLAs government securities held by them up to another 2 per cent of their net demand and time liabilities (NDTL) within the mandatory SLR requirement.
Hence, the total carve-out from SLR available to banks would be 13 per cent of their NDTL,” the RBI said.
Banks have to mandatorily invest 19.5 per cent of their total deposits in government securities, known as statutory liquidity ratio (SLR).
So far 11 per cent of these investments was considered HQLAs and it will now increase to 13 per cent.
Under the Basel-III rules, banks have to invest a part of their funds into liquid securities which make up a liquidity coverage ratio (LCR).
Under LCR, banks have to invest a part of their deposits and loan outflows within a 30-day period into the so-called HQLA which could be government securities or treasury bills.
Banks, especially private sector ones, had to borrow short-term funds to make the LCR investment.
“This now means that banks have to stock a relatively lesser amount of G-Secs but more importantly they don’t have to borrow short term too.
It will ease short-term certificate of deposit rates by 25 basis points almost immediately,” said Arun Khurana, head of treasury at IndusInd Bank.
Bank CD rates for less than one year have shot up to 8.20 per cent from around 6.90 per cent in November.
These rates are now expected to ease.
