Mumbai: In a movement that will make it easier for small banks to comply with the Norma Prudential Bank of India (RBI) that reserves, the central bank has allowed lenders to recognize deposits of 7.5 crore by small businesses to maintain the coverage of liquidity ratios (LCR ).
The previous threshold for deposit is part of LCR is Rs 5 Crore.
“While the round intends to harmonize the definition of small business customers in various circles, it will also have the impact of collateral to increase LCR for banks,” said an analyst.
LCR needs were introduced as part of the post-global financial crisis reform (GFC) by the Basel Committee on Banking Supervision (BCBS) – International Association of Banking Regulators.
The idea behind this is that the bank must have a liquid asset at any time to meet 30 days of clean expenses under stress.
LCR is measured by dividing the value of high-quality liquid assets (including government bonds) obtained by the Bank by Outgo which is expected in 30 days.
While measuring outflows, small business deposits are considered sticky deposits with downs.
When the small deposit ticket size increased from RS 5 Crore to Rs 7.5 Crore, it means that the quantum of hot money that can come out will decrease and thus increase the LCR bank.
The revised LCR norms came when RBI normalized several liquidity that had been made for the bank to install on a pandemic.
The company’s deposit is considered as hot and unstable deposits because it is parked for business use.
Smaller deposits are considered stable because they are also part of savings.
“With the aim of better aligning our guidelines with BCBS standards and allowing banks to manage liquidity risk more effectively, it has been decided to increase the threshold for deposits and other extensions of funds made by non-financial business customers,” RBI said in a circle .