Include MFs & bonds as high-quality assets for calculating LCR: Banks
bonds as high-quality liquid assets (HQLA) in the calculation for the liquidity coverage ratio, people familiar with the deliberations said.
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Lenders have argued that such investments are highly liquid, comparable to lower-quality assets and that their inclusion in liquidity calculations could reduce the share of deposits banks must allocate for liquidity ratios, thereby freeing up capital for lending, they said.
Banks have flagged this in a representation to the finance ministry, emphasising that additional liquid coverage ratio (LCR) requirements should be justified with data-driven rationale, an official said.
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The liquidity coverage ratio is the proportion of high-quality liquid assets (HQLA) that financial institutions hold to allow them to survive a period of significant liquidity stress lasting 30 calendar days.
Under existing regulations, investment in mutual funds is not considered as part of HQLA for calculating LCR. The other components of HQLA include cash, central bank deposits, and high-quality government securities.
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