RBI to Review Liquidity Coverage Ratio Norms for Banks

The RBI has decided to undertake a comprehensive review of the liquidity coverage ratio (LCR) framework for banks to prevent a situation where a sudden withdrawal of money by a very large number of customers from their accounts could precipitate financial difficulties for the banks, RBI Governor Shaktikanta Das announced on Friday.

Das said a draft circular will be issued shortly for stakeholder consultation on the issue

“Technological developments have enabled bank customers to instantly withdraw or transfer money from their bank accounts. While improving customer convenience, this has also created challenges for banks to deal with potential situations when, due to certain factors, a large number of depositors decide to instantly and simultaneously withdraw their money from banks,” Das explained.

He pointed out that the developments in certain jurisdictions last year demonstrated the difficulties it can create for banks to deal with such situations. A need has, therefore, arisen to undertake a comprehensive review of the LCR framework for banks, he added.