RBI to revisit liquidity coverage ratio norms for banks
The Reserve Bank of India (RBI) has decided to review the liquidity coverage ratio (LCR) framework for banks to prevent financial difficulties in the event of a sudden withdrawal of funds. RBI Governor Shaktikanta Das announced the decision on Friday, stating that a draft circular will be issued for stakeholder consultation.
Das highlighted the challenges faced by banks due to technological advancements allowing customers to instantly withdraw or transfer funds. He emphasized the need for banks to address potential situations where a large number of depositors simultaneously withdraw their money, which was demonstrated in certain jurisdictions last year.
The review of the LCR framework aims to address these challenges and ensure the stability of the banking system. The RBI’s initiative comes in response to the changing dynamics of banking operations and the need to adapt to evolving customer behavior.
This move by the RBI underscores the importance of proactive measures to safeguard the financial health of banks and maintain stability in the banking sector. Stakeholder feedback will be crucial in shaping the revised LCR framework to effectively mitigate risks associated with sudden liquidity events in the future.