The RBI has provided an additional two per cent liquidity window to banks by tweaking the liquidity coverage ratio (LCR) norms.

LCR, which is a fallout of the 2007 global financial crisis, mandates that banks must have a sufficient amount of high-quality liquid assets (HQLAs) such as government securities that can be readily sold to obtain funds in stress scenarios. This will allow banks to survive an acute liquidity crunch lasting for 30 days during which corrective actions can be taken.

Such securities which they hold is based on the expected net cash outflow for the next 30 days. The RBI has allowed securities that come under a bank’s statutory liquidity ratio (SLR) to be also counted as part of their LCR.

At present, the assets allowed as high-quality liquid holding to compute LCR of banks include government securities in excess of the minimum statutory liquidity ratio (SLR) requirement as also some securities within the mandatory SLR requirement. SLR is that proportion of bank deposits which they must compulsorily invest in government bonds.

According to a report by the economic research department of the State Bank of India (SBI), Thursday’s move will release minimum additional securities of around Rs 2.6 lakh crore, with Rs 66,000 crore released every four months. “The decision to categorise additional 2 per cent of excess SLR for LCR calculation is a welcome step for the banks for releasing additional liquidity,” SBI chairman Rajnish Kumar said.