Liquidity Coverage Ratio Framework

At the recent monetary policy committee meeting in April 2024, Reserve Bank of India (RBI) Governor Shaktikanta Das proposed changes in the liquidity coverage ratio (LCR) framework to successfully meet liquidity risk.

- Versha Jain

LCR is a liquidity requirement for banks to maintain at all times a certain proportion of high-quality liquid assets (HQLA). These assets include cash, reserves with central banks, and central government bonds, which can easily be converted into cash. RBI implemented LCR in January 2015, and as per a circular in 2020, banks should maintain sufficient HQLA at all times to meet unexpected withdrawals.

WHEN WAS LCR CREATED?

■ After the global financial crisis in 2008, the Basel Committee on Banking Supervision (BCBS) introduced LCR by issuing 'Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring' in 2010.