LCR

(Liquidity Coverage Ratio)

Presentation By
ALM, SBBJ, H.O. Jaipur

What is Liquidity Coverage Ratio (LCR)

It is one of the BASEL-III requirement on
Liquidity Risk.
The LCR standard aims to ensure that a bank
maintains an adequate level of unencumbered
High Quality Liquid Assets (HQLAs) that can be
converted into cash to meet its liquidity needs
for next 30 calendar days time horizon under a
significantly severe liquidity stress scenario.
Minimum level of 60% to be maintained from
January, 2015 with a 10% increase every year
till 100% in January, 2019.

Definition
High Quality Liquid Assets (HQLAs)
available to meet net cash outflows
for next 30 calendar days
LCR

Stock of High Quality Liquid Assests (HQLAs)

100%
Total Net Cash Outflows Over the Next 30 Calender Days

Net Cash Outflow = Cash out flowsCash inflows

The LCR can be improved by having more of HQLAS or
by lower the Net Cash Outflow.

Main Components of LCR

High Quality Liquid Assets: Liquid assets
that can be used as collateral to obtain funds
or can be converted in to cash at a little or no
loss of value in a range of stress scenario.
Cash Outflows: All the payment obligations
including deposits, borrowings and other
contractual liabilities that are due for payment
within next 30 days.
Cash inflows: All the inflows from counter
parties on account of installments, interest and
maturing investments within next 30 days.

Summary of LCR
(Percentage are factors to be multiplied by the total
amount of each item)
Stock of HQLAs (Numerator)
A. Level 1 Assets:
Item

Run off Factor

Cash in Hand
Excess CRR balance
Un encumbered excess SLR securities
Marginal standing Facility ( MSF, 2% of
NDTL)
100%
Facility to avail Liquidity for Liquidity
Coverage Ratio ( FALLCR, 8 % of NDTL)
Marketable securities issued or
guaranteed by Foreign Sovereigns having
0% risk-weight under Basel-III approach.

B. Level 2 Assets (maximum of

40% of HQLAs)
Level 2 A assets:
Item

Run off
Factor

Marketable securities issued or

guaranteed by Sovereigns having
20% risk-weight under Basel-III
approach. (i.e. credit rating not lower
than AA.)
Corporate Bonds issued by AA and
above rated Corporate other than
Banks/FIs.
Commercial papers issued by AA and
above rated Corporate other than

85%

Level 2 B assets (maximum of 15% of

HQLAs):
Item
Marketable securities issued or
guaranteed by Sovereigns having riskweight higher than 20% but not more than
50% under Basel-II approach. (i.e. credit
rating not lower than BBB.)
Common Equity Shares included in NSE
CNX Nifty and/or S&P BSE Sensex indices
and issued by other than Banks/Fis

Run off Factor

50%

Cash Outflows (Denominator)

Item
Total outstanding amount of CBLO, LAF,
MSF and REPO Borrowings.
Up to Rs. 1 Lac deposits from Natural
Customers
Up to Rs. 1 Lac deposits from Small
Business Customers
(Demand deposits and Time Deposits
irrespective any maturity except non
callable deposits)
Undrawn CC/OD limits from Retail and
small Business Clients.
Outstanding amount of LC/BG.
Above Rs. 1 Lac deposit from Natural
Customers
Above Rs. 1 Lac deposit from Small
Business Customers
Undrawn CC/OD limits from Corporate
and other Clients.

Run off Factor

0%

5%

10%

Cash Outflows
Item

Run off Factor

Deposits from all other customers such

as NFC, Sovereigns, PSEs and other Legal
Entities and C&I customers.

40%

Deposits from Banks and Financial

Institutions.
Amount of IBPC and other investments
payable in next 30 days.
CDs maturing within next 30 days.
Refinances maturing within next 30
days.
Call Borrowing
Bills Payable within next 30 days
Interest Payable within next 30 days
Net Derivatives Cash Outflows with in
next 30 days

100%

Cash Inflows
Item
Inflow from CBLO lending
Inflow from Market Reverse Repo
Inflow from RBI Reverse Repo

Run off Factor

0%

Interest and Installments receivable

within next 30 days from all type of
Clients.
Interest Receivable for next 30 days on
CC/OD accounts
Non SLR investments maturing within
next 30 days

50%

CDs, CPs and RIDF (Investment)

maturing within next 30 days.
Call Landings
Net derivative cash inflows within next
30 days
Bills receivables with in next 30 days
Interest Receivables from investments
with in next 30 days.

100%

Suggestions for Improvement

of LCR
Suggestions for Improvement in Stock of HQLAs:
(Numerator)
a) Shifting of Non SLR securities to HQLA compliant securities
specially in Level 1 Assets (100% run off factor).
b) Invest only in those corporate bonds which are not issued
by a Bank/ Financial Institution/ NBFC or any of its affiliated
entities and have a short term rating equivalent to the long
term rating of AA or above by an eligible Credit Rating
Agency (85% run off factor).
c) Invest only in those Commercial Papers which are not
issued by a Bank/ Financial Institution/ NBFC or any of its
affiliated entities and have a short term rating equivalent to
the long term rating of AA or above by an eligible Credit
Rating Agency (85% run off factor).
d) Invest in Common Equity Shares which satisfy all of the
following conditions (50% run off factor):
(i) Not issued by a Bank/ Financial Institution/ NBFC or any
of its
affiliated entities.
(ii) Included in NSE CNX Nifty index and/ or S&P BSE Sensex
index.

Suggestions to Decrease the Cash Outflow:

(Denominator)
Increase level of retail deposits as these are
subject to outflow with least run off factor of 5 to
10%.
Avoid deposits from Banks/ Financial Institutions
as these are subject to 100% run off factor.
Introduce non callable deposit scheme.
Suggestions to Increase Cash Inflows:
Avoid lending in CBLO, Market Reverse Repo and
RBI Reverse Repo on last working day of the month
as these are subject to Zero run off factor in Cash
Inflows.
Invest in Call Lending on last working day as
these are subject to 100% run off factor in Cash
Inflows.