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RBI-Basel III Framework on Liquidity Standards Monitoring tools for Intraday Liquidity Management
November, 04th 2014

RBI/2014-15/293
DBR.BP.BC.No.46/21.04.098/2014-15

November 3, 2014

All Scheduled Commercial Banks 
(excluding RRBs)

Dear Sir,

Basel III Framework on Liquidity Standards – Monitoring tools for Intraday Liquidity Management

Please refer to the ‘Fourth Bi-Monthly Monetary Policy Statement’ announced on September 30, 2014, wherein it was proposed to issue final guidelines for monitoring tools for intra-day liquidity management in October 2014, consistent with the quantitative tools finalised by the Basel Committee on Banking Supervision (BCBS).

2. In this regard, please also refer to paragraphs 35-38 under the sub-heading Intra-day Liquidity Position Management of our circular DBOD.BP.No.56/21.04.098/ 2012-13 dated November 7, 2012 on ‘Liquidity Risk Management by Banks’, wherein banks were advised to develop and adopt an intra-day liquidity strategy that allows them to monitor and measure expected daily gross liquidity inflows and outflows and ensure that arrangements to acquire sufficient intraday funding to meet their intraday needs are in place and they have the ability to deal with unexpected disruptions to their liquidity flows. They were also advised to put in place at the earliest the intra-day liquidity risk management requirements and the same were made applicable for banks with effect from December 31, 2012 in respect of rupee liquidity and with effect from June 30, 2013 in respect of any significant foreign currencies.

3. Further, in terms of paragraph 36 of the circular, banks were advised to be guided by the consultative document of Basel Committee on Banking Supervision on ‘Monitoring indicators for intraday liquidity management’ issued in July 2012 (available at http://www.bis.org/publ/bcbs225.pdf) and thereafter, the final document, as and when it is issued.

4. The BCBS has since issued the final document in this regard in April 2013. The document is a set of quantitative tools developed by the BCBS in consultation with the Committee on Payment and Settlement Systems (CPSS), to enable banking supervisors to monitor banks’ intraday liquidity risk and their ability to meet payment and settlement obligations on a timely basis under both normal and stressed conditions. Accordingly, RBI’s final guidelines on Monitoring Tools for intraday liquidity management are enclosed in the Annex. Banks will be required to report the monitoring tools, as given in this circular, to the RBI on a monthly basis from 1 January 2015 to coincide with the implementation of the LCR reporting requirements as advised vide our circular DBOD.BP.BC.No.120/21.04.098/2013-14 dated June 9, 2014 on “Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards”.

5. It will be pertinent to mention here that while the objective of the Liquidity Coverage Ratio (LCR) is to promote the short-term resilience of the liquidity risk profile of banks, it does not include intraday liquidity within its calibrationand the LCR stress scenario does not cover expected or unexpected intraday liquidity needs.

6. Besides forming a key element of a bank’s overall liquidity risk management, management of intraday liquidity risk has a close relationship with the smooth functioning of payment and settlement systems. Considering the critical importance, the imperatives of having a robust liquidity governance structure to ensure integrity of the intraday liquidity monitoring tools hardly require to be overemphasised. Boards through their senior management should develop suitable strategy, risk management policies and practices to monitor intraday liquidity, ensure integrity of regulatory reporting and review the efficacy of the monitoring tools.

Yours faithfully,

(Sudarshan Sen)
Chief General Manager

Encls: as above

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