RBI defers Basel III provisions amid Covid Uncertainty

The Reserve Bank of India (RBI) has deferred implementation of provisions made under Basel III capital due to uncertainty related to COVID crisis. In this regard, RBI will repel the final tranche of the capital conservation buffer (CCB) and the implementation of net stable funding ratio (NSFR) by six months i.e. April 1, 2021.

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About Capital Conservation Buffer:

The capital conservation buffer is an additional pool that banks build in normal times for its use during periods of stress. The RBI had asked banks to build up the capital conservation buffer to the required 2.5% in stages. The last stage of 0.625% was to start on Sept. 30, 2020. This has now been deferred to April 1, 2021. The RBI had earlier deferred the implementation by six months from March 31, 2020.

About Net Stable Funding Ratio (NSFR):

The net stable funding ratio requires banks to fund their activities with sufficiently stable sources of funding over a time of a year to reduce future funding risk for banks. As per the prescribed timeline, banks were required to maintain NSFR of 100% from April 1, 2020 but now this deferred it for a second time to April 1, 2021.

RBI increased the timeline for additional market borrowing provided to states/UTs by 6 months

  • In April 2020, RBI increased the Ways and Means Advances (WMA) Limits and overdraft (OD) regulations for states and Union Territories (UTs) to provide additional flexibility for dealing with the Covid-19 crisis until September 30, 2020.
  • The Reserve Bank of India has set the limits for Ways and Means Advances (WMA) for the second half of the financial year 2020-21 (October 2020 to March 2021) for Central Government at Rs. 1,25,000 crore.
  • The Reserve Bank will trigger fresh floatation of market loans when the Government of India utilizes 75% of the WMA limit.
  • Now to further aid the state governments from financial problems, RBI extended this timeline by six months i.e. till March 31, 2021.
  • Notably, RBI decided to increase the number of days for which a state/ UT can be in overdraft continuously to 21 working days from 14.
  • Also, the number of days for which a state/ UT can be in overdraft in a quarter was increased to 50 working days from 36.

RBI extends enhanced borrowing limit for banks under MSF till Mar 31, 2021

  • RBI also extended the enhanced borrowing facility provided to banks under the Marginal Standing Facility (MSF) scheme by six months till March 31, 2021.
  • It was initially available up to June 30, 2020, and was later extended up to September 30, 2020, due to economic disruptions amid COVID-19.
  • On March 27, this borrowing limit for scheduled banks was increased from 2% to 3% of their Net Demand and Time Liabilities (NDTL).

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