Inter Bank Liabilities (IBL)
Liability side management has its own merits from the point of view of financial stability. Controlling the concentration risk on the liability side of banks
is, therefore, as important as controlling the concentration risk on asset side. More particularly, uncontrolled IBL may have systemic implications, even if, the individual counterparty banks are within the allocated exposure.
Further, uncontrolled liability of a larger bank may also have a domino effect. In view of this, it has become important to put in place a comprehensive framework of liability management so that banks are aware of the risks inherent in following a business model based on large amount of IBL and the systemic risks such a model may entail. In order to reduce the extent of concentration on the liability side of the banks, the following guidelines have been prescribed by the RBI (applicable from April 1, 2007) vide its circular no. DBOD.BP.BC.66/ 21.01.002/2006-07 of March 6, 2007.
(a) The IBL of a bank should not exceed 200% of its net worth as on 31st March of the previous year. However, individual banks may, with the approval of their Boards of Directors, fix a lower limit for their inter-bank liabilities, keeping in view their business model.
(b) The banks whose CRAR is at least 25% more than the minimum CRAR as on March 31, of the previous year, are allowed to have a higher limit up to 300% of the net worth for IBL.
(c) The limit prescribed above will include only fund based IBL within India (including inter-bank liabilities in foreign currency to banks operating within India). In other words, the IBL outside India are excluded.
(d) The above limits will not include collateralised borrowings under CBLO and refinance from NABARD, SIDBI etc.
(e) The existing limit on the call money borrowings prescribed by RBI will operate as a sub-limit within the above limits.
(f) Banks having high concentration of wholesale deposits should be aware of potential risk associated with such deposits and may frame suitable policies to contain the liquidity risk arising out of excessive dependence on such deposits.