High-Quality Liquid Assets

Indian Economy glossary

Also called: HQLA · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT

Meaning

High-Quality Liquid Assets (HQLA) are assets a bank can turn into cash quickly without losing much value. Examples are cash and government securities. There are two levels:

  • Level 1: cash, excess CRR, government securities (G-secs) held above SLR, and G-secs within SLR that are allowed under the FALLCR carve-out
  • Level 2: certain corporate bonds and equities, counted only after haircuts (a cut in their value)

HQLA is the top part (numerator) of the Liquidity Coverage Ratio (LCR) = HQLA ÷ net cash outflows over 30 days of stress. The LCR must be at least 100%, and this has applied since January 2019.

Example

Suppose a bank expects net cash outflows of Rs 1,000 crore over a 30-day stress period. It must then hold at least Rs 1,000 crore of HQLA, mostly cash and G-secs, so that it can repay depositors without selling assets in a hurry.

Don't confuse with

  • Statutory Liquidity Ratio (SLR): this is a legal minimum share of deposits that banks must hold in approved assets. HQLA is a Basel III liquidity concept. Only part of a bank's SLR holdings counts as HQLA, through FALLCR.

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