Module: | Objective, Scope & Regulatory Baseline
Q2: Which of the following statements regarding the scope, application, and stress scenario of the LCR are correct?
1. Foreign banks operating as branches in India must comply with the LCR on a standalone basis for their Indian operations only.
2. The stress scenario includes a run-off of retail deposits and a partial loss of unsecured wholesale funding, but excludes any assumption of a credit rating downgrade.
3. During a period of financial stress, a bank may allow its LCR to fall below 100 per cent, provided it immediately reports the shortfall and reasons to the RBI.
4. The stress scenario assumes a total inability to renew secured funding with the central bank.
2. The stress scenario includes a run-off of retail deposits and a partial loss of unsecured wholesale funding, but excludes any assumption of a credit rating downgrade.
3. During a period of financial stress, a bank may allow its LCR to fall below 100 per cent, provided it immediately reports the shortfall and reasons to the RBI.
4. The stress scenario assumes a total inability to renew secured funding with the central bank.
✅ Correct Answer: A
From the Liquidity Coverage Ratio (LCR) syllabus perspective, this concept highlights the regulatory scope and stress assumptions.
Foreign bank branches must comply on a standalone basis.
Crucially, the stress scenario does include a credit rating downgrade of up to three notches.
This aligns with the RBI Liquidity Framework which permits using HQLA below 100 percent during stress if reported immediately.
Foreign bank branches must comply on a standalone basis.
Crucially, the stress scenario does include a credit rating downgrade of up to three notches.
This aligns with the RBI Liquidity Framework which permits using HQLA below 100 percent during stress if reported immediately.