In the process, the load of I-CRR and increased credit outgo could exacerbate the near-term liquidity risk in some banks. Interest load on I-CRR together with hike in short-term money market rate pushes up the cost of liquidity risk management. The present elevated liquidity risk and higher cost of management of risks may recede soon, once RBI lifts I-CRR and normalcy is restored. Way forwardIn the evolving liquidity risks, the asset liability management committee (ALCO) of banks will have to go far beyond the near-term strategies to manage liquidity gaps. The ALCO of banks while tackling the current liquidity gaps will have to adopt a multi-pronged approach to manage the liquidity risks on a more durable basis.

Source: The Hindu September 01, 2023 01:42 UTC