Between September 2023 and March 2024, according to the financial stability report of the Reserve Bank of India (RBI), the Liquidity Coverage Ratio (LCR) of banks declined to:

Correct option is A

The correct answer is (a) 130.3%

Explanation:

• According to the Reserve Bank of India's Financial Stability Report (FSR), the Liquidity Coverage Ratio (LCR) of Scheduled Commercial Banks (SCBs) declined to 130.3% at the end of March 2024, down from 144.6% at the end of March 2023.
• This decline indicates a reduction in banks' short-term liquidity buffers during this period. ​

Information Booster:

What is Liquidity Coverage Ratio (LCR)?

• Definition: LCR is a regulatory requirement that ensures banks maintain an adequate level of High-Quality Liquid Assets (HQLAs) to cover their total net cash outflows over a 30-day stress period.​
• Purpose: It aims to promote the short-term resilience of a bank's liquidity risk profile, ensuring that banks have sufficient liquidity during financial stress scenarios.​
• Regulatory Requirement: Banks are required to maintain an LCR of at least 100%, meaning they should hold HQLAs equal to or greater than their net cash outflows over the 30-day period.

LCR Trends:

• March 2023: 144.6%​
• March 2024: 130.3%​
• September 2024: 128.6%​

Despite the decline, the LCR remained above the regulatory minimum, indicating that banks continued to hold sufficient liquid assets to meet short-term obligations.