Today, such exposures are not reported by banks, no risk weight is assigned to the credit, the facilities are not rated, and in a predominant number of cases no interest is charged by banks on these intra-day overdrafts. Thus, DLODs – ‘zeroised by the end of the day’ in banking parlance – are never declared in a bank’s total loan number. This has been the practice for decades.
“This will change now. In the course of their inspection, RBI officials have made it clear to banks that capital must be allocated on the DLODs, besides documenting and reporting them,” a senior banker told ET.
The regulator, according to banking circles, probably thinks many corporates are using DLODs to manage their treasuries and park the surplus in mutual funds, resulting in a tightness in liquidity in the money market. Besides, RBI is veering around to the view that capital should be earmarked against such intra-day credits as they may have systemic implications, thanks to growth of markets and surge in trading volumes. Besides corporates, mutual funds take DLODs to handle redemption outflow to investors and stock brokers use it pending receipt of money from stock buyers, or in furnishing derivatives trade margin in the morning or paying for spot trades by institutions in case of mismatches.