5.2.6 Treatment of Lien Marked Deposits

A bank does lien marking of a deposit when the bank’s own deposit(s) is placed as a security against a loan(s) extended by the bank. It indicates that, when a customer receives a loan from a bank and contractually places the deposits held within the same bank as collateral, then the bank marks the respective deposits as lien marked deposits.

For lien marked deposits, the deposit proceeds are paid out only when the loan against the deposit is repaid in full. This indicates that the deposit placed against the loan, is encumbered for the entire term of the loan, until it is repaid. Given this nature, only deposits with a fixed maturity i.e. term deposits are eligible for lien marking. Also, multiple deposits can be placed against multiple lien, such as loans, line of credit, guarantees and so on forming a many to many relationship.

The RBI amendments (2016) allows for certain exceptions with respect to outflows calculation when it comes to lien marked deposits. The guidelines state that outflows for lien marked deposits which will not mature within the LCR horizon may be excluded from the LCR calculation if the following conditions are met:

• The loan will not mature or settle in the next 30 days.
• The pledge arrangement is subject to a legally enforceable contract disallowing withdrawal of the deposit before the loan is fully settled or repaid.
• The amount of deposit to be excluded cannot exceed the outstanding balance of the loan.