The Reserve Bank of India (RBI) on Monday, April 21, released the final guidelines under the Basel III Liquidity Coverage Ratio (LCR) framework, easing certain provisions from its earlier draft proposal issued in July 2024.A key relaxation involves the treatment of retail deposits enabled with internet and mobile banking (IMB) facilities. While the draft had proposed an additional 5% run-off factor, the final norms have halved this to 2.5%, in response to industry feedback.
Under the revised guidelines, stable IMB-enabled retail deposits (those from which withdrawals are infrequent) will now attract a 7.5% run-off rate, up from the previous 5%. Less stable deposits (which are more prone to withdrawal) in the same category will see a 12.5% run-off, up from 10%. This is a reduction from the draft’s proposed 10% and 15% rates respectively.
The regulator expects that these amended rules will boost banks’ LCR by about 6 percentage points at an aggregate level.“The Reserve Bank has undertaken an impact analysis of the above measures based on data submitted by banks, as on December 31, 2024. It is estimated that the net impact of these measures will improve the LCR of banks, at the aggregate level, by around 6 percentage points as on that date,” the Reserve Bank of India said.Further, all the banks would continue to meet the minimum regulatory LCR requirements comfortably, it added.The new norms will come into effect from April 1, 2026, and will be applicable to all commercial banks, excluding Payments Banks, Regional Rural Banks (RRBs), and Local Area Banks.The amended guidelines also rationalise the composition of wholesale funding from ‘other legal entities. Consequently, funding from non-financial entities like trusts (educational, charitable and religious), partnerships, LLPs, etc. shall attract a lower run-off rate of 40 per cent as against 100 per cent currently.In addition, the new rules also said that in case a deposit, which so far was excluded from LCR computation (for instance, a non-callable fixed deposit), is contractually pledged as collateral to secure a credit facility or loan, such deposit would now be treated as callable for LCR purposes.“These amendments would help improve the liquidity resilience of banks in India and would further align the guidelines with global standards while ensuring that such an enhancement is done in a non-disruptive manner,” the RBI noted in the circular.Anil Gupta, Senior Vice President & Co Group Head – Financial Sector Ratings, ICRA said, “As per RBI’s estimate, the reported LCR of the banking system will improve by 6% as on December 31, 2024. With an estimated HQLA of almost ₹45-50 lakh crore for the banking system, this could free up lendable resources by almost ₹2.7-3.0 Lakh crore and support the credit growth of the banks. This headroom can be equivalent to 1.4-1.5% of additional credit growth potential for the banking system.”
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