The Reserve Bank of India’s (RBI) latest Liquidity Coverage Ratio (LCR) guidelines have drawn mixed reactions from banks. While the new norms are expected to boost banks’ liquidity, enabling them to allocate more resources for lending, the additional 2.5% run-off rate on deposits raised via digital banking channels has been met with disappointment.
In December, when the RBI first sought feedback on the proposed guidelines, many banks had advocated for the removal of the run-off factor on internet and mobile banking (IMB) enabled deposits from retail and small business customers. However, the RBI has opted to maintain this additional run-off rate, which has come as a surprise to the industry.
A senior executive from a private bank mentioned that the impact of this 2.5% run-off factor would need to be carefully evaluated, as it was not anticipated. Banks had lobbied for a complete removal of the run-off factor for digital banking customers, which would have been a less restrictive measure. A representative from a state-owned bank noted that the impact of these norms on the LCR would be assessed in the coming quarters.
The new guidelines state that stable IMB-enabled retail deposits will now have a 7.5% run-off rate, up from the previous 5%. Less stable deposits in this category will see an increase to 12.5% from 10%. This adjustment means that banks will experience a net cash outflow increase of 5-9%, according to an analysis by IIFL Capital.
Despite the added pressure of the run-off factor, the new norms are expected to have a positive overall impact on the banking industry. The RBI has indicated that these measures will improve the LCR of banks by around 6 percentage points at an aggregate level. Anil Gupta, senior vice president at ICRA, stated that with an estimated Rs 45-50 lakh crore in High-Quality Liquid Assets (HQLAs), this improvement could free up approximately Rs 2.7-3.0 lakh crore in lendable resources, supporting credit growth.
Banks will also need to adjust the market value of government securities used as Level 1 HQLAs in line with margin requirements. The revised LCR guidelines, which are set to come into effect on April 1, 2026, give banks ample time to transition their systems to the new standards. The timeline aligns with the RBI’s earlier announcements regarding the deferment of certain norms.
