RBI's new liquidity cover guidelines are a big boost for banks | Mint

Mumbai: In a major relief for the banking system, the Reserve Bank of India has allowed banks to set aside lower stock liquid assets against deposits raised by digital channels, in the event of a possible run on banks. In the final guidelines on the liquidity coverage ratio (LCR) released on Monday, RBI said that banks should assign a run -off factor of only 7.5% to these retail deposits instead of the 10% proposed in the draft lines. Runoff occurs when individuals or businesses withdraw their deposits, which banks do not expect. Stable retail deposits activated with Internet and Mobile Banking (IMB) have a 7.5%run -off factor, and less stable deposits have a 12.5%run -off factor, compared to 5%and 10%, respectively, which are currently prescribed. In its guidelines, RBI also said that funding from non-financial entities such as trusts (educational, charity and religious), partnerships, partnerships with limited liability, etc. A lower run rate of 40% will attract 100%. This move will free capital and make it easier and cheaper to meet LCR requirements. According to the RBI, the new measures are expected to improve the banks’ LCR by about 6 percentage points based on the available data on December 31. “All banks will continue to comply with the minimum regulatory LCR requirements. Reserve Bank is very important that these measures improve the liquidity resilience of banks in India, and the guidelines with the world standards will align in a non-disabling way,” he said in the press release. The new guidelines will be in effect from 1 April 2026, giving banks enough time to switch their systems to the latest standards for LCR calculation. LCR norms require banks to maintain a stock of high quality liquid assets (HQLA), mainly government bonds, to tide over a 30-day hypothetical stress-outflow stress. Currently, banks are needed to maintain a 100%LCR. Relief to banks The new guidelines come as a relief to banks, which earlier expressed their concern that the draft norms could hinder their ability to provide credit. Banks even urged the Ministry of Finance to relax or delay these guidelines. Taking into account the systemic liquidity, it is strict and deposit mobilization is slow, the impact of the concept norms on banks would be expected. The move of RBI is aimed at keeping banks prepared for any sudden withdrawal of funds by clients using digital channels, similar to the US Silicon Valley Bank, which collapsed after a banking last year. “According to the RBI estimates, the Banking System’s reported LCR will improve by 6% on 31 December. Support (£ 2.7-3.0) and the creditworthiness of the creditworthiness (£ 2.7-3.0) and the creditworthiness supports) banks.