RBI Finalises LCR Guidelines for Digitally Enabled Deposits

RBI issued final norms for computing Liquidity Coverage Ratio (LCR), effective from April 1, 2026. Aims to improve banks’ liquidity resilience in a non-disruptive manner and align with global standards.

Key Changes in Final LCR Norms

• Reduction in Run-Off Factors: The final norms ease the run-off factors for deposits, which are used to calculate the amount of liquidity a bank must set aside. The revised norms are seen as less stringent than the earlier proposals.
  • The run-off factor for retail and small business deposits that can be accessed through internet and mobile banking (IMB) has been set at 2.5%, significantly lower than the proposed 5% in the draft.
  • Stable retail deposits via IMB will now have a 7.5% run-off factor, while less stable deposits will have a 12.5% run-off factor. This is a slight increase from the draft norms, which had set these at 5% and 10%, respectively.
• Impact on Liquidity Reserves:
  • The easing of these requirements means that banks will need to reserve less liquidity compared to what would have been required under the draft guidelines. This change is expected to free up additional lending resources, supporting credit growth.
• Effect on Wholesale Funding:
  • The final guidelines have also restructured the treatment of wholesale funding from non-financial entities (like trusts and partnerships). The revised run-off rate for these funds is now 40%, down from the 100% proposed earlier.

Runoff Factor Changes for IMB-Linked Deposits

• Additional runoff factor for IMB-linked retail deposits set at 2.5% (down from proposed 5%)
• Stable IMB-linked deposits: 7.5% runoff factor (currently 5%)
• Less stable IMB-linked deposits: 12.5% runoff factor (currently 10%)
• Total runoff factor: 20% (up from current 15%)

Institutional Deposit Treatment

• Deposits from non-financial entities (trusts, partnerships, LLPs, etc.): 40% runoff factor (down from 100%)

Implications for the Banking Sector

• Banks had opposed higher runoff factors in the draft; final norms offer significant relief
• Estimated 6% improvement in LCR across the banking system as of December 31, 2024
• Estimated ₹3 trillion of lendable resources unlocked due to improved HQLA management
• Potential to support an additional 1.4–1.5% credit growth

Valuation of High-Quality Liquid Assets (HQLAs)

• Level 1 HQLA (mainly govt. securities) will be valued at market price
• Adjustments for applicable haircuts as per LAF and MSF guidelines

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