RBI Asks Banks To Share Impact Of Liquidity Coverage Norms Ahead Of Implementation

Reserve Bank of India has reached out to banks this week to understand the impact of its new liquidity coverage norms, which come into effect from April 1, three people told NDTV Profit.

On Tuesday, the regulator said it is conducting this separate exercise, where it is asking asset liability management teams of banks to share details of the impact, according to a bank treasury official, who spoke on condition of anonymity.

This has come as the central bank has witnessed a change at the helm, with the recent appointment of Governor Sanjay Malhotra last month, after his predecessor Shaktikanta Das' term ended.

Banks have provided some feedback, asked for deferment of the norms and alternative mechanisms to cope with the likely hit from these norms, people said.

Expectations are that the RBI may consider the feedback given by bankers because if the new rules are implemented, it will drain banks’ resources at a time when the economy is going through a slowdown, they said.

As of Thursday, banking system liquidity remained in the deficit of Rs 3.15 lakh crore. This is despite the daily variable repo rate auctions that the RBI has been conducting since last week.

In July 2024, the RBI had proposed to tighten LCR norms by increasing the run-off factor for retail deposits. This action was taken keeping in mind the rising number of mobile and internet banking users.

The new draft rules proposed to impose an additional run-off factor of 5% on both stable and less stable retail deposits that are enabled with internet and mobile banking facilities. This means they will have to set aside more money against their retail deposits.

Run-off events are when individuals or businesses withdraw their deposits in large numbers, which are not anticipated by banks.

The current norms ask banks to maintain a 100% LCR, indicating that stock of high-quality liquid assets should be at least equal to total net cash outflows. LCR promotes the short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets to survive an acute stress scenario lasting for 30 days.

Having higher LCR needs will mean that banks will have to buy more government securities, as they qualify as high quality liquidity assets.