RBI Eases Liquidity-Coverage-Ratio Norms
The regulator says it provided adequate time to banks to comply with the new guidelines, which will come into force from April 1, 2026.
The Reserve Bank of India has announced changes to the liquidity-coverage-ratio requirements for banks in a significant move aimed at strengthening the financial system.
The revised norms will allow banks to set aside lesser funds against retail deposits at 2.5% as against a 5% additional run-off factor that the draft guidelines had proposed, the RBI said in a release on Monday.
The draft guidelines had also proposed differentiating between stable and less-stable deposits, but the final guidelines suggest a flat structure.
In February, RBI Governor Sanjay Malhotra had said the central bank provided adequate time to banks to comply with the new guidelines, which will come into force from April 1, 2026.
Based on the data submitted by banks to the RBI as of Dec. 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 of that date, according to the central bank.
While all banks will continue to meet the minimum regulatory LCR requirements comfortably, the RBI is hopeful that these measures would enhance the liquidity resilience of Indian banks and would further align with the global standards in a non-disruptive manner.
The RBI also said that banks must adjust the market value of government securities of Level 1 high-quality liquid assets with haircuts in line with margin requirements under the liquidity adjustment facility and marginal standing facility.
The updated guidelines adjust the composition and classification of assets that qualify as HQLAs, with a particular focus on enhancing the overall quality of liquidity buffers. This change is expected to improve banks' ability to meet their liquidity needs without compromising financial stability.
The final guidelines also rationalise the composition of wholesale funding from 'other legal entities', the RBI said. Consequently, funding from non-financial entities will attract a lower run-off rate of 40% as against 100% currently.
