RBI proposes stricter LCR norms for banks, releases draft guidelines

The central bank said in the draft guidelines released on Thursday (July 25), “Banking has undergone rapid transformation in recent years. While increased usage of technology has facilitated the ability to make instantaneous bank transfers and withdrawals, it has also led to a concomitant increase in risks, requiring proactive management."

The RBI has proposed to impose an additional run-off factor of 5 percent on both stable and less stable retail deposits that are enabled with internet and mobile banking facilities, as per reports.

According to Business Standard, run-offs are when individuals or businesses withdraw their deposits, which are not anticipated by banks, while stable retail deposits enabled with IMB will have a 10 percent run-off factor, and less stable deposits will have a 15 percent run-off factor.

“Unsecured wholesale funding provided by non-financial small business customers shall be treated in accordance with the treatment of retail deposits,” the RBI norms read.

RBI's Current norms mandate banks to maintain a 100 percent liquidity coverage ratio, which means the stock of high-quality liquid assets (HQLA) should be at least equal to total net cash outflows, reports said.

The LCR promotes the short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient HQLAs to survive an acute stress scenario lasting for 30 days, according to Business Standard.

As per RBI's draft norms, Level 1 HQLA in the form of government securities should be valued at an amount not greater than their current market value, adjusted for applicable haircuts in line with the margin requirements under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF).

The apex bank has been nudging banks to moderate their credit-deposit ratio in view of lagging growth of liabilities, as per reports.

The RBI has proposed that the new norms would come into effect from April 1 next year (2025), while comments on the draft circular have been invited from banks and other stakeholders by August 31.