Banks say new LCR norms a mixed bag, 2.5% run-off rate on IMB deposits disappointing

Reserve Bank of India

The Reserve Bank of India’s (RBI) new guidelines on the Liquidity Coverage Ratio (LCR) are a mixed bag, bankers have said. While they boost banks’ liquidity, freeing up further resources for lending, there is some disappointment on the additional run-off rate of 2.5 percent on deposits raised through digital channels.

In December, when the RBI sought comments for the proposed LCR norms, banks requested doing away with additional run-off factor on internet and mobile banking (IMB) enabled retail and small business customer deposits.

“The industry will have to compute the impact of 2.5 percent run off factor, as this has also come as a surprise. The industry has lobbied for a complete removal of run off factor on customers with digital banking options,” a senior executive from the private bank said.

Another official from state-owned bank said the banks would start evaluating the impact of these norms on the LCR in the coming quarters.

A research note by IIFL Capital said the additional 2.5 percent run-off factor, now increased to 7.5 percent on stable deposits and 12.5 percent on less stable deposits will increase the net cash outflow by 5-9 percent for the banking sector.

Since the RBI circular, issued on April 21, seems to be more or less a final decision, the scope for easing the provisions, especially on the additional run-off factor seems unlikely, bankers said.

According to the norms, stable IMB-enabled retail deposits will now have a 7.5 percent run-off rate, up from 5 percent. Less stable deposits in the same category will see a 12.5 percent run-off, up from 10 percent.

The run-off factor refers to the percentage of deposits that can be withdrawn by depositors in a stress scenario such as a run on the bank. IMB facilities includes but are not limited to internet banking, mobile banking and Unified Payments Interface (UPI).

Apart from the adverse impact of additional run-off factor on deposits, the circular is expected to be a net positive for the banking industry.

The central bank, for instance, has indicated that the net impact of these measures will improve the LCR of banks, at the aggregate level by around 6 percentage points.

Anil Gupta, senior vice president & co group head- financial sector ratings, ICRA, said with an estimated High Quality Liquid Assets (HQLAs) of almost Rs 45-50 lakh crore for the banking system, this could free up lendable resources by almost Rs 2.7-3.0 lakh crore and support the credit growth of the banks.

Banks and other financial institutions keeps HQLAs to convert them quickly into the cash in times of financial stress.

The headroom can be equivalent to 1.4-1.5 percent of additional credit growth potential for the banking system.

The guidelines also say banks have to adjust the market value of government securities (Level 1 HQLA) with haircuts in line with margin requirements under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF), release said.

The revised guidelines kick in from April 1, 2026, giving banks enough time to transition their systems to new standards for LCR computation, the RBI said in the release.

The guidelines were in keeping with the timeline provided by the RBI governor Sanjay Malhotra during its maiden monetary policy.

On February 7, Malhotra said the proposed LCR as well as project financing norms would be deferred by a year.