Canara Bank forecasts 10-11% hit from RBI's draft LCR norms

Canara Bank

Canara Bank expects the draft rules on liquidity coverage ratio laid out by the Reserve Bank of India (RBI) to have a 10-11 percent impact on its LCR, as the guidelines require banks to assign an extra 5 percent runoff rate to deposits made through internet and mobile banking.

“It is not impacting Canara Bank as a whole. Canara Bank's existing LCR itself is near 140 percent. The regulator's expectation is 100 percent. But in general, this is impacting only 10 to 11 percent,” said K Satyanarayana Raju, managing director (MD) and chief executive officer (CEO), of the told Moneycontrol in an interview.

Raju further said that even after adjusting the impact of the LCR norms, the lender will have 30 percent cushion. The LCR ratio of the lender stands at 140 percent, Raju said.

The RBI's LCR framework requires banks to maintain a stock of high-quality liquid assets (HQLA) to cover the expected net cash outflows over the next 30 days. After reviewing the LCR framework for banks in India, the RBI decided that banks should assign an extra 5 percent runoff rate for retail deposits made through internet and mobile banking.

This change is in line with the increased use of online banking.
The RBI's new draft rules will prove important during times of severe liquidity stress or when many people withdraw their funds - both the moves can significantly affect a bank's total capital and its ability to finance such outflows.

The draft circular applies to all commercial banks, excluding payment banks, regional rural banks, and local area banks, and is proposed to take effect from April 1, 2025.