Draft LCR, project financing norms not to be implemented before March 2026

Reserve Bank of India

The proposed Liquidity Coverage Ratio (LCR) as well as project financing norms will get deferred by a year, and are not to be implemented before March 31, 2026, Reserve Bank of India’s (RBI) Governor Sanjay Malhotra said on February 7.

The Governor added that RBI does not think March 2026 is sufficient enough time for the implementation of these guidelines, adding that the regulator does not want to cause disruption and will ensure a smooth transition.

On January 29, Moneycontrol had reported that both state-owned and private banks have requested RBI to defer the implementation of liquidity coverage ratio (LCR) norms to the later part of the next financial year 2025-26. The request was made by bank chiefs during their meeting with the new RBI governor in the last week of January.

As per the current timeline, these norms were to come into force from April 1,2025.

The proposed LCR rules - issued in July 2024 - call for banks to assign an additional 5 percent ‘run-off factor’ for retail deposits that are enabled with internet and mobile banking (IMB) facilities.

A run-off factor refers to the percentage of deposits that a bank expects to be withdrawn in a short-term period of stress.

As per RBI, retail deposits are divided into two categories - stable and less stable deposits. Under both categories, there are two sub-categories, deposits with and without IMB. Stable retail deposits enabled through the IMB route shall have 10 percent run-off factor, and less stable deposits enabled via IMB shall have 15 percent run-off factor, as has been proposed by the RBI.

According to the RBI, stable deposits are the ones that are insured, to the extent covered by Deposit Insurance and Credit Guarantee Corporation in transactional accounts, where salaries/pensions are automatically deposited or are paid out from (for instance, the account holder has another relationship with the bank, say, a loan).

Project financing norms require lenders to set aside 5 percent of their standard assets or loans to cover losses during the construction phase of the project.

Though this requirement would come into effect from FY27, banks are estimating that the incremental impact on credit costs could go up by 0.5–1.75 percent.