Bank Nifty Rises 1% After RBI’s New LCR Norms Boost Sentiment Among Lenders

Banking stocks rallied on April 22 after the Reserve Bank of India (RBI) announced new norms around the Liquidity Coverage Ratio (LCR) that are being widely viewed as positive for lenders. Leading names like Kotak Mahindra Bank and HDFC Bank saw gains of 2%, while Canara Bank emerged as the top gainer with a 3% jump. As a result, Bank Nifty climbed over 570 points, or 1%, to trade at 55,875 during the day.

The Reserve Bank of India made key amendments to the LCR framework on April 21, giving banks more flexibility in managing their funds. These changes are set to come into effect from April 1, 2026.

Key Relief for Banks

One of the major highlights of the new guidelines is the RBI’s decision to assign a lower buffer rate of 2.5% on digitally linked deposits, which banks will need to comply with within a year. The net impact of these reforms is expected to improve banks’ LCR by about 6 percentage points as of December-end, according to the RBI.

Brokerages welcomed the move. Jefferies noted that the RBI had reduced the deposit run-off rate from 100% to 40%, releasing liquidity equivalent to Rs 3–3.5 lakh crore. It also highlighted that PSU banks and large private lenders stand to gain the most from these changes.

Macquarie added that the RBI’s projection of a 600 bps rise in LCR ratios compared to Q3FY24 levels is encouraging. The firm expects this to support a 140–160 bps rise in credit growth, translating to Rs 2.5–3 lakh crore in additional credit liquidity.

Broad-Based Gains Across the Sector

Other top gainers included Bank of Baroda (2.7%), with overall enthusiasm lifting sentiment across the banking sector. Experts like Pranav Gundlapalle of Bernstein stated that banks with high retail deposit share and granular wholesale deposits are likely to benefit the most.

The RBI also clarified that funding from non-financial entities like trusts and partnerships will now carry a lower run-off rate of 40%, down from 100%. Moreover, banks will have to apply haircuts on bond market values, aligning them with valuations used under the RBI’s liquidity facilities.

Focus on Long-Term Stability

The central bank stressed that these updates are aimed at enhancing liquidity resilience in the Indian banking system. It added that the new LCR norms will bring India closer to global standards in a non-disruptive manner.