Banks Request RBI to Defer Liquidity Coverage Ratio (LCR) Norms

• Request for Deferral: Banks have asked the RBI to delay the implementation of LCR norms from April 1, 2025, to the next fiscal year (FY 2025-26).
• Reason: Tight liquidity conditions are making it challenging for banks to meet the proposed LCR norms without negatively impacting their growth.

Banks Seek Delay in LCR Implementation Amid Liquidity Crunch

Banks, including both state-owned and private lenders, have requested the Reserve Bank of India (RBI) to defer the implementation of the Liquidity Coverage Ratio (LCR) norms, which are currently set to take effect from April 1, 2025. Bank chiefs made this request during a recent meeting with RBI Governor Sanjay Malhotra.

The deferral request stems from the tight liquidity conditions prevailing in the banking system. Bankers have expressed concerns that the LCR norms could adversely impact their operations and growth in the upcoming financial year if implemented while liquidity remains constrained.

Proposed LCR Rules:

The draft norms, issued in July 2024, propose that banks must:

• Maintain a stock of high-quality liquid assets (HQLAs) to cover expected net cash outflows over the next 30 days.
• Assign an additional 5% run-off factor for retail deposits that are enabled by internet and mobile banking (IMB).

Retail deposits are classified into two categories:

1. Stable deposits: With a 10% run-off factor for those enabled by IMB.
2. Less stable deposits: With a 15% run-off factor for those enabled by IMB.

The norms will impact both stable (e.g., insured or salary-based deposits) and less stable deposits (e.g., relationship-based accounts).

Challenges for Banks:

• Liquidity Concerns: Banks are facing challenges in garnering deposits and tightening credit underwriting norms, which could further restrict lending if the LCR rules are enforced immediately.
• Loan Growth Impact: The implementation of LCR norms, alongside already challenging deposit growth, could limit loan growth for banks in FY26.

Bank CEOs emphasized that while the regulatory changes are important, the current liquidity tightness may make it difficult for banks to comply with the LCR requirements without significant operational impact.

RBI’s Position:

Governor Malhotra acknowledged the role of banks in maintaining the resilience of the financial system but also highlighted global vulnerabilities that could pose risks. He encouraged banks to focus on financial stability, financial inclusion, and improving digital literacy while continuing to invest in technology and enhancing customer service.

Despite this, the RBI has not yet responded to the request for deferral, with further discussions expected on the matter.