RBI issues LCR norms, assign additional run-off rates of 2.5% on retail deposit

The announcement of the guidelines is inline with the timeline provided by the RBI governor Sanjay Malhotra during its maiden monetary policy.

The Reserve Bank of India (RBI) on April 21 released the Liquidity Coverage Ratio (LCR) norms today and assigned additional run-off rates of 2.5 per cent to internet and mobile banking enabled retail and small business customer deposits.

The final guidelines were released after the feedback the central bank received from the stakeholders and market participants.

Also, the guidelines said that 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.

In addition, the final guidelines also rationalise the composition of wholesale funding from ‘other legal entities’. Consequently, funding from non-financial entities like trusts (educational, charitable and religious), partnerships, LLPs, etc. shall attract a lower run-off rate of 40 per cent as against 100 per cent currently, RBI said.

The revised guidelines will be applicable from April 1, 2026. This is to give banks adequate time to transition their systems to the new standards for LCR computation, RBI said in a release.

The announcement of the guidelines is inline with the timeline provided by the RBI governor Sanjay Malhotra during its maiden monetary policy.

On February 7, RBI Governor said that 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.

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.

The proposed LCR rules - issued in July 2024 - had 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.

(This is a developing story, please check for more details)