RBI Revises Liquidity Coverage Ratio Framework for Banks
| Category | Details |
|---|---|
| Event | RBI amends Liquidity Coverage Ratio (LCR) framework to enhance liquidity risk management. |
| Key Change | Imposition of 2.5% additional run-off factor on retail deposits enabled with digital banking facilities. |
| LCR Definition | Regulatory standard ensuring banks maintain High-Quality Liquid Assets (HQLA) for 30-day stress scenario. |
| Run-Off Factor | Estimated percentage of deposit withdrawals in a stress scenario. Higher factor implies higher withdrawal risk. |
| Scope of IMB | Includes Internet Banking, Mobile Banking, UPI, and any digital interface for fund transfers. |
| Revised Run-Off Rates | Stable deposits with IMB: 5% → 7.5%; Less stable deposits with IMB: 10% → 12.5%. |
| Funding from Non-Financial Entities | Treated as non-financial corporates with 40% run-off rate (previously 100%). |
| Small Business Customers (SBCs) | Unsecured wholesale funding from SBCs treated on par with retail deposits, attracting 2.5% run-off factor. |
| Valuation of HQLA | Level 1 HQLA (primarily government securities) valued at market prices with applicable haircuts. |
| Effective Date | April 1, 2026. |
| Applicability | Applies to all commercial banks, excluding Payments Banks, RRBs, and LABs. |
| Expected Impact | RBI estimates 6% improvement in reported LCR of Indian banking system by December 31, 2024. |