Mumbai, Feb 7: In a significant relief to Indian banks, the Reserve Bank of India (RBI) has announced a year’s deferment in implementing the proposed Liquidity Coverage Ratio (LCR) and project financing norms. The guidelines, initially set to be enacted by March 31, 2025, have been postponed until March 31, 2026. This decision, revealed by RBI Governor Sanjay Malhotra, is aimed at preventing potential disruption within the financial system.
The move follows concerns raised by both public and private sector banks who feared the LCR requirements could spark a liquidity crisis. They argued that the norms, initially introduced under former RBI Governor Shaktikanta Das, would require over Rs 4 lakh crore to be reallocated from banks to government bonds, restricting their ability to extend credit to businesses and individuals. Bank officials highlighted the pressing liquidity situation, even with the daily variable repo rate auctions conducted by the RBI.
In January, the RBI engaged with banks to assess the impact of the proposed norms, following appeals for deferment and alternative coping mechanisms. Banks warned that the stringent requirements would adversely affect credit flow in the economy. The central bank’s July draft circular mandated banks to set aside additional funds to cover their risks, part of a revised LCR framework aimed at enhancing bank resilience due to increased technological reliance in banking operations.
The LCR guidelines dictate that banks maintain a buffer of high-quality liquid assets (HQLAs), largely government securities, to navigate unexpected fund withdrawals. Further, banks were directed to apply a run-off factor on retail deposits facilitated via internet and mobile banking, with varying percentages based on deposit stability.
Despite banking sectors’ appeals, the RBI maintained that cash reserve ratios would not count as HQLAs and emphasized the need for increased resilience in the fast-evolving banking sector.
Original Source: https://theshillongtimes.com/2025/02/07/rbi-defers-rollout-of-lcr-norms-by-a-year-in-big-relief-to-banks/
Category : Economy,NATIONAL,News Alert
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Publish Date: 2025-02-07 15:15:00
