The Reserve Bank of India (RBI) has introduced draft guidelines to support the Liquidity Coverage Ratio (LCR) requirements for banks, mandating them to maintain a higher stock of liquid securities. This move is a proactive measure to mitigate risks arising from the increasing use of technology for fund transfers.
Effective from FY25, these guidelines aim to avert situations similar to the collapse of Silicon Valley Bank by ensuring that banks are well-prepared to handle sudden outflows.
In its draft circular, the RBI mentioned that while technology has enhanced the ability for instantaneous bank transfers and withdrawals, it has concurrently heightened risks, necessitating vigilant management. As part of the new guidelines, banks are required to assign an additional 5 per cent run-off factor for retail deposits facilitated by internet and mobile banking (IMB) services.
Stable retail deposits with IMB will have a 10 per cent run-off factor, whereas less stable deposits with IMB will have a 15 per cent run-off factor.
Previously, the proposed run-off factors were 5 per cent for stable deposits and 10 per cent for less stable deposits. The updated draft introduces a distinct category for IMB-enabled deposits, reflecting the growing prevalence and associated risks of digital banking. Furthermore, the RBI stipulated that unsecured wholesale funding from non-financial small business customers should be treated in alignment with retail deposits.
At present, banks are maintaining an LCR of 130 per cent, crossing the RBI’s mandate of 100 per cent. This requirement ensures that banks hold a stock of high-quality liquid assets equivalent to the outflows expected over the next 30 days, reinforcing the financial system’s resilience in the face of potential liquidity stress.
