RBI To Maintain Status Quo On Higher Digital Deposit Buffer Proposal: Report

Despite the requests from the industry for a lower buffer, the Reserve Bank of India (RBI) is planning to stick by its proposal of asking the lenders to set aside more funds for digitally-linked deposits. As per the report by Reuters, the apex bank plans to maintain the 5 per cent run-off factor on such deposits.

Aimed at enabling the banks to be better prepared to manage risks in case of quick and heavy withdrawals through mobile banking or the internet, the central bank proposed to the banks to set aside an additional 5 per cent run-off factor. This was proposed for retail deposits that are digitally accessible.

The banks have raised concerns that the norms, to be enforced in April next year, are likely to put pressure on the liquidity coverage ratios (LCR). The Indian Banks’ Association (IBA) urged to cut the run-off to 2 per cent or 3 per cent, as per Reuters. The LCR refers to the amount of highly liquid assets that are available to fulfil short-term requirements.

As per Moody’s estimates, retail and small business accounts in the country make up around two-thirds of the deposits. Of this, around 50 per cent are digitally accessible. The collapse of United States-based Silicon Valley Bank in March 2023 after a run on deposits have caused the regulatory bodies across the globe to be extra careful, that too when the banks are getting more and more dependent on business that is digitally-sourced, as per Reuters.

The demand for government bonds are expected to witness an increase if the proposed norms come into existence as the banks have the need to manage their liquidity, as per Reuters. Icra estimates that system requirement for government securities could grow by around Rs four trillion, assuming a 10 per cent drop in the LCR of banks.