With new liquidity norms for banks to take effect from April 1, RBI asks banks to report impact

By
Ziraat Times
-

New Delhi: The Reserve Bank of India (RBI) has requested commercial banks to provide data on how the proposed changes to liquidity coverage ratio (LCR) norms could affect them, following concerns from lenders about stricter regulations, according to a report by The Economic Times.

The draft norms, set to be finalised after a review by Governor Sanjay Malhotra, who succeeded Shaktikanta Das on December 9, are expected to take effect from April 1. These rules will require banks to hold a higher portion of high-quality liquid assets (HQLAs), which could limit their lending capacity. HQLAs are typically used to manage sudden liquidity demands during disruptions, the report said.

The proposed regulations aim to address risks associated with significant online withdrawals, inspired by incidents such as the collapse of Silicon Valley Bank in 2023. Banks have previously expressed concerns to the finance ministry, stating that the new norms might hinder their ability to provide credit.

The RBI has asked large commercial banks to submit assessments of the impact of the new LCR norms compared to the current framework, sources cited in the report said.
The report quoted a banker as saying that the exercise is likely intended to evaluate the effect on system-wide liquidity after implementing the proposed norms.

Estimates suggest that banks may need to purchase Rs 4-6 trillion worth of government securities to comply with the enhanced LCR norms if implemented without revisions. The draft proposes a higher “run-off” factor to mitigate risks of deposit withdrawals during a crisis.

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