MUMBAI: Private banks will need to raise more stable funds like fixed deposits that customers cannot prematurely withdraw and cut credit growth to invest more in govt securities to meet new liquidity coverage norms issued by RBI.
While RBI classifies digitally operated accounts as hot money, bankers do not see any reversal of digital channels. However, the new norms could put some pressure on interest margins. Ratings agency Icra estimates the demand for liquid assets (govt securities) to be around Rs 4 lakh crore because of the new norms.
Two major changes announced by RBI (effective April 2025) on Friday relate to accounts accessible via internet and mobile banking and the valuation of govt securities used as collateral. RBI has assigned a higher ‘run-off’ rate which requires banks to hold more liquidity against digitally operated accounts.
“If we assume 70% of the deposits meet these criteria (internet or mobile banking deposits) and there is a 2% haircut to high quality liquid assets, the impact for our coverage universe on LCR will be around 16-20% which is large and worrisome. Many private sector banks have an internal threshold of 110% and LCR will drop below the threshold levels,” Suresh Ganapathy, a research analyst with Macquarie, said.
According to a study by Macquarie, many private banks will see their LCR dropping below their internal threshold of 110%. HDFC Bank is currently at 123% and will drop to 106% after the new norms, while ICICI Bank, which is at 121%, will drop to 105%. Axis Bank will drop from 120% to 104% and IndusInd Bank from 118% to 102%. Among public sector lenders, SBI will drop from 131% to 111% and Bank of Baroda from 125% to 106%.
“Presently, our liquidity coverage ratio is 125% (of prescribed RBI threshold). The new norms will bring it down to 115%,” said AK Goel, chairman, Punjab National Bank. He added that this would not change the bank’s strategy and it would continue promoting digital bank accounts.
While RBI classifies digitally operated accounts as hot money, bankers do not see any reversal of digital channels. However, the new norms could put some pressure on interest margins. Ratings agency Icra estimates the demand for liquid assets (govt securities) to be around Rs 4 lakh crore because of the new norms.
Two major changes announced by RBI (effective April 2025) on Friday relate to accounts accessible via internet and mobile banking and the valuation of govt securities used as collateral. RBI has assigned a higher ‘run-off’ rate which requires banks to hold more liquidity against digitally operated accounts.
“If we assume 70% of the deposits meet these criteria (internet or mobile banking deposits) and there is a 2% haircut to high quality liquid assets, the impact for our coverage universe on LCR will be around 16-20% which is large and worrisome. Many private sector banks have an internal threshold of 110% and LCR will drop below the threshold levels,” Suresh Ganapathy, a research analyst with Macquarie, said.
According to a study by Macquarie, many private banks will see their LCR dropping below their internal threshold of 110%. HDFC Bank is currently at 123% and will drop to 106% after the new norms, while ICICI Bank, which is at 121%, will drop to 105%. Axis Bank will drop from 120% to 104% and IndusInd Bank from 118% to 102%. Among public sector lenders, SBI will drop from 131% to 111% and Bank of Baroda from 125% to 106%.
“Presently, our liquidity coverage ratio is 125% (of prescribed RBI threshold). The new norms will bring it down to 115%,” said AK Goel, chairman, Punjab National Bank. He added that this would not change the bank’s strategy and it would continue promoting digital bank accounts.
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