C&M ALERT: RESERVE BANK OF INDIA (RBI) ISSUED AMENDMENTS TO LIQUIDITY COVERAGE RATIO (LCR) FRAMEWORK

After considering the feedback received on the draft circular dated July 25, 2024, under the Basel III framework related to LCR, Liquidity Risk Monitoring Tools, and LCR disclosure standards the final guidelines have now been released.

These updated rules, referenced as DOR.LRG.REC.18/03.10.001/2025-26, (please click here) will apply to all commercial banks, except for payments banks, Regional Rural Banks (RRBs), and local area banks.

Run-off factor refers to the percentage a bank expects to be withdrawn or transferred during a period of stress.

The key revised guidelines are as follows:

1. Retail deposits enabled with Internet and Mobile Banking (IMB) facilities shall attract an additional run-off factor of 2.5 per cent: stable deposits with IMB shall carry a 7.5% run-off (previously 5%), and less stable deposits with IMB shall carry a 12.5% run-off (previously 10%).

   IMB facilities include all facilities such as but not limited to internet banking, mobile banking and Unified Payments Interface (UPI) which enables a customer to digitally transfer the funds from their accounts.

2. Unsecured wholesale funding provided by non-financial Small Business Customers (SBCs) shall be treated in line with the treatment of retail deposits specified above (i).

3. Level 1 High Quality Liquid Assets (HQLA) in the form of government securities shall be valued at no more than their current market value, after applying applicable haircuts in accordance with margin requirements prescribed under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF), as mentioned in RBI circular FMOD.MAOG No.125/01.01.001/2017-18 dated June 06, 2018, (please click here) and subsequent amendments.

4. Where a deposit - previously excluded from LCR computation (non-callable fixed deposit)- is contractually pledged as collateral for a credit facility or loan, it shall be treated as callable for LCR purposes. In such cases, the provisions under Sl. No. 9 of the annexure to the circular dated March 23, 2016, (please click

   
   
   
   

   ) shall apply.

5. Revised classification of the Other Legal Entities (“OLE”) category shall include all deposits and other funding from banks, insurance companies, and non-financial institutions. Funding from non-financial entities - including trusts (educational, religious, charitable), Associations of Persons (AoPs), partnerships, proprietorships, Limited Liability Partnerships (LLPs), and other incorporated entities - shall be classified as funding from non-financial corporates and attract a run-off rate of 40% (as against the current 100%), unless such entities are classified as SBCs under the LCR framework.

Banks have been given sufficient migration time as the new norms are effective April 1, 2026. As such, the norms are positive for the banking sector. These amendments are aimed at strengthening the liquidity resilience of banks in India while aligning domestic standards with global best practices.

Large banks such as SBI, HDFC, and ICICI Bank will benefit from RBI final norms on the LCR. The norms have allowed lowering the runoff factor on deposits from non-financial entities such as trusts to 40% from 100%. Lowering the runoff factor for non-financial entities will release around Rs. 4 trillion for banks, which can be used for lending, considering deposits from those institutions amount to about Rs. 10 trillion.

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