IBA likely to seek easing of proposed norms for retail deposits: Report

The Indian Banks' Association is likely to ask the central bank to reduce the amount of additional funds lenders will need to set aside against some retail deposits and also seek a delayed and gradual implementation of the proposal, seven sources told Reuters.

The Reserve Bank of India in July proposed an additional 5 per cent 'runoff' requirement on retail deposits enabled with internet and mobile banking facilities to bolster the liquidity resilience of banks.

The RBI had sought feedback on the proposal until Aug 31, after which it would finalise them for implementation from April 2025.

The Indian Banks' Association is likely to seek an extension of the deadline for giving feedback "as the process is taking some time", a senior official aware of the development, said.

The association did not immediately respond to an email seeking comment.

"Our primary suggestion is to reduce the runoff percentage to 2 per cent or a maximum of 3 per cent, as 5 per cent is not feasible," a treasury official said. "That too should be levied incrementally... instead of at one go."

Lenders can experience 'runoff' when there are heavy withdrawals, which impact banks' liquidity coverage ratio.

Under the liquidity coverage ratio, banks are required to hold a proportion of deposits in high-quality assets such as cash, central bank reserves and federal government bonds.

If the RBI implements the draft norms as proposed, there would be a sudden rush to buy government bonds, traders said.

Market estimates pegged the additional demand for government bonds between Rs 2 trillion to Rs 4 trillion.

The banks' association is also expected to recommend the RBI allow funds parked with it under the cash reserve ratio to be counted against banks' liquidity coverage needs, all the seven sources said.

The sources requested anonymity as they are not authorised to speak to media.