IDBI Bank could increase rates on non-callable deposits post LCR norms

If the proposed liquidity coverage ratio (LCR) norms were to come into effect from April 1, private sector lender IDBI Bank may look at raising interest rates on non-callable deposits by 10 – 25 basis points, said a senior executive. 

  While banks have asked the RBI to implement the LCR norms in a staggered manner, RBI has so far not deferred the implementation date but has asked for more data from the banks on where they are placed as far as LCR is concerned and what would be the impact on them if the norms were to be implemented from April 1. 

 

In July 2024, RBI proposed to impose an additional run-off factor of 5 per cent on both stable and less stable retail deposits that are enabled with internet and mobile banking facilities.

Run-offs are when individuals or businesses withdraw their deposits, which are not anticipated by banks. 

 

According to the proposed norms, stable retail deposits enabled with internet and mobile banking will have a 10 per cent run-off factor, and less stable deposits will have a 15 per cent run-off factor. Current norms mandate banks to maintain a 100 per cent liquidity coverage ratio. 

 

This means the stock of high-quality liquid assets (HQLA) should be at least equal to total net cash outflows. The LCR promotes the short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient HQLAs to survive an acute stress scenario lasting for 30 days. 

 

Additionally, the proposed norms say Level 1 HQLA in the form of government securities should be valued at an amount not greater than their current market value, adjusted for applicable haircuts in line with the margin requirements under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF).