RBI directs banks to increase run-off rates for digital deposits

India's central bank on Monday directed lenders to assign a lower-than-proposed buffer rate of 2.5% on digitally linked deposits, with a one-year compliance deadline, marking the latest in its ongoing regulatory easing. 

The net impact of these measures will improve banks' liquidity coverage ratio as on December-end by around 6 percentage points, the Reserve Bank of India said in a release. 

All banks would also continue to meet the minimum regulatory LCR requirements "comfortably," the central bank added.

The RBI in July proposed that banks set aside an additional 5% 'run-off factor' on digitally accessible retail deposits to better manage risks in case of quick and heavy withdrawals via internet or mobile banking. 

Lenders can experience "run-off" when individuals and businesses withdraw capital to invest in other higher-paying investments, thereby reducing the bank's total capital. 

The Indian Banks' Association had urged the RBI to lower run-off to 2% to 3% to avoid a hit to lenders' liquidity, Reuters had reported in August. 

The norms will be applicable from April 1, 2026, a year later than what was proposed earlier. 

The RBI also said banks will have to adjust the market value of bonds by applying haircuts, or valuation adjustments, which are in line with those applicable under the central bank's liquidity facilities. 

Funding from non-financial entities, such as trusts and partnerships, shall attract a lower run-off rate of 40% as against 100% currently, the RBI said. 

The RBI is "sanguine" that these measures will enhance the liquidity resilience of banks in India and further align the guidelines with the global standards in a "non-disruptive manner," it added.