Monetary policy: Banks get breather on draft LCR norms for at least a year

"Trade-offs between stability and efficiency will be kept in mind"

In a much-needed relief to banks regarding the impending implementation of the proposed liquidity coverage ratio (LCR) guidelines, which was to come into effect from April 1, Reserve Bank of India (RBI) Governor Sanjay Malhotra on Friday said these regulations would not be enforced before March 31, 2026.

 

Furthermore, this deadline is not a hard stop, as the RBI aims to provide banks with ample time to ensure there is no disruption.

 

Malhotra said the regulator will attempt to strike a balance between cost and benefits of regulation.

 

“Less than two months is too short a window for the banks, we realise that. So, we will give time till at least March 31, 2026. It doesn’t mean it has to be March 31, 2026. But we will aspire for that. We want to make it very smooth and it will also be phased. It will not be that all the regulations kick in from Day One, which will at the earliest be March 31, 2026,” said Malhotra, in a post policy press conference.

 

 

Additionally, on expected credit loss (ECL) and project finance norms, Malhotra said, “ECL was only a discussion paper. Even the draft (guidelines) is not out. So, there is no time frame for implementation of ECL guidelines.” He added that for project finance, banks will need more time.

 

“Moreover, they need to be seen in conjunction with each other. There is a certain amount of overlap between ECL and project finance. We will come out with something that balances the interest of the public, the depositors, financial stability, and at the same time, the concerns of banks keeping in mind the efficient use of resources,” he said.

 

According to the proposed LCR norms, issued in July 2024, banks have to assign an additional 5 per cent ‘run-off factor’ for retail deposits that are enabled with internet and mobile banking (IMB) facilities.

 

Banks had been requesting the RBI to defer the implementation of these norms. They sought implementation in a phased manner, especially at a time when liquidity in the system has been pretty tight.

 

“We have comments from the stakeholders that there may be lower liquidity requirements for some of the other deposits. We are revising our impact analysis and we will give a time frame when the LCR guidelines can be expected,” Malhotra said. 

 

Ashwini Kumar Tewari, managing director (MD), State Bank of India, said, “Banks had provided feedback to the RBI regarding the LCR norms. As of now, the decision to implement them from April 1 has been postponed. We will assess if the draft guidelines are revised based on our suggestions.”

 

“Regarding the ECL norms, significant work, particularly related to IT systems, still needs to be done, which could take anywhere from 6 to 12 months,” he added.

 

According to Suresh Ganapathy, MD, Macquarie Capital, the deferral implementation gives a good amount of breathing space (to banks). At the same time, he (RBI governor) isn’t rescinding any norms. All will be done but with more relaxed timelines and phased implementation. So, it’s looking good for banks now, especially on the liquidity front in FY26E.

 

“It will be our attempt to strike the right balance, keeping in view the benefits and costs of each and every regulation,” Malhotra further added. 

No Rush

  *  RBI to give banks ample time to ensure no disruption

  *  It looks to strike a balance between cost and benefits of regulation

  *  New norms were proposed in July 

  *  They seek banks to assign an additional 5 per cent ‘run-off factor’ for retail deposits enabled with internet and mobile banking facilities 

  *  Run-off factor is the percentage of deposits a bank expects to be withdrawn in a short-term period of stress