RBI mandates 2.5% additional run-off factor on digital retail deposits

Effective April 1, 2026, the final norms could help free up lendable resources by almost ₹3 trillion estimates ICRA

In a relief to banks, the Reserve Bank of India (RBI) has mandated 2.5 per cent additional run-off factor for retail deposits linked to internet and mobile banking (IMB) facilities for commercial banks. 

This was stated in its final guidelines for computation of liquidity coverage ratio (LCR) compared to 5 per cent proposed in the draft norms issued in July 2024.  

In addition, funding from non-financial entities like trusts (educational, charitable and religious), partnerships and LLPs, among others, will attract a lower run-off rate of 40 per cent against 100 per cent currently. 

The impact of banks’ LCR — which they need to maintain at 100 per cent — will be much lower compared to what the draft norms proposed. 

 

These final norms, applicable to all commercial banks — excluding payments banks, regional rural banks and local area banks — will come into effect from April 1, 2026. 

“These amendments would help improve the liquidity resilience of banks in India and further align the guidelines with global standards. They will ensure that such enhancements are done in a non-disruptive manner,” the regulator said while announcing the norms. 

According to the final norms, stable retail deposits enabled with IMB will have 7.5 per cent run-off factor. 

And, less stable deposits enabled with IMB would have a 12.5 per cent run-off factor.  

This is against 5 and 10 per cent, respectively, prescribed currently. Total run-off factor will be at 20 per cent compared to 15 per cent now. 

The final norms were issued after receiving feedback on the draft proposal. Banks had opposed such a stiff increase in the additional run-off factor. Run-off factor acts as a cushion against sudden withdrawal of deposits. “According to the RBI’s estimate, the reported LCR of the banking system will improve by 6 per cent as on December 31, 2024. With estimated high quality liquid assets (HQLAs) of almost ₹45-50 trillion for the banking system, this could free up lendable resources by almost ₹3 trillion and support credit growth of banks. This headroom can be equivalent to 1.4-1.5 per cent of additional credit growth potential for the banking system,” said Anil Gupta, senior vice-president and co group head, financial sector ratings, ICRA. 

The norms further said Level 1 HQLA — in the form of government securities — would be valued at an amount not greater than their current market value. 

This would be adjusted for applicable haircuts in line with the margin requirements under the liquidity adjustment facility (LAF) and marginal standing facility (MSF). 

The central bank has been taking a series of measures to ease the liquidity situation for banks during the last few months.

And, the relaxation in the final LCR norms, as compared to the draft norms, further provides liquidity relief to banks. This is expected to boost lending.