Brokerages pick bank stocks that will benefit from RBI LCR guidelines

RBI LCR norms: The Nifty Bank index hit a record high today as the LCR guidelines, as per analysts at CLSA, could potentially infuse liquidity worth ₹2.5 trillion in the system

RBI's new LCR norms for banks: The Nifty Bank index hit a fresh record high of 55,930 today, Tuesday, April 22, 2025, surpassing the 55,900-mark for the first time ever. This rally in the Bank Nifty index came on the back of softer-than-expected guidelines on liquidity coverage ratio (LCR) issued by the Reserve Bank of India for the banking sector on Monday.

 

On the National Stock Exchange (NSE), the Nifty Bank index gained 1.1 per cent in the intraday trade today, and surpassed the previous record high of 55,462, which it logged on Monday.

 

At 10:35 AM, nine of the 12 Nifty Bank stocks were trading higher, led by Kotak Mahindra Bank, HDFC Bank, Federal Bank, Canara Bank, Bank of Baroda, and Punjab National Bank. These stocks gained up to 2 per cent as against a 0.06 per cent rise in the benchmark Nifty50 index.

 

 

 

 

The guidelines, as per analysts at CLSA, could potentially infuse liquidity worth ₹2.5 trillion in the system, which is "modest but sentimentally positive".

 

What are RBI's guidelines on LCR norms?

As per the final guidelines issued by the RBI on April 21, 2025, the additional run-off rate on retail and small business customer deposits, that are accessible through Internet and Mobile Banking (IMB), stands at 2.5 per cent, lower than the 5-per cent rate proposed in the initial draft. Hence, stable retail deposits, enabled with IMB, shall have 7.5 per cent run-off factor and less stable deposits shall have a 12.5 per cent run-off factor.

 

A run-off factor implies the percentage of deposits that can be withdrawn by depositors in a stress scenario.

 

That apart, the RBI has withdrawn its earlier proposal to treat unsecured wholesale funding, provided by non-financial small business customers, similar to retail deposits, attracting higher run-off rates. The RBI, in fact, has reduced the run-off factor of funding from non-financial entities, including educational, charitable, and religious trusts, as well as partnerships and LLPs, to 40 per cent compared with the original 100 per cent. This will reduce the liquidity burden on banks holding such deposits/funding.

 

The final guidelines have also rolled back the earlier proposal to treat deposits pledged to avail credit as outflows in the LCR computation. This withdrawal avoids potential double counting of liquidity risk.

 

RBI on standardised haircuts on G-Secs

Under the final LCR framework, the RBI has asked banks to factor in valuation haircuts on Level 1 High-Quality Liquid Assets (HQLAs), such as G-Secs (typically 95-96 per cent of HQLA), in line with the haircut rates prescribed under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF), based on their maturity profile (ranging from 0.5 per cent for less than 1-year, 2 per cent for more than 1-year but less than 5-year, and 4 per cent for more than 5-year).

 

When will new LCR guidelines by RBI come into effect?

As per the circular issued by the Reserve Bank of India, the final guidelines pertaining to the liquidity coverage ratios of banks will come into effect from April 1, 2026, as against the previous proposal of April 1, 2025.

 

What do the revised guidelines mean for banks and the banking industry? Brokerage view:

 

CLSA

The increase in run-off rates for deposits, enabled by IMB, by 2.5 percentage points can be offset by changes made in the calculation of high-quality liquid assets (HQLA) and the run-off factor for certain other types of deposits. As per the brokerage’s initial estimates, the move could potentially increase system-wide liquidity available for redeployment by ₹2.5 trillion.

 

This means ₹2.5 trillion can be deployed into loans from G-Sec by the banking sector. This move, CLSA said, should result in net interest margin (NIM) improvement by 3 basis points for the sector.  ALSO READ | Nifty Bank up 2%, hits record high on strong Q4 results by HDFC, ICICI Bank

 

Morgan Stanley

Morgan Stanley analysts expect the liquidity coverage guidelines to benefit banks having higher shares of trust deposits, details for which may be shared during the ongoing earnings season. The global financial firm believes that the 6-percentage point LCR benefit (as per the RBI) could help accelerate loan growth by 1-2 per cent and/or improve margins by 2-4bps in FY27.

 

Macquarie

The RBI's latest guidelines on LCR could provide a strong support to the banking industry's credit cycle. The initial back of the envelope calculation suggests a ₹2.5-3 trillion increase in liquidity deployable, which implies a 1.4-1.6 per cent potential increase in credit growth.

 

Emkay Global Financial Services

Emkay Global views that while the increase in run-off factors on deposits is linked to IMB and haircuts on Level 1 HQLA, G-Secs shall still impact the LCR of banks (though by a lesser degree than draft norms); the same shall be more than offset by reduction in the run-off factor on wholesale funding from non-financial entities and should thus be net positive for most banks (except small finance banks and select small and mid-cap private banks).

 

IIFL Capital

Assuming 2 per cent HQLA haircut, 80 per cent of retail deposits have digital facilities, and decline in the blended run-off rate to 50 per cent for non-operational unsecured wholesale funding, it estimates proforma LCR to improve by 2-25 ppt (ex-ICICI Bank) for the banks under its coverage.

 

The banks with higher proportion of TASC (Trust, Association, Society, and Club) and other non-financial operational deposits are likely to benefit relatively more – Federal Bank, RBL Bank, Kotak Mahindra Bank, HDFC Bank, and Bank of Baroda.

 

Further, given the rise in proforma LCR and assuming a threshold of 120 per cent, the brokerage estimates banks’ NIM to expand by 1-18 bps and PAT benefit of 1-4 per cent.

 

Nuvama Institutional Equities

Kotak Mahindra Bank has focused on wholesale deposits recently, offering 90bps higher than peers on the ₹5-25 crore bucket. Even the CD data shows that net CD (gross CD minus CD maturing) mobilised in Q4FY25 is positive for Kotak Bank and IndusInd Bank and negative for peers.

 

These banks benefit from lower run-off on wholesale deposits, thus should benefit more from the guidelines. 

Motilal Oswal Financial Services

The revised LCR guidelines are expected to enhance banks' funding and liquidity operations. We believe AU Small Finance Bank, RBL Bank, and IndusInd Bank stand to benefit the most, given their relatively lower retail deposit base.  The RBI has already indicated that the updated LCR norms could raise the system level LCR by 6 per cent, implying that most banks could see a 3-9 per cent improvement in their individual liquidity coverage ratios (LCRs)—making the move broadly beneficial.  Besides, Motilal Oswal said while public sector banks (PSBs0 were already maintaining strong LCRs and were less impacted by the earlier draft, the revised norms will still support their ability to deploy surplus liquidity into the market. Overall, the brokerage maintains positive view on the banking sector, picking top stock picks as ICICI Bank, HDFC Bank, SBI, and AU SFB.