RBI defers rollout of LCR norms by a year to provide big relief to banks
These norms were earlier scheduled to come into effect on April 1, 2025.
RBI defers rollout of LCR norms by a year to provide big relief to banks
RBI Governor Sanjay Malhotra announced on Friday that the implementation of the proposed Liquidity Coverage Ratio (LCR), as well as project financing norms, will be deferred by a year and will not be implemented before March 31, 2026.
He said that the step has been taken as the earlier deadline of March 2025 does not give sufficient time for the implementation of these guidelines. The RBI does not want to disrupt the financial system and will ensure a smooth transition, he added.
These norms were earlier scheduled to come into effect on April 1, 2025. According to treasury officials of banks, implementing the LCR norms would, in effect, mean over Rs 4 lakh crore would have to be diverted from banks to buy government bonds instead of extending credit to corporates and individuals to boost demand in the economy and spur growth.
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Banks had asked for deferment of the norms and alternative mechanisms to cope with the likely hit that their operations would take. They were worried as they were facing a tight liquidity situation despite the daily variable repo rate auctions that the RBI started carrying out to inject more money into the system.
The RBI had on July 25 issued a draft circular which required banks to set aside more funds to cover their risks from April 1 this year. Banks were directed to assign an additional 5 percent of funds as a run-off factor for retail deposits which are enabled with internet and mobile banking facilities (IMB).
Stable retail deposits enabled with IMB shall have a 10 percent run-off factor and less stable deposits enabled with IMB shall have a 15 percent run-off factor.
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