RBI, IN DRAFT PROPOSAL ON LIQUIDITY COVERAGE RATIO (LCR) HAS PROPOSED
News: In lieu to strengthen banks liquidity in case of stress, RBI, in draft proposal on Liquidity Coverage Ratio (LCR) has proposed that banks assign additional 5% run-off factor for retail deposit enabled with mobile and internet banking (IMB) i.e IMB enabled stable retail deposit to have run-off factor of 10 and less stable deposits to have run-off factor of 15%. Additionally, unsecured wholesale funding from non-financial small business should be categorised as retail for calculation of LCR.
Views: Effective from April 2025, higher run-off factor on retail deposits will result in decline in existing LCR by 10-15% which will require banks to shore up investment in liquid assets (like G-sec) putting pressure on margins and thus earnings momentum.
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