The Reserve Bank of India (RBI) has issued revised guidelines pertaining to liquidity standards, with a particular focus on the Liquidity Coverage Ratio (LCR), following feedback from stakeholders. These amendments, which will come into effect from April 1, 2026, introduce several key changes aimed at enhancing the liquidity risk management framework in alignment with global best practices.
Key revisions include:
- An increase in the run-off factor to 2.5 percent for retail deposits accessible via internet and mobile banking channels.
- The classification of unsecured wholesale funding from non-financial small businesses will now be treated on par with retail deposits.
- Level 1 High-Quality Liquid Assets (HQLA) will be valued based on their current market value, with applicable haircuts aligned with Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) margin requirements.
- Deposits that are contractually pledged as collateral will now be deemed callable for the purposes of LCR calculations.
- A reclassification of certain depositor entities: deposits from non-financial institutions such as educational, charitable, and religious trusts, partnerships, and Limited Liability Partnerships (LLPs) will now attract a reduced run-off rate of 40 percent, rather than the previous 100 percent—unless these are categorized as small business customers.
These updates are intended to strengthen the liquidity resilience of the banking sector while ensuring a smooth transition and minimizing operational disruptions.
The primary objective of the LCR is to enhance the short-term resilience of banks’ liquidity risk profiles. It does so by requiring banks to maintain an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can be readily converted into cash in private markets to meet liquidity needs under a 30-day stress scenario. By doing so, the LCR framework bolsters the banking sector’s capacity to absorb shocks arising from financial or economic stress, thereby mitigating the risk of spillovers from the financial system to the broader real economy.
