RBI's new liquidity norm to free up $35 billion, likely boosting credit growth
The
Reserve Bank of India
's relatively relaxed final guidelines on banks'
liquidity coverage ratio
(LCR) is expected to free up capital worth up to 3 trillion rupees ($35.24 billion) that could boost
credit growth
by as much as 2 percentage points, analysts said.
On Monday, the
RBI
lowered the proportion of
high-quality liquid assets
(HQLA) - cash, central bank reserves and federal government bonds - that banks are required to hold against digitally linked deposits, saying the net impact will improve banks' LCR by around 6 percentage points as of December-end.
India's banking system, which has an estimated HQLA of almost 45 trillion rupees to 50 trillion rupees, could have an additional 2.7 trillion rupees to 3 trillion rupees in lendable resources, said Anil Gupta, senior vice president and co-group head - financial sector ratings,
ICRA
.
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This is equivalent to 1.4-1.5 percentage points of additional credit growth potential, he said.
Macquarie's estimation of additional deployable liquidity also came in around 2.5-3 trillion rupees, implying a potential increase between 1.4-1.6 percentage points in credit growth for the banking system.
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Morgan Stanley
analysts, in a note, estimated an additional loan growth of 1-2 percentage points.
Slowing credit growth has remained a major cause of concern for Indian lenders and the RBI at a time when the authorities are looking to push growth.
Loan growth at
Indian banks
moderated for an eighth straight month in February, as per central bank data. Earlier this month,
HSBC
cut its credit growth estimate for the last financial year to 11.5% from 12.5%.
The guidelines would be implemented from April 1, 2026, a year later than what was proposed earlier, with the RBI saying that all banks will continue to meet the minimum regulatory requirements comfortably until the implementation.
Morgan Stanley expects some benefits to be visible in the earnings for the current financial year as lenders have been maintaining the LCR at 115%-130% against a requirement of 100%. The brokerage also estimated margin improvement of around 2-4 basis points after the implementation.
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