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RBI directs banks to increase run-off rates for digital deposits
India's central bank on Monday directed lenders to assign a lower-than-proposed buffer rate of 2.5% on digitally linked deposits, with a one-year compliance deadline, marking the latest in its ongoing regulatory easing.
The net impact of these measures will improve banks' liquidity coverage ratio as on December-end by around 6 percentage points, the Reserve Bank of India said in a release.
All banks would also continue to meet the minimum regulatory LCR requirements "comfortably," the central bank added.
The RBI in July proposed that banks set aside an additional 5% 'run-off factor' on digitally accessible retail deposits to better manage risks in case of quick and heavy withdrawals via internet or mobile banking.
Lenders can experience "run-off" when individuals and businesses withdraw capital to invest in other higher-paying investments, thereby reducing the bank's total capital.
The Indian Banks' Association had urged the RBI to lower run-off to 2% to 3% to avoid a hit to lenders' liquidity, Reuters had reported in August.
The norms will be applicable from April 1, 2026, a year later than what was proposed earlier.
The RBI also said banks will have to adjust the market value of bonds by applying haircuts, or valuation adjustments, which are in line with those applicable under the central bank's liquidity facilities.
Funding from non-financial entities, such as trusts and partnerships, shall attract a lower run-off rate of 40% as against 100% currently, the RBI said.
The RBI is "sanguine" that these measures will enhance the liquidity resilience of banks in India and further align the guidelines with the global standards in a "non-disruptive manner," it added.
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Time of India
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Dr Rao is currently teaching risk management in the institute of Insurance and Risk Management (IIRM). A career banker with Bank of Baroda, he held the position of General Manager - Strategic Planning, Later was Associate Professor with National Institute of Bank Management (NIBM) and was Director, National Institute of Banking Studies and Corporate Management (NIBSCOM). He writes for financial dailies on Banking and Finance and his work can be viewed in the public academic accomplishments include Ph.d in commerce from Banaras Hindu University (BHU), MBA ( Finance), LLB. He runs a Youtube channel - Bank on Me - Knowledge series He likes to share his perspectives with next generation potential leaders of the banking industry. His book on "Transformation of Public Sector Banks in India' was published in september 2019. His most interesting work is in blog. LESS ... MORE Analysis of reasons for front-loading the repo cut by 50 basis points reflects the strategic move of the RBI to pave the way to close the output gap and harness full potential growth. The entire reinforcing measures of the monetary policy are intended to activate the adrenaline of the various sectors of the economy to ensure that the growth reaches an aspirational trajectory of 8 percent. The proactive measures signal that there may not be further rate cuts in the next policy review in August 2025. During FY26, there could be further softening of interest rates if inflation continues to be benign and the growth rate remains below its potential. The data will be closely monitored to read the pulse of the economy to align monetary policy tools. The present repo rate cut will lower the borrowing costs of enterprises and retail borrowers, which should lead to capacity expansion, diversification, and a revival of private investments. 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