{"id":46306,"date":"2025-04-22T03:56:18","date_gmt":"2025-04-21T22:26:18","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=46306"},"modified":"2025-05-17T20:58:23","modified_gmt":"2025-05-17T15:28:23","slug":"rbi-adds-2-5-liquidity-buffer-for-digital-deposits-under-new-lcr-norms","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/rbi-adds-2-5-liquidity-buffer-for-digital-deposits-under-new-lcr-norms\/","title":{"rendered":"RBI Adds 2.5% Liquidity Buffer for Digital Deposits Under New LCR Norms"},"content":{"rendered":"<h2>What\u2019s in Today\u2019s Article?<\/h2>\n<ul>\n<li>Liquidity Coverage Ratio (LCR) Latest News<\/li>\n<li>Liquidity Coverage Ratio (LCR)<\/li>\n<li>RBI Releases Final LCR Norms<\/li>\n<li>Liquidity Coverage Ratio (LCR) FAQs<\/li>\n<\/ul>\n<h2>Liquidity Coverage Ratio (LCR) Latest News<\/h2>\n<ul>\n<li>The Reserve Bank of India (RBI) has relaxed the Liquidity Coverage Ratio (LCR) norms by introducing a new requirement: banks must now assign an additional 2.5% run-off factor to retail deposits accessible via internet and mobile banking (IMB) services.<\/li>\n<li>A\u00a0<strong>run<\/strong>&#8211;<strong>off factor<\/strong>\u00a0refers to the\u00a0<strong>percentage<\/strong>\u00a0of deposits that a bank expects to be withdrawn in a short-term period of stress.<\/li>\n<\/ul>\n<h2>Liquidity Coverage Ratio (LCR)<\/h2>\n<ul>\n<li>The LCR is a regulatory standard designed to ensure that banks hold enough high-quality liquid assets (HQLAs) to cover their total net cash outflows over a 30-day stress period.\u00a0<\/li>\n<li>It acts as a financial stress test to protect against short-term liquidity disruptions.<\/li>\n<\/ul>\n<h3>Origin and Implementation<\/h3>\n<ul>\n<li>The LCR was developed by the Basel Committee on Banking Supervision (BCBS) following the global financial crisis.\u00a0<\/li>\n<li>Proposed in 2010 and finalized in 2014, the rule became fully applicable with a 100% minimum requirement in 2019.\u00a0<\/li>\n<li>It primarily applies to large banks with over $250 billion in assets or $10 billion in foreign exposure.<\/li>\n<\/ul>\n<h3>LCR Formula<\/h3>\n<ul>\n<li>LCR = High-Quality Liquid Assets (HQLA) \/ Total Net Cash Outflows (30 days)<\/li>\n<li>The ratio reflects a bank\u2019s ability to survive a liquidity crunch for 30 days without external support.<\/li>\n<\/ul>\n<h3>High-Quality Liquid Assets (HQLA)<\/h3>\n<ul>\n<li>In India, High Quality Liquid Assets (HQLA) are assets that banks and other financial institutions hold to meet short-term liquidity needs, especially during periods of stress.\u00a0<\/li>\n<li>These assets are readily convertible to cash with minimal loss in value and are considered to be low-risk and of high credit quality.\u00a0<\/li>\n<li>They serve as a safety net, ensuring institutions can meet their funding obligations promptly.<\/li>\n<li>E.g., &#8211; Cash and Balances with the RBI; Government Securities etc.<\/li>\n<\/ul>\n<h3>Limitations of LCR<\/h3>\n<ul>\n<li><strong>Reduced Lending Capacity<\/strong>: Holding excess liquidity may limit banks\u2019 ability to offer loans.<\/li>\n<li><strong>Uncertain Effectiveness<\/strong>: The real test of LCR\u2019s adequacy will come only during a future financial crisis.<\/li>\n<\/ul>\n<h2>RBI Releases Final LCR Norms<\/h2>\n<ul>\n<li>RBI has finalized and released the Liquidity Coverage Ratio (LCR) guidelines.\u00a0<\/li>\n<li>A key update includes an additional 2.5% run-off factor for internet and mobile banking (IMB)-enabled deposits of retail and small business customers.<\/li>\n<li>This is a reduction from the earlier proposed 5%.<\/li>\n<\/ul>\n<h3>Digital Deposits and Run-off Factors<\/h3>\n<ul>\n<li>IMB-enabled stable retail deposits will now attract a 7.5% run-off factor (up from 5%).<\/li>\n<li>IMB-enabled less stable deposits will have a 12.5% run-off factor (up from 10%).<\/li>\n<li>IMB includes services like internet banking, mobile banking, and UPI.<\/li>\n<\/ul>\n<h3>Implementation Timeline<\/h3>\n<ul>\n<li>The revised norms will be effective from April 1, 2026 and apply to all commercial banks, excluding payments banks, regional rural banks, and local area banks.<\/li>\n<li>During meetings with RBI in <strong>January 2025<\/strong>, both public and private banks requested a <strong>deferment<\/strong> of LCR implementation, citing preparedness concerns.<\/li>\n<li>Originally proposed in <strong>July 2024<\/strong>, the RBI had called for a <strong>5% additional run-off<\/strong> for IMB-enabled deposits, which sparked industry feedback.<\/li>\n<\/ul>\n<h3>Impact on Liquidity and Lending<\/h3>\n<ul>\n<li>The RBI estimates that the banking system\u2019s LCR will improve by 6% as of December 31, 2024.<\/li>\n<li>With Rs 45\u201350 lakh crore in HQLAs, the relaxation could free up Rs 2.7\u20133 lakh crore in lendable resources.<\/li>\n<li>This may support an additional credit growth of 1.4\u20131.5%, boosting economic activity.<\/li>\n<\/ul>\n<h2>Liquidity Coverage Ratio (LCR) FAQs<\/h2>\n<p><strong>Q1.<\/strong> What is LCR?<\/p>\n<p><strong>Ans.<\/strong> LCR ensures banks hold enough liquid assets to cover 30-day cash outflows in stress situations.<\/p>\n<p><strong>Q2.<\/strong> Why did RBI revise LCR norms?<\/p>\n<p><strong>Ans.<\/strong> To manage risks from volatile digital deposits and strengthen liquidity in digital banking systems.<\/p>\n<p><strong>Q3.<\/strong> What is the new run-off factor?<\/p>\n<p><strong>Ans.<\/strong> A 2.5% additional run-off for internet and mobile banking-enabled deposits of retail and small businesses.<\/p>\n<p><strong>Q4.<\/strong> When will the new rule be effective?<\/p>\n<p><strong>Ans.<\/strong> From April 1, 2026, across commercial banks (excluding payments and rural banks).<\/p>\n<p><strong>Q5.<\/strong> How will this impact lending?<\/p>\n<p><strong>Ans.<\/strong> Relaxed norms could unlock \u20b92.7\u20133 lakh crore in lending, boosting credit growth by 1.4\u20131.5%.<\/p>\n<p><strong>Source: <\/strong><a href=\"https:\/\/indianexpress.com\/article\/business\/rbi-mandates-2-5-additional-run-off-factor-on-digital-deposits-9957519\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a> | <a href=\"https:\/\/www.outlookmoney.com\/magazine\/money\/story\/what-is-liquidity-coverage-ratio-1664\" target=\"_blank\" rel=\"nofollow noopener\">OM<\/a> | <a href=\"https:\/\/www.rbi.org.in\/commonman\/english\/scripts\/Notification.aspx?Id=3237\" target=\"_blank\" rel=\"nofollow noopener\">RBI<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>RBI mandates a 2.5% extra run-off factor on internet and mobile banking deposits under revised LCR norms, effective April 2026.<\/p>\n","protected":false},"author":5,"featured_media":46307,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[],"class_list":{"0":"post-46306","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/46306","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=46306"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/46306\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/46307"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=46306"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=46306"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=46306"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}