RBI Revises LCR Norms: New Run-Off Rates for Digital Deposits and Trust Funding

The Liquidity Coverage Ratio (LCR) is a key regulatory standard aimed at ensuring that banks maintain a sufficient buffer of high-quality liquid assets (HQLA) to meet short-term liquidity needs during financial stress. It is a global benchmark introduced post-2008 financial crisis under Basel III norms, and is widely adopted to safeguard banking stability.

RBI’s Latest Amendments to the LCR Framework

On Monday, the Reserve Bank of India (RBI) announced amendments to its existing LCR framework. A key update involves introducing an additional 2.5% run-off rate for deposits that are accessible via internet and mobile banking. This update is applicable to both retail and small business customer deposits, indicating RBI’s growing attention to the evolving dynamics of digital banking.

Impact Analysis and Aggregate Improvements

The RBI conducted an impact assessment based on data as of December 31, 2024. According to the central bank, the net impact of these measures is an estimated 6 percentage point improvement in the LCR at the aggregate level. Despite the revisions, all banks are expected to comfortably meet the existing minimum regulatory LCR thresholds.

Aligning with Global Standards

The central bank stated that the revision will further align India’s liquidity risk management norms with global standards, such as those under Basel III. At the same time, the RBI has taken care to ensure that the transition is non-disruptive for the banking ecosystem. These enhancements aim to strengthen liquidity resilience without creating operational shocks.

Lower Run-Off Rates for Select Non-Financial Entities

Another significant change is the revision in the run-off rate for certain types of non-financial entities. Trusts (including educational, charitable and religious), partnerships, and Limited Liability Partnerships (LLPs) will now be subject to a reduced run-off rate of 40%, down from the current 100%. This suggests RBI’s recognition of the relatively stable deposit behaviour of these institutions.

Read More: RBI Governor Flags Liquidity Risks in India’s Money Market.

Conclusion

To enable a smooth transition, the RBI has provided banks with ample time to update their internal systems and processes. The revised LCR guidelines will come into effect from April 1, 2026. This advance notice ensures operational readiness while maintaining regulatory clarity.

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