The Reserve Bank of India’s (RBI) final guidelines on the Liquidity Coverage Ratio (LCR) framework are expected to boost credit growth by 1–1.5%, according to brokerages. The softer-than-expected norms could unlock Rs 2–3 lakh crore, which can be deployed for lending. A lower run-off factor will also provide fillip to net interest margins of banks. With the final norms offering relief, banking stocks rose up to 2% on the National Stock Exchange. The Bank Nifty touched an all-time closing high of 55,647, up 342.70 points, or 0.62%, on Tuesday.
Macquarie said that the final guidelines is expected to release Rs 2.5–3 lakh crore of deployable liquidity, translating into a potential 1.4–1.6% boost to credit growth. 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 expects a margin improvement of around 2–4 basis points following the implementation, along with a 1–2% increase in loan growth.
The RBI released final LCR framework guidelines on Monday, mandating additional 2.5% liquidity buffer rate to internet and mobile banking-enabled retail and small business customer deposits from April 1 next year to stave off any possible risks during times of stress. In July last year, the RBI had proposed an additional 5% run-off factor, which means the probability of deposits getting withdrawn, including in stressed situations. Banks’ credit growth has moderated to 12% in FY25 from around 15% in FY23.
According to experts, banks with higher level of wholesale deposits will be benefiting as the RBI has prescribed lower run-off factor for these deposits. Wholesale deposits from legal entities including trusts, educational institutes, partnerships, LLP will have a lower run-off of 40% from 100%. This benefit was not part of the draft but has been introduced in the final guidelines.
CLSA has estimated a Rs 2.5 lakh-crore release in excess high-quality liquid assets, which banks could redeploy into loans.
According to ICRA, banking system has HQLA of almost Rs 45-50 lakh crore for the banking system and this could free up lendable resources by almost Rs 2.7-3 lakh crore. This has potential to boost credit growth by 1.4-1.5 %, it said.
“The final LCR norms are less strict compared with the draft of Jul-24. More importantly, they are more positive than existing norms because the RBI has stated that banks at an aggregate level would improve LCR by 6% if these norms were applied on December 31, 2024 data and every bank would meet the minimum LCR of 100%,” said Nuvama Institutional Equities in a report.