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Informist, Thursday, Aug 1, 2024

 

--Moody's: RBI liquidity norms to lower banks' LCR by around 1500 bps 
--Moody's: Liquidity norms to aid bks resilience vs unexpected outflow 
--Moody's: RBI's proposed liquidity norms to increase cost of deposits 
--Moody's: RBI's proposed liquidity norms to reduce credit growth 
--Moody's: RBI's proposed tighter liquidity norms credit positive 
 

The profitability of Indian banks will remain robust despite the Reserve Bank of India's draft liquidity guidelines, which are expected to hamper the credit growth and increase the cost of deposits of banks, according to Moody’s Ratings. 

 

The RBI's proposal for tightening liquidity requirements for Indian banks by modifying the calculation of their liquidity coverage ratios is credit-positive for banks' funding and liquidity, the rating agency said in a report. 

 

The draft guidelines, issued last week, proposed an additional 5% run-off factor in the outflow calculation for retail and small business deposits with internet and mobile banking facilities. Widespread adoption of digital banking makes bank deposits vulnerable to rapid withdrawals in times of stress, and tighter liquidity norms will improve banks' resilience to such unexpected outflows, Moody's said.

 

Banks will have to boost their holdings of high-quality liquid assets to maintain the liquidity coverage ratio, which will improve liquidity buffers, the rating agency said. "We expect banks to taper credit growth ahead of the measure's proposed implementation on 1 April next year, which will improve their credit-to-deposit ratios."

 

At the system level, retail and small business deposits make up around two-thirds of total deposits, and Moody's expects more than 50% to be enabled with internet and mobile banking facilities.

 

Indian banks reported a liquidity coverage ratio of 130% in Jan-Mar, compared with the regulatory requirement of 100%, and typically have an internal liquidity coverage ratio threshold 10-15?ove the regulatory requirement, the report said. It expects the new norms to reduce the liquidity coverage ratio of banks by 15%.

 

RBI also proposed that the level 1- high quality liquid assets should be valued at the current market value and attract haircuts as mentioned under the margin requirements for its Liquidity Adjustment Facility and Marginal Standing Facility. Moody's said that they do not expect the proposed change to have a significant effect on high quality liquid assets.  End

 

Reported by Kshipra Petkar

Edited by Saji George Titus

 

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