LCR Norms
Finance ministry favours staggered rollout of new LCR norms for banks, says official
This story was originally published at 10:12 IST on 23 October 2024
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--Govt source: In favour of staggered implementation of new LCR norms
--CONTEXT: New LCR norms for banks to come into effect from Apr 1
--Govt source: Have written to RBI conveying our views on draft LCR norms
--Govt source: Banks have sought phased, delayed rollout of new LCR norms
--Govt source: Implementing new LCR norms in one go would hurt credit growth
--Govt source: Need a banking system that is ready to lend
By Priyasmita Dutta and Sagar Sen
NEW DELHI - In a move that may give some comfort to banks, the government's Department of Financial Services has written to the Reserve Bank of India and pitched for staggered implementation of the proposed Liquidity Coverage Ratio norms, a senior finance ministry official said. According to the official, who requested anonymity, the ministry's view is aligned with that of banks, which have raised concerns that adoption of the new guidelines in one go could hurt credit growth.
"We are completely against the implementation of liquidity coverage ratio norms at one go. If at all, it should be done in a staggered manner, and we have communicated our view to the regulator," the official told Informist, adding that the ministry is in constant touch with the RBI on the matter.
On Jul. 25, the RBI released its draft guidelines, which proposed that banks should assign an additional 5% run-off factor to internet and mobile banking-enabled retail deposits. It also proposed tighter norms to value banks' High-Quality Liquid Assets, among other changes. Currently, banks must maintain High-Quality Liquid Assets worth 100% of their expected outflows for the next 30 days.
The tweaks proposed by the RBI are seen pushing up expected outflows. This will, in turn, lead to an increase in the requirement of High-Quality Liquid Assets, which primarily include government securities.
The central bank had invited comments on the new regulations by Aug. 31 with a view to implement them starting 2025-26 (Apr-Mar). However, banks have argued that the added burden of the new regulations--which come at a time when lenders are witnessing weak deposit growth--would hamper their ability to lend. A fall in credit growth, the finance ministry official said, would be detrimental to the banking ecosystem.
"We need a banking system that is ready to lend," the official said, adding that a staggered implementation of the new norms will give banks more time to adjust. Banks have voiced their concerns to the finance ministry individually and through the Indian Banks' Association, asking for a gradual increase in the run-off factor by 5%. Further, they want to delay the implementation, the official said.
"We have told the RBI what our view is. Right now, these are draft norms. The RBI will come out with the final regulations and that's when we will know the deadline." The central bank has so far not given any indication of reconsidering the draft norms, the official added.
Banks that typically maintain a Liquidity Coverage Ratio that is around 20% in excess of the requirement, are predicting the new norms would reduce their ratios by nearly 20 percentage points. In their post Apr-Jun earnings calls in July, IndusInd Bank, Indian Bank, and Punjab National Bank had said the impact of the new norms would be around 4-5 percentage points on their Liquidity Coverage Ratio, while Canara Bank saw it at 10-11 percentage points. At the higher end were Bank of India (10-15 percentage points) and Bank of Baroda (12-14 percentage points).
According to ratings agency ICRA, banks may moderate their credit growth targets in the run-up to the proposed implementation of new norms, resulting in a better credit-deposit ratio and liquidity buffers. End
Edited by Vandana Hingorani
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