RBI announces amendments to Liquidity Coverage Ratio framework

Current Context: On April 21, 2025, the Reserve Bank of India (RBI) announced amendments to the Liquidity Coverage Ratio (LCR) framework, effective April 1, 2026, to enhance banks' liquidity resilience. 

Key changes include:

• Run-off Rates for Digital Deposits: Banks must assign an additional 2.5% run-off factor to retail and small business deposits enabled with internet and mobile banking (IMB). Stable IMB deposits now have a 7.5% run-off rate (up from 5%), and less stable ones 12.5% (up from 10%). This reflects the increased risk of rapid withdrawals via digital channels.
• Valuation of High-Quality Liquid Assets (HQLA): Government securities (Level 1 HQLA) will be valued at market value, adjusted for haircuts per Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) margin requirements.
• Pledged Deposits: Non-callable fixed deposits pledged as collateral for loans or credit facilities will now be treated as callable for LCR calculations.
• Wholesale Funding: Funding from non-financial entities (e.g., trusts, partnerships, LLPs) will have a reduced run-off rate of 40% (down from 100%).
• Impact: The RBI estimates these changes will improve banks’ LCR by ~6 percentage points based on December 31, 2024 data, with all banks meeting the minimum 100% LCR requirement comfortably.

Question:

Q.1 What is the revised run-off rate for stable retail and small business deposits with internet and mobile banking (IMB) as per the new RBI LCR norms effective April 1, 2026?
a) 5%
b) 7.5%
c) 10%
d) 12.5%

Answer: b) The RBI has added an additional 2.5% run-off factor for digitally-enabled (IMB) deposits. So, stable deposits go from 5% to 7.5% due to the increased withdrawal risk via digital channels.