New LCR Norms - Business Outrank

India’s banking sector received new optimism through RBI when it adopted changes to the liquidity coverage ratio (LCR) framework. Banks now have more flexibility to manage their funds under new guidelines which major brokerages view as very positive. The Bank Nifty index increased 1% during April 22 while Kotak Mahindra Bank and HDFC Bank demonstrated strong growth of 2% each. The RBI has established a new 2.5% buffer requirement for digitally linked deposits which is lower than its initial proposal and has a one-year compliance deadline. The LCR will increase by six percentage points in the December-end snapshot when these changes go into effect on April 1, 2026 according to the RBI. The reduction of the LCR run-off rate on certain deposits from 100% to 40% by Jefferies suggests that Rs 3-3.5 lakh crore worth of banking liquidity can become available. Macquarie predicts the system-wide LCR will increase by 600 basis points because of this change which will drive credit growth capacity to 140-160 basis points. Bernstein agreed with the assessment which demonstrated that banks with larger retail and wholesale deposit shares will derive the most advantage. Public sector banks together with large private banks such as Kotak Mahindra Bank HDFC Bank and State Bank of India will receive the most benefits from these changes. During April 22 at 11:20 AM Bank Nifty maintained a 570-point gain at 55,875. The top-performing banks included Canara Bank which increased by 3% followed by Bank of Baroda with a 2.7% rise while Kotak Mahindra Bank and HDFC Bank each gained 2%. The RBI modified market valuation rules for bonds through the implementation of bond haircuts which correspond to its liquidity facility rules. The RBI reduced funding run-off rates from non-financial entities to 40% from 100% to lower fundraising costs and simplify the process. The RBI maintains its confidence that carefully implemented measures will enhance bank liquidity resilience while achieving worldwide standards while preserving market stability.

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