MUMBAI, Sept 11 (Askume) – India’s central bank will stick to its plan to let lenders set aside more funds for digitally-linked deposits, three people familiar with the matter told Askume, while industry leaders have called for keeping buffers low to avoid hitting their liquidity.
In July, the Reserve Bank of India (RBI) proposed that banks impose an additional 5% “run-off coefficient” on digital retail deposits to mitigate the risk of rapid and large withdrawals through the internet or mobile banking.
The norms, which will be implemented from April next year, are expected to impact banks’ liquidity coverage ratio (LCR) — the number of highly liquid assets available to meet short-term obligations — which is the main reason why Indian Bank IBA has urged it to reduce the runoff to 2% or 3%, sources said.
But a source familiar with RBI’s thinking said the RBI is unlikely to accept the proposal and expects the final rules to be based on “status quo”.
“I would be surprised if the RBI decides to accept the IBA’s recommendation on runoff factors,” said another person aware of the discussions.
The closure of Silicon Valley Bank in March last year due to a drop in deposits worried regulators around the world, especially given banks’ growing reliance on digital operations, the first source said.
Moody’s estimates that retail and small business accounts account for about two-thirds of total deposits in India, of which more than 50% can be accessed digitally .
A third person familiar with the matter said the proposed rules take into account the liquidity conditions of all banks and 5% “doesn’t seem like too much.”
However, a fourth person aware of the discussions said the RBI may consider gradually increasing the runoff coefficient.
The sources declined to be named as they were not authorised to speak to the media. The Reserve Bank of India did not immediately respond to an email seeking comment.
Analysts expect demand for government bonds to rise once the proposed norms come into effect given the need for banks to manage their liquidity.
Rating agency ICRA estimates that systemic demand for government securities could increase by about Rs 4 trillion given a 10% drop in banks’ LCR.
The RBI is still collecting feedback and will review it before finalising the top management criteria, a fifth person familiar with RBI’s thinking said.
