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RBI tighter liquidity norms seen credit-positive for banks: Moody's

Friday, 2 August 2024


MUMBAI, Aug 01 (Reuters): The Reserve Bank of India's latest draft guidelines aimed at enhancing banks' ability to manage liquidity in the face of increasing digital transactions is credit positive, ratings agency Moody's said on Thursday.
The central bank released a set of preliminary guidelines last month, including suggesting that banks will be required to allocate an additional 5 per cent reduction in the stability of retail deposits that have internet and mobile banking access.
The guidelines will however, lead to a fall of around 15 per centage points in banks' liquidity coverage ratios (LCR), Moody's added.
LCR is a liquidity requirement for banks to maintain a certain proportion of high-quality liquid assets including cash, reserves with central banks, and federal government bonds, which can easily be converted into cash whenever needed.
The proposed tighter liquidity norms are credit positive because they will help improve banks' resilience against unexpected outflows of depositors, and improve liquidity buffers, Moody's said.
"At the system level, retail and small business deposits make up around two thirds of total deposits and we expect more than 50 per cent are IMB (internet and mobile banking)-enabled," the rating agency said.
The extent of reduction in LCR will depend on the proportion of retail and small business deposits that are enabled with IMB facilities, it added.
State-run lender Bank of Baroda expects its liquidity coverage ratio to fall by 12-15 per centage points from current 138 per cent, its CEO told Reuters on Thursday.