Nuvama Institutional Equities sees the Reserve Bank of India’s revised LCR guidelines as a positive surprise for the banking sector, marking a reversal from the earlier draft, which was viewed as liquidity-tightening.
Key favourable revisions include:
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Digital deposit runoff has been reduced from 5% to 2.5%.
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Wholesale funding runoff from legal entities has been cut from 100% to 40%, significantly easing liquidity requirements.
While the central bank has reiterated that Level 1 High-Quality Liquid Assets (HQLA) in the form of G-Secs will be valued at market prices minus haircuts, Nuvama notes that the sector stands to benefit overall.
The revised norms will increase sector-wide LCR by 6% as of December 2024, and all banks are now expected to meet the minimum LCR comfortably. With implementation pushed to April 1, 2026, banks have sufficient time to migrate, further enhancing the positive impact.
Nuvama concludes that these updated guidelines offer a much-needed breather for banks and support sector stability and growth.
Disclaimer: The above views are of the broker’s and not the author or the publication’s. Please make any and every investment decision after consulting your financial advisor.
