G-sec demand may rise by Rs 4-5 lakh cr as new LCR norms come into play
government securities is expected to rise between ₹4 lakh crore and ₹5 lakh crore, with the banking regulator proposing to revise norms on the computation of Liquidity Coverage Ratio (LCR), said officials from rating companies and bank analysts.
The LCR norms are tweaked to ensure banks are resilient in case they face a run-off on their deposits amid increased technology use that enables fund transfer 24x7.
The new norms would also impact net interest margins (NIM) as the stock of low yielding g-sec rises in banks' books, and intensify competition for retail deposits, the people cited above said.
Late Thursday night, the RBI tightened the LCR guidelines wherein it proposed to impose an additional run-off factor on stable and less stable deposits.
The run-off factor implies the percentage of deposits withdrawn by the depositor, which a bank did not anticipate. LCR refers to a stock of high-quality liquid assets (HQLA)-primarily government securities-that banks must maintain to tide over a hypothetical 30-day stress scenario in which outflows occur.
As per the current regulations, banks must have HQLA equivalent to 100% of the next 30 days' outflow (deposits and other borrowings). Most banks have an internal threshold ranging from 110% to 120%.
Bank analysts and rating agencies estimate that LCR could fall between 8% and 20%-varying from bank to bank- from the current level. Thus, to retain the current level of internal threshold, they will need to buy Rs 4-5 lakh crore HQLA.
«A 10% decline in reported LCR may
