LCR buffers high at most banks, may dip once new rules kick in
liquidity coverage ratio (LCR) buffer in anticipation of tighter central bank norms kicking in next fiscal, with analysts anticipating a shrinkage in the buffer once the exact thresholds are known.
Bankers expect that the higher buffer will decrease once the final circular is published by the Reserve Bank of India (RBI), most likely by December for implementation from next fiscal. Analysts expect a reduction in LCR by 7 to 10 percentage points from current levels.
As of now, banks are mandated by the RBI to maintain 100% LCR, which is made up of high-quality liquid assets (HQLA), mainly consisting of government securities and publicly traded common stocks. Most banks have an LCR of about 120%, with some private banks maintaining this buffer over 130%.
Banking norms after the financial crisis require banks to maintain investments in assets that can be quickly converted into cash to fund sudden cash outflows in stressed conditions to maintain normal operations at least for 30 days. In July, the RBI proposed to increase LSR requirements by 5 percentage points to cover run-off factors in retail deposits that have internet and mobile banking.
However, most banks in India are over the minimum required limits. HDFC Bank, India's largest private lender has an LCR of 128% as of the September quarter, up from 123% in the previous quarter, and 110% a year ago. Kotak Mahindra Bank's LCR improved to 136% in September 2024 from 127% a year ago.
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