₹3 Tn Unlocked: How Eased LCR Norms Are Rewiring India's Banking System

Liquidity Coverage Ratio (LCR): Overview

The Liquidity Coverage Ratio (LCR) is a regulatory standard under the Basel III framework, mandating banks to hold sufficient High-Quality Liquid Assets (HQLAs) to cover net cash outflows over a 30-day stress period. This ensures banks can meet short-term obligations during financial stress, enhancing overall financial stability.

LCR Ratio (in %)

ICICI Bank*	126
Yes Bank*	125
Federal Bank**	123
SBI**	136
Bank of Baroda**	124
Punjab National Bank**	129
Canara Bank**	123
Bank of Maharashtra**	136

Source: Business Standard

Note: *as of Mar 31, 2025; **as of Dec 31, 2024

As per RBI, banks are required to maintain a LCR of 100%. For instance, if a bank expects ₹150 worth outflows and ₹100 to flow in over a 30- day period, it must hold HQLAs worth ₹50 (net cash outflow) to maintain the expected shortfall. HQLAs typically include assets like government securities and AAA rated corporate bonds.

Recent Evolution of RBI’s LCR Norms

	Draft Norms – Jul 2024	Final Guidelines – Apr 2025
Implemented under RBI Governor	Shaktikanta Das	Sanjay Malhotra
Digital Deposits – Additional Run-off Factor	5%	2.5%
Run-off rate for deposits from non-financial entities	100%	40%
Effective Date	April 1, 2025	April 1, 2026
Remarks	Stricter treatment of digital deposits	Relaxation to boost credit growth; rollout deferred

 

Impact on Banking Sector and Bond Market 

• Enhanced Lending Capacity – As per research agencies including ICRA, Macquarie, and Morgan Stanley, the relaxed LCR norms are expected to free up approximately ₹2.7–3 trillion in capital, potentially boosting credit growth by 1.4–2%.
• Improved Profitability Metrics – Banks maintaining LCRs above the regulatory minimum may experience margin improvements post implementation.
• Influence on Bond Markets – The revised LCR guidelines have led to a decrease in demand for government securities. This could lead to rise in bond yields keeping other factors constant.