MUMBAI: RBI‘s new norms will now categorise money in digital accounts as ‘hot money‘ with a higher flight risk. This decision was made in light of recent developments, including last year’s crisis at Silicon Valley Bank, when deposits were withdrawn within hours of the bank showing signs of stress.
RBI’s new guidelines on liquidity coverage ratio require that banks assign a higher ‘run-off factor’ to retail deposits that can be accessed via the internet and mobile banking.This means that stable retail deposits with these facilities will now have a 10% run-off factor, and less stable ones will have a 15% run-off factor. A run-off factor is essentially the percentage of deposits that are expected to be withdrawn in a stress scenario. LCR norms are aimed at ensuring that banks have enough liquid assets to meet their short-term obligations during a financial crisis. The high-quality liquid assets include bonds that can be easily converted to cash at little or no cost. The new LCR norms will come into effect from April 1, 2025.
“Banking has undergone rapid transformation in recent years. While increased usage of technology has facilitated the ability to make instantaneous bank transfers and withdrawals, it has also led to a concomitant increase in risks, requiring proactive management,” RBI said in its circular to all banks. The central bank added that the LCR framework for banks has been reviewed in light of recent developments. The new norms also require that unsecured funding from small business customers will be treated like retail deposits, meaning that they will also have the new run-off factors applied.
RBI’s new guidelines on liquidity coverage ratio require that banks assign a higher ‘run-off factor’ to retail deposits that can be accessed via the internet and mobile banking.This means that stable retail deposits with these facilities will now have a 10% run-off factor, and less stable ones will have a 15% run-off factor. A run-off factor is essentially the percentage of deposits that are expected to be withdrawn in a stress scenario. LCR norms are aimed at ensuring that banks have enough liquid assets to meet their short-term obligations during a financial crisis. The high-quality liquid assets include bonds that can be easily converted to cash at little or no cost. The new LCR norms will come into effect from April 1, 2025.
“Banking has undergone rapid transformation in recent years. While increased usage of technology has facilitated the ability to make instantaneous bank transfers and withdrawals, it has also led to a concomitant increase in risks, requiring proactive management,” RBI said in its circular to all banks. The central bank added that the LCR framework for banks has been reviewed in light of recent developments. The new norms also require that unsecured funding from small business customers will be treated like retail deposits, meaning that they will also have the new run-off factors applied.
