Moody’s stated on Thursday that the Reserve Bank of India’s latest draft guidelines, which aim to improve banks’ ability to manage liquidity in the face of increased digital transactions, are credit positive.
Last month, the central bank issued a set of preliminary guidelines, which suggested that banks would be compelled to allocate an additional 5% reduction in the stability of retail accounts with online and mobile banking access.
The guidelines will however, lead to a fall of around 15 percentage points in banks’ liquidity coverage ratios (LCR), Moody’s added.
LCR is a liquidity requirement for banks to maintain a certain proportion of high-quality liquid assets including cash, reserves with central banks, and federal government bonds, which can easily be converted into cash whenever needed.
The proposed tighter liquidity norms are credit positive because they will help improve banks’ resilience against unexpected outflows of depositors, and improve liquidity buffers, Moody’s said.
“At the system level, retail and small business deposits make up around two thirds of total deposits and we expect more than 50 per cent are IMB (internet and mobile banking)-enabled,” the rating agency said.
The extent of reduction in LCR will depend on the proportion of retail and small business deposits that are enabled with IMB facilities, it added.
State-run lender Bank of Baroda expects its liquidity coverage ratio to fall by 12-15 percentage points from current 138 per cent, its CEO told Reuters on Thursday.
“We expect banks to taper credit growth ahead of the measure’s proposed implementation on April 1 next year, which will improve their credit to deposit ratios,” Moody’s said.
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