The Reserve Bank of India (RBI) new governor Sanjay Malhotra on Friday provided significant relief to banks by assuring that the implementation of the proposed stricter Liquidity Coverage Ratio (LCR), as well as provisioning norms for project finance and Expected credit loss (ECL) would be implemented not before March 2026 and in a phased manner.
The new governor said that the step has been taken as the earlier deadline of March 2025 does not give sufficient time for the implementation of these guidelines. The RBI does not want to cause a disruption in the financial system and will ensure a smooth transition, he added.
Malhotra underlined that while financial stability is important, the “cost of regulations” will also be looked at by the central bank under his leadership so that there is an efficient use of resources.
On the ECL, Malhotra said it is only a discussion paper and that there is an overlap with project finance which also focuses on additional provisioning. He added that both the rules will not be implemented before March 31, 2026.
As per the current timeline, the LCR norms were to come into force from April 1, 2025. The proposed LCR rules – issued in July 2024 – call for banks to assign an additional 5 percent ‘run-off factor’ for retail deposits that are enabled with internet and mobile banking (IMB) facilities. A run-off factor refers to the percentage of deposits that a bank expects to be withdrawn in a short-term period of stress.
Malhotra stated that the central bank will continue to monitor evolving liquidity and financial market conditions and proactively take appropriate measures to ensure orderly liquidity conditions as required for the system.
Rohit Arora, CEO & Co-Founder, Biz2X & Biz2Credit said, “From a credit and lending perspective, the RBI has vouched for stability and consumer confidence with reforms such as Expected Credit Loss framework (ECL). By provisioning such norms and ensuring financial institutions to keep a buffer for potential loan defaults, the RBI is tackling two broader themes. Primarily, a well-implemented ECL system provides smooth credit availability to MSMEs with good financial health. With this, banks could assess risk better. Secondly, a probable relaxation in LCR norms means flexibility to lend which helps MSMEs sort out their working capital requirements.”
