RBI Proposes Additional Liquidity Buffers for Online Banking Transactions

The Reserve Bank of India (RBI) has issued draft guidelines suggesting banks allocate extra liquidity buffers for accounts with internet and mobile banking (IMB) facilities. This measure aims to mitigate risks during periods of financial stress. The guidelines follow an announcement by Governor Shaktikanta Das in the April policy review, highlighting the high usage of technological tools in banking.

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Proposed Liquidity Buffers

The draft proposes that banks assign an additional 5% run-off factor for retail deposits with IMB facilities. Stable retail deposits with IMB will have a 10% run-off factor, while less stable deposits will have a 15% run-off factor. The draft also states that unsecured wholesale funding from non-financial small business customers should be treated similarly to retail deposits.

Impact on Non-Callable Fixed Deposits

According to the draft, if a deposit previously excluded from Liquidity Coverage Ratio (LCR) computation, such as a non-callable fixed deposit, is pledged as collateral for a loan or credit facility, it should be considered callable for LCR purposes. This change aims to ensure accurate risk assessment and liquidity management.

Valuation of Government Securities

The draft guidelines also propose that Level 1 high-quality liquid assets in the form of government securities be valued at their current market value, adjusted for applicable haircuts. This valuation should align with the margin requirements under the Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF).

Applicability and Public Feedback

These new guidelines will apply to all commercial banks, excluding payments banks, regional rural banks, and local area banks. The RBI has set an implementation date of April 1, 2025. The public is invited to comment on the draft circular by August 31.

The increased use of technology in banking has made instant transfers and withdrawals possible but has also introduced new risks. The draft circular amending the 2014-issued guidelines on Basel-III Framework on Liquidity Standards highlights the need for proactive risk management due to these technological advancements.

The RBI's proposal aims to ensure that banks are better prepared to handle liquidity risks associated with IMB facilities. By assigning additional liquidity buffers, banks can safeguard against potential financial stress caused by rapid fund movements facilitated by technology.

In summary, the RBI's draft guidelines focus on enhancing liquidity risk management for accounts with IMB facilities. These measures are designed to address the challenges posed by increased technological usage in banking while ensuring financial stability.